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As filed with the Securities and Exchange Commission on November 4, 2005 |
Registration No. 333- |
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
CARDICA, INC.
(Exact
name of Registrant as specified in its charter)
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Delaware |
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3841 |
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94-3287832 |
(State or other jurisdiction of |
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(Primary Standard Industrial |
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(I.R.S. Employer |
incorporation or organization) |
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Classification Code Number) |
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Identification Number) |
900 Saginaw Drive
Redwood City, California 94063
(650) 364-9975
(Address, including zip code, and telephone number, including area code,
of Registrants principal executive offices)
Bernard Hausen, M.D., Ph.D.
Chief Executive Officer
Cardica, Inc.
900 Saginaw Drive
Redwood City, California 94063
(650) 364-9975
(Name, address, including zip
code, and telephone number, including area code, of agent for service)
Copies to:
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Nancy Wojtas, Esq. |
Guy Molinari, Esq. |
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Cooley Godward LLP |
Stephen Thau, Esq. |
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Five Palo Alto Square |
Heller Ehrman LLP |
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3000 El Camino Real |
7 Times Square |
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Palo Alto, California 94304-2155 |
New York, NY 10036 |
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(650) 843-5000 |
(212) 832-8300 |
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
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CALCULATION OF REGISTRATION FEE |
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Title of
Each Class of Securities
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Proposed Maximum
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Amount of
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Common Stock, $0.001 par value |
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$ |
40,000,000 |
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$ |
4,708.00 |
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(1) |
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. In accordance with Rule 457(o), the number of shares being registered and the proposed maximum offering price per share have been omitted from this table. |
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.
The information in this prospectus is not complete and may be changed without notice. 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 is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED November 4, 2005
PRELIMINARY PROSPECTUS
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Shares |
Cardica, Inc.
Common Stock
We are
offering shares
of our common stock. This is our initial public offering, and no public market
currently exists for our shares. We anticipate that the initial public offering
price for our shares will be between $ and $ per
share. We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol CRDC.
Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully consider the risk factors described in Risk Factors beginning on page of this prospectus.
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Per
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Total |
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Public offering price |
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$ |
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$ |
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Underwriting discount |
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$ |
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$ |
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Proceeds, before expenses, to Cardica, Inc. |
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$ |
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$ |
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The underwriters may also purchase up to an additional shares from us at the public offering price, less the underwriting discount, within 30 days after the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about , 2005.
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A.G. EDWARDS |
ALLEN & COMPANY LLC |
The date of this prospectus is , 2005.
TABLE OF CONTENTS
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Page |
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1 |
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6 |
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22 |
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23 |
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23 |
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24 |
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25 |
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27 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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37 |
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60 |
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70 |
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74 |
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76 |
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80 |
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82 |
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85 |
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85 |
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85 |
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F-1 |
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any person to provide you with different information. This prospectus is not an offer to sell, nor is it an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.
Before you decide to invest in our common stock, you should read the entire prospectus carefully, especially Risk Factors and the consolidated financial statements and related notes. References in this prospectus to we, us and our refer to Cardica, Inc. unless the context requires otherwise.
Cardica, Inc.
We design and manufacture proprietary automated anastomotic systems used by surgeons to perform coronary artery bypass surgery. In coronary artery bypass grafting, or CABG, procedures, veins or arteries are used to construct bypass conduits to restore blood flow beyond closed or narrowed portions of coronary arteries. Our first two products, the C-Port® Distal Anastomosis System, referred to as the C-Port system, and the PAS-Port® Proximal Anastomosis System, referred to as the PAS-Port system, provide cardiovascular surgeons with easy-to-use, automated systems to perform consistent, rapid and reliable connections, or anastomoses, of the vessels, which surgeons generally view as the most critical aspect of the CABG procedure. Our C-Port system received the European Unions CE Mark in April 2004 and is currently under review by the Food and Drug Administration, or FDA, for 510(k) clearance in the United States. Our PAS-Port system received the CE Mark in March 2003, regulatory approval in Japan in January 2004, and we have received from the FDA conditional approval of an Investigational Device Exemption to conduct a prospective randomized clinical trial for 510(k) clearance in the United States. As of September 30, 2005, more than 2,400 PAS-Port systems had been sold in Europe and Japan, and it has been used in over 130 hospitals in Japan.
According to the American Heart Association, approximately 13 million Americans have coronary artery disease, and approximately 500,000 people in the United States die each year as a result of the disease. Physicians and patients may select among a variety of treatments to address coronary artery disease, including pharmaceutical therapy, balloon angioplasty, stenting, and CABG procedures, with the selection often depending upon the stage of the disease and the age of the patient. An independent study comparing CABG and implantation of conventional stents shows that CABG is the more effective treatment for coronary artery disease, achieving the best long-term patient outcomes as measured by survival rate and need for re-intervention. Moreover, patients with severe and multi-vessel coronary artery disease often cannot be effectively treated with methods other than CABG. An estimated 260,000 CABG procedures will be performed in the United States in 2005, and we estimate these procedures will require approximately 1.2 million anastomoses.
Our Solutions
The current method of performing an anastomosis in a CABG procedure utilizes technically demanding, tedious and time-consuming hand-sewn sutures to connect a bypass graft vessel to the aorta and to small diameter coronary vessels. By replacing the hand-sewn sutures with an easy-to-use, highly reliable and reproducible automated system, our C-Port and PAS-Port systems can, we believe, improve the quality and consistency of the anastomoses, decrease the time required for completing the anastomoses, and ultimately contribute to improved patient outcomes. We have designed our products to address the needs of surgeons in the following ways:
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Our products minimize trauma to both the graft and target vessel and can be used without interrupting blood flow in the coronary artery or clamping the aorta, which can lead to complications. Our C-Port system creates compliant anastomoses, which potentially allow the shape and size of the anastomosis to adapt to changes in blood flow and pressure. |
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Our products are easy to use and create anastomoses more rapidly than hand suturing. |
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Our products enable consistent, reproducible results, largely independent of surgical technique and skill set. In comparison with hand-sewn sutures, our systems offer mechanically governed repeatability and reduced procedural complexity. |
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Our products can help to expedite the CABG procedure, potentially contributing to reduced operating room time and associated expenses. To the extent use of our products decreases complications, post-operative costs of a CABG procedure may be significantly reduced. |
1
Our Strategy
Our goal is to become the leading provider of automated anastomotic systems for cardiac bypass surgery and to position our proprietary technology to become the platform for use in minimally invasive and eventually endoscopic cardiac procedures. For CABG to be a more attractive treatment alternative, surgeons must strive to decrease the invasiveness and trauma associated with current procedures by introducing endoscopic or keyhole surgery for CABG, similar to the success seen in laparoscopic or arthroscopic procedures over the past decade. We believe that our anastomotic technology will become a key enabling technology for endoscopic CABG.
The principal elements of our strategy include:
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Driving market adoption of the C-Port and PAS-Port systems . If we receive FDA clearance or approval for these products, we intend to drive commercial adoption of our C-Port and PAS-Port systems by marketing them as integrated anastomotic tools for use in CABG. We believe that continued collection of clinical data from our product trials as well as post-marketing studies, together with evidence of the cost-effective nature of our systems, will be key factors in driving physician adoption. |
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Expanding our sales and marketing effort . If we receive clearance from the FDA to market our C-Port system, we plan to build a direct sales force in the United States that will target top-tier cardiac surgery centers. We also intend to increase the number of distributors carrying our products in Europe and Asia. If we obtain FDA clearance or approval to market our PAS-Port system, the same sales force will be responsible for selling this and potentially other future products in the field of cardiac surgery. |
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Capitalizing on our proprietary technology to develop next-generation products for endoscopic cardiac procedures . We believe that the evolution of minimally invasive cardiac bypass procedures offering faster post-operative patient recovery times, long-term graft patency and a low incidence of adverse outcomes could increase the number of CABG procedures performed. To help propel the effort toward more viable cardiac endoscopic procedures, we plan to develop flexible, next-generation automated anastomotic systems designed to facilitate minimally invasive endoscopic CABG. |
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Leveraging our core competency to develop innovative products for other surgical applications . We believe that our core technology, which comprises extensive technological innovations, can be adapted for a variety of surgical applications and disease indications, and we are currently developing products for use in other applications, such as vascular closure. |
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Establishing a strong proprietary position . As of September 30, 2005, we had 29 issued U.S. patents, 62 additional patent applications in the United States and another six patent applications filed in selected international markets. We plan to continue to invest in building our intellectual property portfolio. |
Risks
Our business is subject to a number of risks, which you should be aware of before making an investment decision. These risks are discussed more fully in Risk Factors. We have only recently begun to commercialize our C-Port and PAS-Port systems, and it is possible that hospitals or physicians will not adopt our products for clinical use. Additionally, we have not obtained FDA clearance or approval to market any of our products in the United States, and even if we obtain FDA clearance or approval, we may not successfully commercialize any of our products in the United States. As of June 30, 2005, we had incurred $48.0 million in net losses since inception. We expect to continue to incur additional, and possibly increasing, losses through at least 2006, and we may never become profitable.
Corporate Information
We were incorporated in Delaware in October 1997 as Vascular Innovations, Inc. and changed our name to Cardica, Inc. in November 2001. Our principal executive offices are located at 900 Saginaw Drive, Redwood City, California 94063 and our telephone number is (650) 364-9975. We are located on the world wide web at cardica.com . The information contained on our website is not a part of this prospectus.
Cardica ® , C-Port ® and PAS-Port ® are our registered trademarks and C-Port xA, C-Port Flex A and X-Port are our common law trademarks. This prospectus also refers to trademarks and trade names of other organizations.
2
The Offering
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Common stock offered by us |
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shares |
Common stock to be outstanding after this offering |
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shares |
Estimated initial public offering price per share |
$ to $ |
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Use of proceeds |
We intend to use the net proceeds from this offering for sales and marketing initiatives, research and development activities, and general corporate purposes. See Use of Proceeds. |
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Proposed Nasdaq National Market symbol |
CRDC |
The number of shares of our common stock referred to above that will be outstanding immediately after completion of this offering is based on 5,258,766 shares of our common stock outstanding as of September 30, 2005 and also reflects the automatic conversion of our preferred stock into 12,778,126 shares of common stock. This number does not include, as of September 30, 2005:
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2,700,264 shares of common stock issuable upon exercise of outstanding options, at a weighted average exercise price of $0.77 per share; |
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469,551 shares of common stock issuable upon the exercise of outstanding warrants, at a weighted average exercise price of $3.33 per share; and |
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up to 320,970 additional shares of our common stock reserved for issuance under our 1997 Equity Incentive Plan. |
Subject to the completion of this offering, we have reserved an additional 1,200,000 shares of common stock for issuance under our 2005 Equity Incentive Plan. In addition, we have agreed to issue an additional shares if the underwriters exercise their over-allotment option in full, which we describe in Underwriting. If the underwriters exercise this option in full, shares of common stock will be outstanding after this offering, assuming an offering price of per share.
Unless we indicate otherwise, all information in this prospectus:
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gives effect to the conversion of all outstanding shares of our preferred stock into 12,778,126 shares of our common stock upon the completion of this offering; |
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does not reflect any conversion or exercise of outstanding warrants or options to purchase shares of our common stock; and |
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assumes that the underwriters do not exercise their over-allotment option to purchase additional shares in the offering. |
3
Summary Financial Data
(In thousands, except share and per share
data)
The historical summary financial data set forth below for the years ended June 30, 2003, 2004 and 2005 are derived from our audited financial statements included elsewhere in this prospectus. You should read the information contained in this table in conjunction with our financial statements and related notes, Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical financial results are not necessarily indicative of results to be expected in future periods.
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Year ended June 30, |
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2003 |
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2004 |
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2005 |
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Statement of Operations Data: |
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Revenue: |
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Product revenue, net |
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$ |
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$ |
212 |
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$ |
719 |
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Product revenue from related party, net |
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401 |
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1,027 |
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Development revenue from related party |
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223 |
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310 |
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Total net revenue |
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836 |
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2,056 |
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Operating costs and expenses: |
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Cost of product revenue (includes related-party costs of $1,377 in 2004 and $1,180 in 2005)(1) |
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2,105 |
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2,478 |
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Research and development(1) |
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6,698 |
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5,826 |
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6,289 |
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Selling, general and administrative(1) |
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1,936 |
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1,809 |
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3,753 |
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Total operating costs and expenses |
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8,634 |
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9,740 |
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12,520 |
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Loss from operations |
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(8,634 |
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(8,904 |
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(10,464 |
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Interest income |
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294 |
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209 |
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305 |
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Interest expense (includes related-party interest expense of $539 in 2004 and $897 in 2005) |
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(885 |
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(2,001 |
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(1,048 |
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Other income (expense) (includes $250 from related party in 2005) |
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(14 |
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257 |
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Net loss |
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$ |
(9,225 |
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$ |
(10,710 |
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$ |
(10,950 |
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Basic and diluted net loss per share |
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$ |
(2.62 |
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$ |
(2.75 |
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$ |
(2.60 |
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Shares used in computing basic and diluted net loss per share |
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3,527 |
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3,897 |
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4,204 |
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Pro forma basic and diluted net loss per share (unaudited) (2) |
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$ |
(0.64 |
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Shares used in computing pro forma basic and diluted net loss per share (unaudited) |
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16,982 |
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(1) |
Includes non-cash stock-based compensation of the following: |
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Year ended June 30, |
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2003 |
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2004 |
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2005 |
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Cost of product revenue |
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$ |
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$ |
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$ |
52 |
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Research and development |
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67 |
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67 |
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583 |
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Selling, general and administrative |
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288 |
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145 |
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2,010 |
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Total |
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$ |
355 |
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$ |
212 |
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$ |
2,645 |
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(2) |
See our financial statements and related notes included elsewhere in this prospectus for the calculation of pro forma net loss per share. |
4
The following table presents summary balance sheet data on an actual basis and on a pro forma as adjusted basis. The pro forma as adjusted numbers reflect:
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the conversion of all of our preferred stock into an aggregate of 12,778,126 shares of common shares immediately prior to the closing of this offering; and |
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the sale of shares of our common stock at an assumed initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
The table does not reflect any conversion of outstanding warrants into shares of our common stock.
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As of June 30, 2005 |
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Actual |
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Pro Forma
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Balance Sheet Data: |
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Cash, cash equivalents and short-term investments |
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$ |
8,951 |
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Working capital |
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9,032 |
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Total assets |
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12,146 |
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Long term-liabilities |
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15,156 |
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Convertible preferred stock |
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39,683 |
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Total stockholders deficit |
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(43,685 |
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5
An investment in our common stock is highly risky. You should carefully consider the following risks, as well as the other information contained in this prospectus, before you decide to buy our common stock. We believe the risks and uncertainties described below are the most significant risks we face. If any of the following events actually occurs, our business, business prospects, financial condition, cash flow and results of operations would likely be materially and adversely affected. In these circumstances, the trading price of our common stock would likely decline, and you could lose all or part of your investment.
Risks Related to Our Business
We are dependent upon the success of one or both of our current products, and we cannot be certain that either of them will receive regulatory clearance or approval or be commercialized in the United States. If we are unable to commercialize our products in the United States, or experience significant delays in doing so, our ability to generate revenue will be significantly delayed or halted, and our business will be harmed.
We have expended significant time, money and effort in the development of our current products, the C-Port Distal Anastomosis System, referred to as the C-Port system, and the PAS-Port Proximal Anastomosis System, referred to as the PAS-Port system. While we have regulatory approval for commercial sale of our PAS-Port system in Japan and in the European Union and of our C-Port System in the European Union, we do not have clearance or approval in the United States for either the C-Port system or the PAS-Port system. We anticipate that our ability to generate revenue will depend substantially on the regulatory clearance or approval and commercialization of these products in the United States.
If we are not successful in obtaining U.S. Food and Drug Administration, or FDA, clearance or approval of either our C-Port system or our PAS-Port system, or if FDA clearance or approval of either or both products is significantly delayed, we may never generate substantial revenue, our business, financial condition and results of operations would be materially and adversely affected, and we may be forced to cease operations. Although we have other products under development, we do not expect to seek regulatory clearance or approval of those product candidates in the near future, and we may never actually obtain regulatory clearance or approval of those devices. We may be required to spend significant amounts of capital or time to respond to requests for additional information by the FDA or foreign regulatory bodies or may otherwise be required to spend significant amounts of time and money to obtain FDA clearance or approval and foreign regulatory approval. Imposition of any of these requirements could substantially delay or preclude us from marketing our products in the United States or foreign countries.
A prior automated cardiac proximal anastomosis system was introduced but withdrawn from the market, and, as a result, we may experience difficulty in commercializing our C-Port and PAS-Port systems.
A prior automated proximal anastomosis device was introduced by another manufacturer in the United States in 2002. The FDA received reports of apparently device-related adverse events, and in 2004, the device was voluntarily withdrawn from the market by the manufacturer. Because of the FDAs experience with this prior device, the FDA has identified new criteria for the clinical data required to obtain clearance for a proximal anastomosis device like the PAS-Port. We may not be able to show that the PAS-Port satisfies these criteria, and we may therefore be unable to obtain FDA clearance or approval to market the device in the United States, which would substantially harm our business and prospects. Moreover, physicians who have experience with or knowledge of prior anastomosis devices may be predisposed against using our C-Port or PAS-Port products, which could limit our ability to commercialize them if they are approved by the FDA. If we fail to achieve market adoption, our business, financial condition and results of operations would be materially harmed.
Lack of third-party reimbursement coverage for our products could delay or limit their adoption.
We may experience limited sales growth resulting from limitations on reimbursements made to purchasers of our products by third-party payors, and we cannot assure you that our sales will not be impeded and our business harmed if third-party payors fail to provide reimbursement that hospitals view as adequate.
In the United States, our products will be purchased primarily by medical institutions, which then bill various third-party payors, such as the Centers for Medicare and Medicaid Services, or CMS, which administer the
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Medicare program, and other government programs and private insurance plans, for the health care services provided to their patients. The process involved in applying for incremental reimbursement from CMS is lengthy and expensive. Even if our products receive FDA and other regulatory clearance or approval, they may not be granted incremental reimbursement in the foreseeable future, if at all. Moreover, many private payors look to CMS in setting their reimbursement policies and amounts. If CMS or other agencies decrease or limit reimbursement payments for doctors and hospitals, this may affect coverage and reimbursement determinations by many private payors.
We cannot assure you that CMS will provide incremental reimbursement for our products. If a medical device does not receive incremental reimbursement from CMS, then a medical institution would have to absorb the cost of our products as part of the cost of the procedure in which the products are used. Acute care hospitals are now generally reimbursed by CMS for inpatient operating costs under a prospective payment system. Under a prospective payment system, acute care hospitals receive a fixed payment amount for each covered hospitalized patient based upon the Diagnosis-Related Group, or DRG, to which the patient is assigned, regardless of the actual cost of the services provided. At this time, we do not know the extent to which medical institutions would consider insurers payment levels adequate to cover the cost of our products. Failure by hospitals and physicians to receive an amount that they consider to be adequate reimbursement for procedures in which our products are used could deter them from purchasing our products and limit our revenue growth. In addition, pre-determined DRG payments may decline over time, which could deter medical institutions from purchasing our products. If medical institutions are unable to justify the costs of our products, they may refuse to purchase them, which would significantly harm our business.
We have limited data regarding the safety and efficacy of the PAS-Port and C-Port. Any data that is generated in the future may not be positive or consistent with our existing data, which would affect market acceptance and the rate at which our devices are adopted.
The C-Port and PAS-Port systems are innovative products, and our success depends upon their acceptance by the medical community as safe and effective. An important factor upon which the efficacy of the PAS-Port and C-Port will be measured is long-term data regarding the duration of patency, or openness, of the artery or the graft vessel. Equally important will be physicians perceptions of the safety of our products. Our technology is relatively new in cardiac bypass surgery, and the results of short-term clinical experience of the C-Port and PAS-Port systems do not necessarily predict long-term clinical benefit. We believe that physicians will compare long-term patency for the C-Port and PAS-Port devices against alternative procedures, such as hand-sewn anastomoses. If the long-term rates of patency do not meet physicians expectations, or if physicians find our devices unsafe, the C-Port and PAS-Port systems may not become widely adopted and physicians may recommend alternative treatments for their patients.
Even if the data collected from future clinical studies or clinical experience indicates positive results, each physicians actual experience with our device outside the clinical study setting may vary. Clinical studies conducted with the C-Port and PAS-Port systems have involved procedures performed by physicians who are technically proficient, high-volume users of the C-Port and PAS-Port systems. Consequently, both short- and long-term results reported in these studies may be significantly more favorable than typical results of practicing physicians, which could negatively impact rates of adoption of the C-Port and PAS-Port systems.
Even if any of our products receive U.S. regulatory clearance or approval, our products may still face future development and regulatory difficulties.
If any of our products receive U.S. regulatory clearance or approval, the FDA may still impose significant restrictions on the indicated uses or marketing of the products or impose ongoing requirements for potentially costly post-clearance studies. In addition, regulatory agencies subject a product, its manufacturer and the manufacturers facilities to continual review, regulation and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators or us, including requiring withdrawal of the product from the market. Our products will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the product. If our products fail to comply with applicable regulatory requirements, a regulatory agency may include any of the following sanctions:
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warning letters, fines, injunctions, consent decrees and civil penalties; |
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customer notifications, repair, replacement, refunds, recall or seizure of our products; |
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operating restrictions, partial suspension or total shutdown of production; |
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refusing our requests for 510(k) clearance or PMA of new products, new intended uses or modifications to existing products; |
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withdrawing 510(k) clearance or PMA that have already been granted; and |
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criminal prosecution. |
To market any products internationally, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA clearance or approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA clearance or approval in the United States. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA clearance or approval in the United States, including the risk that our products may not be approved for use under all of the circumstances requested, which could limit the uses of our products and adversely impact potential product sales, and that such clearance or approval may require costly, post-marketing follow-up studies. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our product candidates may be delayed and, as a result, our stock price may decline.
From time to time, we may estimate and publicly announce the timing anticipated for the accomplishment of various clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include an Investigational Device Exemption application to commence our enrollment of patients in our clinical trials, the release of data from our clinical trials, receipt of clearances or approvals from regulatory authorities or other clinical and regulatory events. These estimates are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.
Our products may never gain any significant degree of market acceptance, and a lack of market acceptance would have a material adverse effect on our business.
We cannot assure you that our products will gain any significant degree of market acceptance among physicians or patients, even if necessary regulatory and reimbursement approvals are obtained. We believe that recommendations by physicians will be essential for market acceptance of our products; however, we cannot assure you that any recommendations will be obtained. Physicians will not recommend the products unless they conclude, based on clinical data and other factors, that the products represent a safe and acceptable alternative to other available options. In particular, physicians may elect not to recommend using our products in surgical procedures until such time, if ever, as we successfully address any limitations or resolve any technical difficulties and demonstrate with long-term data that our products result in patency rates comparable to or better than those achieved with hand-sewn anastomoses. Widespread use of our products would require the training of numerous physicians, and the time required to complete training could result in a delay or dampening of market acceptance. Even if the safety and efficacy of our products is established, physicians may elect not to use our products for a number of reasons beyond our control, including inadequate or no reimbursement from health care payors, physicians reluctance to perform anastomoses with an automated device, the introduction of competing devices by our competitors and pricing for our products. Failure of our products to achieve any significant market acceptance would have a material adverse effect on our business, financial condition and results of operations.
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If our competitors have products that are approved in advance of ours, marketed more effectively or demonstrated to be more effective than ours, our commercial opportunity will be reduced or eliminated and our business will be harmed.
The market for anastomotic solutions and cardiac bypass products is competitive. Competitors include a variety of public and private companies that currently offer or are developing cardiac surgery products generally and automated anastomotic systems specifically that would compete directly with ours.
We believe that the primary competitive factors in the market for medical devices used in the treatment of coronary artery disease include:
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improved patient outcomes; |
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access to and acceptance by leading physicians; |
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product quality and reliability; |
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ease of use; |
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device cost-effectiveness; |
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training and support; |
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novelty; |
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physician relationships; and |
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sales and marketing capabilities. |
We may be unable to compete successfully on the basis of any one or more of these factors, which could have a material adverse affect on our business, financial condition and results of operations.
A number of different technologies exist or are under development for performing anastomoses, including sutures, mechanical anastomotic devices, suture-based anastomotic devices and shunting devices. Currently, substantially all anastomoses are performed with sutures and, for the foreseeable future, we believe that sutures will continue to be the principal alternative to our anastomotic products. Sutures are far less expensive than our automated anastomotic products, and other anastomotic devices may be less expensive than our own. Surgeons, who have been using sutures for their entire careers, may be reluctant to consider alternative technologies, despite potential advantages. Any resistance to change among practitioners could delay or hinder market acceptance of our products, which would have a material adverse effect on our business.
Cardiovascular diseases may also be treated by other methods that do not require anastomoses, including, interventional techniques such as balloon angioplasty with or without the use of stents, pharmaceuticals, atherectomy catheters and lasers. Several of these alternative treatments are widely accepted in the medical community and have a long history of use. In addition, technological advances with other therapies for cardiovascular disease, such as drugs, or future innovations in cardiac surgery techniques could make other methods of treating this disease more effective or lower cost than bypass procedures. For example, the number of bypass procedures in the United States and other major markets has declined in recent years and is expected to decline in the years ahead because competing treatments are, in many cases, far less invasive and provide acceptable clinical outcomes. Many companies working on treatments that do not require anastomoses may have significantly greater financial, manufacturing, marketing, distribution, and technical resources and experience than we have.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, clinical trials, obtaining regulatory clearance or approval and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any that we are developing or that would render our product candidates obsolete and noncompetitive. Our competitors may succeed in obtaining clearance or approval from the FDA and foreign regulatory authorities for their products sooner than we do for ours. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.
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We have limited manufacturing experience and may encounter difficulties in increasing production to provide an adequate supply to customers.
To date, our manufacturing activities have consisted primarily of producing limited quantities of our products for use in clinical studies and for sales in Japan and Europe. We do not have experience in manufacturing our products in the commercial quantities that might be required if we were to receive regulatory clearance or approval in the United States. Production in commercial quantities will require us to expand our manufacturing capabilities and to hire and train additional personnel. We may encounter difficulties in increasing our manufacturing capacity and in manufacturing commercial quantities, including:
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maintaining product yields; |
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maintaining quality control and assurance; |
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providing component and service availability; |
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maintaining adequate control policies and procedures; and |
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hiring and retaining qualified personnel. |
Difficulties encountered in increasing our manufacturing could have a material adverse effect on our business, financial condition and results of operations.
The manufacture of our products is a complex and costly operation involving a number of separate processes and components. In addition, the current unit costs for our products, based on limited manufacturing volumes, are very high, and it will be necessary to achieve economies of scale to become profitable. Certain of our manufacturing processes are labor intensive, and achieving significant cost reductions will depend in part upon reducing the time required to complete these processes. We cannot assure you that we will be able to achieve cost reductions in the manufacture of our products and, without these cost reductions, our business may never achieve profitability.
We have considered, and will continue to consider as appropriate, manufacturing in-house certain components currently provided by third parties, as well as implementing new production processes. Manufacturing yields or costs may be adversely affected by the transition to in-house production or to new production processes, when and if these efforts are undertaken, which would materially and adversely affect our business, financial condition and results of operations.
Our manufacturing facilities, and those of our suppliers, must comply with applicable regulatory requirements. Failure to obtain regulatory approval of our manufacturing facilities would harm our business and our results of operations.
Our manufacturing facilities and processes are subject to periodic inspections and audits by various regulatory agencies. For example, our facilities have been inspected by State of California regulatory authorities pursuant to granting a California Device Manufacturing License, but not, to date, by the FDA. Additionally, to market products in Europe, we are required to maintain ISO 13485:2003 certification and are subject to periodic surveillance audits. We are currently ISO 13485:2003 certified; however, our failure to maintain necessary regulatory approvals for our manufacturing facilities could prevent us from manufacturing and selling our products.
Additionally, our manufacturing processes and those of our suppliers are required to comply with FDAs Quality System Regulation, or QSR, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our products, including the PAS-Port and C-Port. We are also subject to similar state requirements and licenses. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic inspections by governmental agencies, including FDA, state authorities and comparable agencies in other countries. If we fail a QSR inspection, our operations could be disrupted and our manufacturing interrupted. Failure to take adequate corrective action in response to an adverse QSR inspection could result in, among other things, a shut-down of our manufacturing operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device or operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our products and cause our revenue to decline.
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If we are unable to establish sales and marketing capabilities or enter into and maintain arrangements with third parties to market and sell our products, our business may be harmed.
We do not have a sales and marketing organization, and we have limited experience as a company in the sales, marketing and distribution of our products. Century Medical, Inc., or Century, is responsible for marketing and commercialization of the PAS-Port system in Japan. To promote our current and future products in the United States and Europe, we must develop our sales, marketing and distribution capabilities or make arrangements with third parties to perform these services. Competition for qualified sales personnel is intense. Developing a sales force is expensive and time consuming and could delay any product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating sufficient demand for our products. To the extent that we enter into arrangements with third parties to perform sales and marketing services, our product revenue may be lower than if we directly marketed and sold our products. We expect to rely on third-party distributors for substantially all of our international sales. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able to generate significant revenue and may not become profitable.
We will need to increase the size of our organization, and we may experience difficulties in managing this growth.
As of September 30, 2005, we had 37 employees. We will need to continue to expand our managerial, operational, financial and other resources to manage and fund our operations and clinical trials, continue our research and development activities and commercialize our products. It is possible that our management and scientific personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and programs requires that we continue to improve our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and commercialization goals.
We are dependent upon a number of key suppliers, including single source suppliers, the loss of which would materially harm our business.
We use or rely upon sole source suppliers for certain components and services used in manufacturing our products, and we utilize materials and components supplied by third parties with which we do not have any long-term contracts. In recent years, many suppliers have ceased supplying raw materials for use in implantable medical devices. We cannot assure you that materials required by us will not be restricted or that we will be able to obtain sufficient quantities of such materials or services in the future. Moreover, the continued use by us of materials manufactured by third parties could subject us to liability exposure. Because we do not have long-term contracts, none of our suppliers is required to provide us with any guaranteed minimum production levels.
We cannot quickly replace suppliers or establish additional new suppliers for some of these components, particularly due to both the complex nature of the manufacturing process used by our suppliers and the time and effort that may be required to obtain FDA clearance or approval or other regulatory approval to use materials from alternative suppliers. Any significant supply interruption or capacity constraints affecting our facilities or those of our suppliers would have a material adverse effect on our ability to manufacture our products and, therefore, a material adverse effect on our business, financial condition and results of operations.
We may in the future be a party to patent litigation and administrative proceedings that could be costly and could interfere with our ability to sell our products.
The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. We may become a party to patent infringement claims and litigation or interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions. The defense and prosecution of these matters are both costly and time consuming. Additionally, we may need to commence proceedings against others to enforce our patents, to protect our trade secrets or know-how or to determine the enforceability, scope and validity of the proprietary rights of others. These proceedings would result in substantial expense to us and significant diversion of effort by our technical and management personnel.
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We are aware of patents issued to third parties that contain subject matter related to our technology. We cannot assure you that these or other third parties will not assert that our products and systems infringe the claims in their patents or seek to expand their patent claims to cover aspects of our products and systems. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities or require us to seek licenses. In addition, if we are found to willfully infringe third-party patents, we could be required to pay treble damages in addition to other penalties. Although patent and intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may be required to redesign our products to avoid infringement, and it may not be possible to do so effectively. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling the C-Port system, PAS-Port system or any other product we may develop, which would have a significant adverse impact on our business.
On October 28, 2005, we received a letter from Integrated Vascular Interventional Technologies, Inc., referred to as IVIT, advising us for the first time of IVITs effort (thus far unsuccessful) to provoke an interference in the U.S. Patent and Trademark Office between one of IVITs patent applications (serial no. 10/243,543) and a patent currently held by us (U.S. patent no. 6,391,038) and relating to the C-Port® system. We also learned on that date that IVIT is attempting to provoke an interference in the U.S. Patent and Trademark Office between another of its U.S. patent applications (serial no. 10/706,245) and another of our issued patents (U.S. Patent No. 6,478,804). IVIT makes no specific demands in the letter, but alleges that it has an indication of an allowed claim and that it expects to receive a declaration of interference regarding that claim, and states that it would be strategically beneficial for us to discuss this matter prior to receiving a declaration of interference.
An interference is a proceeding within the U.S. Patent and Trademark Office to determine priority of invention of the subject matter of patent claims. The decision to declare an interference is solely within the power of the Board of Patent Appeals and Interferences of the U.S. Patent and Trademark Office, and can be made only after claims in a patent application are allowed by the examiner and a determination is made that interfering subject matter exists. As yet, no claims have been allowed in either of IVITs two patent applications referenced above.
We believe, after conferring with intellectual property counsel, that IVITs attempts to provoke an interference are unlikely to succeed, and we will vigorously defend our patents against such claims of interference, although there can be no assurance that we will succeed in doing so. We further believe that if IVITs patent claims are allowed in their present form, our products would not infringe such claims. There can be no assurance that IVITs patent claims, if allowed, will be in their present form, or that our products would not be found to infringe such claims or any other claims that are issued.
Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively.
We rely upon patents, trade secret laws and confidentiality agreements to protect our technology and products. Our pending patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we have obtained or will obtain in the future might be invalidated or circumvented by third parties. If any challenges are successful, competitors might be able to market products and use manufacturing processes that are substantially similar to ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be adequate. In addition, the laws of many foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. To the extent that our intellectual property protection is inadequate, we are exposed to a greater risk of direct competition. In addition, competitors could purchase any of our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. If our intellectual property is not adequately protected against competitors products and methods, our competitive position could be adversely affected, as could our business.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants and advisors to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individual during the course of the individuals relationship with us be kept confidential and not disclosed to third parties except in specific circumstances and that all inventions arising out of the individuals relationship with us shall be our exclusive property. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology.
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Our products face the risk of technological obsolescence, which, if realized, could have a material adverse effect on our business.
The medical device industry is characterized by rapid and significant technological change. There can be no assurance that third parties will not succeed in developing or marketing technologies and products that are more effective than ours or that would render our technology and products obsolete or noncompetitive. Additionally, new, less invasive surgical procedures and medications could be developed that replace or reduce the importance of current procedures that use our products. Accordingly, our success will depend in part upon our ability to respond quickly to medical and technological changes through the development and introduction of new products. The relative speed with which we can develop products, complete clinical testing and regulatory clearance or approval processes, train physicians in the use of our products, gain reimbursement acceptance, and supply commercial quantities of the products to the market are expected to be important competitive factors. Product development involves a high degree of risk, and we cannot assure you that our new product development efforts will result in any commercially successful products. We have experienced delays in completing the development and commercialization of our planned products, and there can be no assurance that these delays will not continue or recur in the future. Any delays could result in a loss of market acceptance and market share.
We may not be successful in our efforts to expand our product portfolio, and our failure to do so could cause our business and prospects to suffer.
We intend to use our knowledge and expertise in anastomotic technologies to discover, develop and commercialize new applications in endoscopic surgery, general vascular surgery or other markets. However, the process of researching and developing anastomotic devices is expensive, time-consuming and unpredictable. Our efforts to create products for these new markets are at a very early stage, and we may never be successful in developing viable products for these markets. Even if our development efforts are successful and we obtain the necessary regulatory and reimbursement approvals, we cannot assure you that these or our other products will gain any significant degree of market acceptance among physicians, patients or health care payors. Accordingly, we anticipate that, for the foreseeable future, we will be substantially dependent upon the successful development and commercialization of anastomotic systems and instruments for cardiac surgery, mainly the PAS-Port system and the C-Port system. Failure by us to successfully develop and commercialize these systems for any reason, including failure to overcome regulatory hurdles or inability to gain any significant degree of market acceptance, would have a material adverse effect on our business, financial condition and results of operations.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could face substantial penalties.
Our operations may be directly or indirectly affected by various broad state and federal healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, which prohibit any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing or arranging for an item or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. Foreign sales of our products are also subject to similar fraud and abuse laws, including application of the U.S. Foreign Corrupt Practices Act. If our past or present operations, including any consulting arrangements we may enter into with physicians who use our products, are found to be in violation of these laws, we or our officers may be subject to civil or criminal penalties, including large monetary penalties, damages, fines, imprisonment and exclusion from Medicare and Medicaid program participation. If enforcement action were to occur, our business and financial condition would be harmed.
The expense and potential unavailability of insurance coverage for our company or our customers could adversely affect our ability to sell our products, which would adversely affect our business.
We may not have sufficient insurance coverage for future product liability claims, and we may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and adversely affecting our financial condition and operating results.
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Some of our customers and prospective customers may have difficulty in procuring or maintaining liability insurance to cover their operations and use of the C-Port or PAS-Port systems. Medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using the C-Port or PAS-Port systems and potential customers may opt against purchasing the C-Port or PAS-Port systems due to the cost or inability to procure insurance coverage.
We sell our systems internationally and are subject to various risks relating to these international activities, which could adversely affect our revenue.
To date, all of our revenue has been attributable to sales in international markets. By doing business in international markets, we are exposed to risks separate and distinct from those we face in our domestic operations. Our international business may be adversely affected by changing economic conditions in foreign countries. Because most of our sales are currently denominated in U.S. dollars, if the value of the U.S. dollar increases relative to foreign currencies, our products could become more costly to the international customer and, therefore, less competitive in international markets, which could affect our results of operations. Engaging in international business inherently involves a number of other difficulties and risks, including:
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export restrictions and controls relating to technology; |
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the availability and level of reimbursement within prevailing foreign healthcare payment systems; |
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pricing pressure that we may experience internationally; |
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required compliance with existing and changing foreign regulatory requirements and laws; |
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laws and business practices favoring local companies; |
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longer payment cycles; |
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difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; |
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political and economic instability; |
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potentially adverse tax consequences, tariffs and other trade barriers; |
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international terrorism and anti-American sentiment; |
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difficulties and costs of staffing and managing foreign operations; and |
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difficulties in enforcing intellectual property rights. |
Our exposure to each of these risks may increase our costs, impair our ability to market and sell our products and require significant management attention. We cannot assure you that one or more of these factors will not harm our business.
We are dependent upon key personnel, loss of any of which could have a material adverse affect on our business.
Our future business and operating results depend significantly on the continued contributions of our key technical personnel and senior management, including those of our co-founder, CEO and President, Bernard Hausen, M.D., Ph.D. These services and individuals would be difficult or impossible to replace and none of these individuals is subject to a post-employment non-competition agreement. While we are subject to certain severance obligations to Dr. Hausen, either he or we may terminate his employment at any time and for any lawful reason or for no reason. Our business and future operating results also depend significantly on our ability to attract and retain qualified management, manufacturing, technical, marketing, sales and support personnel for our operations. Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting or retaining such personnel. Additionally, although we have key-person life insurance in the amount of $3 million on the life of Dr. Hausen, we cannot assure you that this amount would fully compensate us for the loss of Dr. Hausens services. The loss of key employees, the failure of any key employee to perform or our inability to attract and retain skilled employees, as needed, could materially adversely affect our business, financial condition and results of operations.
Our operations are currently conducted at a single location that may be at risk from earthquakes, terror attacks or other disasters.
We currently conduct all of our manufacturing, development and management activities at a single location in Redwood City, California, near known earthquake fault zones. We have taken precautions to safeguard our
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facilities, including insurance, health and safety protocols, and off-site storage of computer data. However, any future natural disaster, such as an earthquake, or a terrorist attack, could cause substantial delays in our operations, damage or destroy our equipment or inventory and cause us to incur additional expenses. A disaster could seriously harm our business and results of operations. Our insurance does not cover earthquakes and floods and may not be adequate to cover our losses in any particular case.
If we use hazardous materials in a manner that causes injury, we may be liable for damages.
Our research and development and manufacturing activities involve the use of hazardous materials. Although we believe that our safety procedures for handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of these materials. If one of our employees were accidentally injured from the use, storage, handling or disposal of these materials, the medical costs related to his or her treatment would be covered by our workers compensation insurance policy. However, we do not carry specific hazardous waste insurance coverage, and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory clearances or approvals could be suspended.
We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label uses.
If our products receive FDA clearance or approval, our promotional materials and training methods regarding physicians will need to comply with FDA and other applicable laws and regulations. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, it could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In addition, use of our products in circumstances that are not approved carries the risk of ineffective performance of the procedure or even injury to the patient. In that event, our reputation could be damaged and adoption of the products would be impaired.
Risks Related to Our Finances and Capital Requirements
We have a history of net losses, which we expect to continue for the foreseeable future, and we are unable to predict the extent of future losses or when we will become profitable, if at all.
We incurred net losses since our inception in October 1997. As of June 30, 2005, our accumulated deficit was approximately $48.0 million. We expect to incur substantial additional losses until we can achieve significant commercial sales of our products, which depend upon a number of factors, including receipt of regulatory clearance or approval in the United States and market adoption of our products. We commenced commercial sales of the PAS-Port in Japan in January 2004, and our short commercialization experience makes it difficult for us to predict future performance. Our failure to accurately predict financial performance may lead to volatility in our stock price.
Our cost of product revenue was 343% of our net product revenue in our fiscal year ended June 30, 2004 and 142% of our net product revenue in our fiscal year ended June 30, 2005. We expect to continue to have high costs of product revenue for the foreseeable future. In addition, if we obtain regulatory clearance or approval in the United States for any of our products, we expect that our operating expenses will increase as we commence our commercialization efforts and devote resources to our sales and marketing, as well as conduct other research and development activities. If, over the long term, we are unable to reduce our cost of producing goods and expenses relative to our net revenue, we may not achieve profitability even if we are able to generate significant revenue from sales of the C-Port and PAS-Port systems. Our failure to achieve and sustain profitability would negatively impact the market price of our common stock.
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We currently lack a significant source of product revenue and may not become or remain profitable.
Our ability to become and remain profitable depends upon our ability to generate product revenue. For the fiscal year ended June 30, 2005, sales of our products and development activities generated only $2.1 million of revenue, including $396,000 from sales of the aortic cutter, a device we manufactured under contract with Guidant Corporation that we will no longer manufacture, $310,000 of development revenue received from Guidant for developing the aortic cutter and $510,000 of product revenue received from Guidant for the remaining portion of its minimum purchase obligation under the terminated distribution agreement. Our ability to generate significant continuing revenue depends upon a number of factors, including:
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achievement of U.S. regulatory clearance or approval for our products; |
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successful completion of ongoing clinical trials for our products; and |
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successful sales, manufacturing, marketing and distribution of our products. |
We do not anticipate that we will generate significant product revenue for the foreseeable future. If we are unable to generate significant product revenue, we will not become or remain profitable, and we may be unable to continue our operations.
We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our research and development programs or commercialization efforts.
Our development efforts have consumed substantial capital to date. We believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from this offering, will be sufficient to meet our projected operating requirements through at least the next 18 months. Because we do not anticipate that we will generate significant product revenue for the foreseeable future, if at all, we will need to raise substantial additional capital to finance our operations in the future. Our future liquidity and capital requirements will depend upon, and could increase significantly as a result of, numerous factors, including:
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market acceptance and adoption of our products if FDA clearance or approval is obtained; |
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our revenue growth; |
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the progress of clinical trials; |
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the timing and costs of regulatory submissions; |
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the timing and costs required to receive both domestic and international governmental approvals; |
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the timing and costs of new product introductions, if FDA clearance or approval is obtained; |
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the extent of our ongoing research and development programs; and |
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the costs of developing marketing and distribution capabilities. |
Until we can generate significant continuing revenue, if ever, we expect to satisfy our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any corporate collaboration and licensing arrangements may require us to relinquish valuable rights. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our commercialization efforts or one or more of our research and development programs.
If we do not generate sufficient cash flow through increased revenue or raising additional capital, then we may not be able to meet our substantial debt obligations that become due in 2008.
As of June 30, 2005, we had an aggregate principal amount of approximately $13.25 million in long-term notes payable to Century and Guidant Investment Corporation that mature in 2008. The accrued interest under the Guidant note due at maturity in 2008 will be $4.2 million, of which $1.4 million was recorded as of June 30, 2005. This substantial indebtedness has and will continue to impact us by:
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making it more difficult to obtain additional financing; and |
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constraining our ability to react quickly in an unfavorable economic climate. |
Currently we are not generating positive cash flow. Adverse occurrences related to our product commercialization, development and regulatory efforts would adversely impact our ability to meet our obligations
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to repay the principal amounts on our notes when due in 2008. If we are unable to satisfy our debt service requirements, we may not be able to continue our operations. We may not generate sufficient cash from operations to repay our notes or satisfy any additional debt obligations when they become due and may have to raise additional financing from the sale of equity or debt securities, enter into commercial transactions or otherwise restructure our debt obligations. There can be no assurance that any such financing or restructuring will be available to us on commercially acceptable terms, if at all. If we are unable to restructure our obligations, we may be forced to seek protection under applicable bankruptcy laws. Any restructuring or bankruptcy could materially impair the value of our common stock.
Existing creditors have rights to our assets that are senior to our stockholders.
Existing arrangements with our current lenders, Century and Guidant Investment Corporation, as well as future arrangements with other creditors, allow or may allow these creditors to liquidate our assets, which may include our intellectual property rights, if we are in default or breach of our debt obligations for a continued period of time. The proceeds of any sale or liquidation of our assets under these circumstances would be applied first to any of our debt obligations and would have priority over any of our capital stock, including any liquidation preference of the preferred stock. After satisfaction of our debt obligations, we may have little or no proceeds left under these circumstances to distribute to the holders of our capital stock.
Our quarterly operating results and stock price may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. The revenue we generate, if any, and our operating results will be affected by numerous factors, many of which are beyond our control, including:
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the rate of physician adoption of our products; |
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the results of clinical trials related to our products; |
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the introduction by us or our competitors, and market acceptance of, new products; |
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the results of regulatory and reimbursement actions; |
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the timing of orders by distributors or customers; |
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the expenditures incurred in the research and development of new products; and |
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competitive pricing. |
Quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.
Risks Related to this Offering
We expect the price of our common stock will fluctuate substantially and you may not be able to sell your shares at or above the offering price.
The price for the shares of our common stock sold in this offering will be determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile. The public trading price for our common stock after this offering will be affected by a number of factors, including:
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market acceptance and adoption of our products if FDA clearance or approval is obtained; |
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regulatory clearance or approvals of our products; |
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volume and timing of orders for our products; |
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changes in earnings estimates, investors perceptions, recommendations by securities analysts or our failure to achieve analysts earning estimates; |
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quarterly variations in our or our competitors results of operations; |
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general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors; |
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the announcement of new products or product enhancements by us or our competitors; |
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announcements related to patents issued to us or our competitors and to litigation; and |
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developments in our industry. |
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In addition, the stock prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These factors may materially and adversely affect the market price of our common stock.
There has been no prior public market for our common stock, and an active trading market may not develop, potentially lessening the value of your shares and impairing your ability to sell.
Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following completion of this offering or, if developed, may not be sustained. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also impair our ability to raise capital by selling shares.
If there are substantial sales of our common stock, our stock price could decline.
If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of our common stock, the market price of our common stock could decline significantly. Based on shares outstanding on September 30, 2005, upon the closing of this offering, assuming no outstanding options are exercised prior to the closing of this offering, we will have approximately shares of common stock outstanding, including 469,551 shares of common stock issuable upon the exercise of outstanding warrants and 12,778,126 shares of common stock to be issued upon the conversion of our preferred stock immediately prior to the closing of this offering. All of the shares offered under this prospectus will be freely tradable without restriction or further registration under the federal securities laws, unless purchased by our affiliates. The remaining shares outstanding upon the closing of this offering will be available for sale pursuant to Rule 144 and 701 as follows:
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shares of common stock will be immediately eligible for sale in the public market without restriction; |
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shares of common stock will be eligible for sale in the public market under Rule 144 or Rule 701, beginning 90 days after the effective date of the registration statements of which this prospectus is a part, subject to the volume, manner of sale and other limitations under those rules; and |
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the remaining shares of common stock will become eligible under Rule 144 for sale in the public market from time to time after the effective date of the registration statements of which this prospectus is a part upon expiration of their respective holding periods. |
The above does not take into consideration the effect of the lock-up agreements described under Shares Eligible for Future SaleLock-up Agreements.
Existing stockholders holding an aggregate of 13,247,677 shares of common stock, based upon shares outstanding as of September 30, 2005, including 469,551 shares underlying outstanding warrants, have rights with respect to the registration of these shares of common stock with the Securities and Exchange Commission. See Description of Capital StockRegistration Rights. If we register their shares of common stock following the expiration of the lock-up agreements, they can immediately sell those shares in the public market.
Promptly following this offering, we intend to register up to approximately shares of common stock that are authorized for issuance under our equity incentive plans. As of September 30, 2005, 2,700,264shares were subject to outstanding options, of which 1,482,594shares were vested. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above and restrictions on our affiliates. See Shares Eligible for Future Sale.
Evolving regulation of corporate governance and public disclosure will result in additional expenses and continuing uncertainty.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq National Market rules are creating uncertainty for public companies. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional compliance costs we may incur or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many
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cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by courts and regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Maintaining appropriate standards of corporate governance and public disclosure will result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, if we fail to comply with new or changed laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business and reputation may be harmed.
If you purchase shares of our common stock in this offering, you will suffer immediate and substantial dilution.
Purchasers of common stock in this offering will pay a price per share that substantially exceeds the per-share book value of our tangible assets after subtracting our liabilities as well as the per-share price paid by our existing stockholders and by persons who exercise currently outstanding options and warrants to acquire our stock. Accordingly, after we sell shares at the initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, you will experience immediate dilution of approximately $ per share, representing the difference between the public offering price and our pro forma as adjusted net tangible book value per share as of September 30, 2005 after giving effect to this offering. Additionally, purchasers of common stock in this offering will have contributed approximately % of the aggregate price paid by all purchasers of our stock but will own only approximately % of our common stock outstanding after this offering. See Dilution.
Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over our affairs.
Following the completion of this offering, our executive officers, current directors and holders of five percent or more of our common stock will beneficially own approximately % of our common stock. We expect that upon the closing of this offering, that same group will continue to hold a majority of our outstanding common stock. Therefore, even after this offering, these stockholders will likely be able to determine the comp3osition of our board of directors, retain the voting power to approve all matters requiring stockholder approval and continue to have significant influence over our operations. The interests of these stockholders may be different than the interests of other stockholders on these matters. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay product development.
Our future operating results may be below securities analysts or investors expectations, which could cause our stock price to decline.
The revenue and income potential of our products and our business model are unproven, and we may be unable to generate significant revenue or grow at the rate expected by securities analysts or investors. In addition, our costs may be higher than we, securities analysts or investors expect. If we fail to generate sufficient revenue or our costs are higher than we expect, our results of operations will suffer, which in turn could cause our stock price to decline. Our results of operations will depend upon numerous factors, including:
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FDA or other regulatory clearance or approval of our C-Port and PAS-Port systems or other products; |
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demand for our products, if FDA clearance or approval is obtained; |
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the performance of third-party contract manufacturers and component suppliers; |
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our ability to develop sales and marketing capabilities; |
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our ability to develop, introduce and market new or enhanced versions of our products on a timely basis; and |
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our ability to obtain and protect proprietary rights. |
Our operating results in any particular period may not be a reliable indication of our future performance. In some future quarters, our operating results may be below the expectations of securities analysts or investors. If this occurs, the price of our common stock will likely decline.
Anti-takeover defenses that we have in place could prevent or frustrate attempts to change our direction or management.
Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may make it more difficult for or prevent a third party from acquiring control of us without the approval of our board of directors. These provisions:
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limit who may call a special meeting of stockholders; |
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establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings; |
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prohibit cumulative voting in the election of our directors, which would otherwise permit less than a majority of stockholders to elect directors; |
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prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and |
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provide our board of directors with the ability to designate the terms of and issue a new series of preferred stock without stockholder approval. |
In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from engaging in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirors at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.
We may become involved in securities class action litigation that could divert managements attention and harm our business.
The stock market in general, the Nasdaq National Market and the market for medical device companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities of medical device companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular companys securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts managements attention and resources, which could materially harm our financial condition and results of operations.
Our management and auditors have identified a material weakness in our internal controls that, if not properly remediated, could result in material misstatements in our financial statements and the inability of our management to provide its report on the effectiveness of our internal controls as required by the Sarbanes-Oxley Act of 2002 as required for the year ending June 30, 2008, either of which could cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock.
We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, Ernst & Young LLP, our independent registered public accounting firm, has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. However, in connection with our fiscal 2005 financial statement audit, our independent registered public accounting firm informed us that they had identified a material weakness in our internal controls as defined by the American
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Institute of Certified Public Accountants. A material weakness is a reportable condition in which our internal controls do not reduce to a low level the risk that undetected misstatements caused by error or fraud may occur in amounts that are material to our audited financial statements.
The material weakness reported by our independent registered public accounting firm relates to having insufficient personnel resources and lack of sufficient technical accounting expertise within our accounting function, and inadequate review and approval procedures to prepare external financial statements.
We are taking remedial measures to improve the effectiveness of our internal controls. Specifically, we will be:
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strengthening our internal staffing and technical expertise in financial and SEC accounting and reporting to accommodate our new status as a stand-alone public company; and |
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engaging an outside compliance consulting firm to advise us on improving our internal controls to take advantage of best practices. |
We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify, including to effect compliance with Section 404 of the Sarbanes-Oxley Act of 2002 when we are required to make an assessment of our internal controls under Section 404 which is anticipated to be for fiscal 2008. However, the existence of a material weakness is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period, and the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures taken to date or to be taken in the future will remediate the material weakness noted by our independent public accounting firm or that we will implement and maintain adequate controls over our financial processes and reporting in the future. In addition, we cannot assure you that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.
The standards required for a Section 404 analysis under the Sarbanes-Oxley Act of 2002 are significantly more stringent than those for a similar analysis for non-public companies. These more stringent standards require that our audit committee be advised and regularly updated on managements review of internal controls. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we are not able to timely remedy the material weakness identified in connection with our fiscal 2005 audit, or if we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, management may not be able to assess that its internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could result in a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, if we fail to develop and maintain effective controls and procedures, we may be unable to provide the required financial information in a timely and reliable manner or otherwise comply with the standards applicable to us as a public company. Any failure by us to timely provide the required financial information could materially and adversely impact our financial condition and the market value of our securities.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to return our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business, contains forward-looking statements. Forward-looking statements include all statements that are not statements of historical facts and may relate to, but are not limited to, expectations of future operating results or financial performance, capital expenditures, introduction of new products, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. These risks and other factors include, but are not limited to, those listed under Risk Factors. In some cases, you can identify forward-looking statements by terminology such as may, will, should, could, expect, plan, anticipate, believe, estimate, predict, intend, potential, continue or the negative of these terms or other similar terminology. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These statements represent only managements beliefs and assumptions as of the date of this prospectus, and actual events or results may differ materially.
We believe that it is important to communicate our future expectations to potential investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause actual events or results to differ materially from the expectations expressed in or implied by our forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise. Potential investors should not place undue reliance on our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of any of the adverse events described in the Risk Factors section and elsewhere in this prospectus could harm our business, prospects, operating results and financial condition. You should read this prospectus and the documents that we reference and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that we cannot guarantee future results, levels of activity, performance or achievements.
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We estimate that the net proceeds from the sale of the shares of common stock we are offering will be approximately $ million. If the underwriters fully exercise the over-allotment option, the net proceeds will be approximately $ million. Net proceeds represent the amount we expect to receive after we pay the underwriting discount and other estimated expenses for this offering. For the purpose of estimating net proceeds, we are assuming that the public offering price will be $ per share.
We expect to use our net proceeds from this offering as follows:
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approximately $ million to continue the development of our products, including clinical trials and research programs; |
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approximately $ million to build sales and marketing capabilities; and |
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the balance for working capital and other general corporate purposes. |
The amounts we actually expend in these areas may vary significantly from our expectations and will depend upon a number of factors, including operating costs, capital expenditures and any expenses related to gaining FDA clearance or approval for our products. Accordingly, management will retain broad discretion in the allocation of the net proceeds of this offering. A portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, services or products. We have no current plans, agreements or commitments with respect to any such acquisition or investment, and we are not currently engaged in any negotiations with respect to any such transaction.
We believe that the net proceeds from this offering, together with our cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements through at least the next 18 months. Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment-grade securities.
We have never declared or paid any dividends on our capital stock. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend upon a number of factors, including earnings, capital requirements, financial condition, prospects and other factors that our board of directors may deem relevant.
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The following table sets forth our capitalization as of June 30, 2005 on an actual basis and on a pro forma as adjusted basis reflecting:
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the conversion of all of our preferred stock into an aggregate of 12,778,126 shares of common stock immediately prior to the closing of this offering; and |
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the sale of shares of our common stock at an assumed initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read this table in conjunction with the sections of this prospectus entitled Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and with our financial statements and related notes.
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As of June 30, 2005 |
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Actual |
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Pro Forma
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(in
thousands, except
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Long-term debt and accrued interest due through June 30, 2005 |
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$ |
14,686 |
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$ |
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Convertible preferred stock, $0.001 par value; 15,389,000 shares authorized, 12,778,126 shares issued and outstanding, actual; 5,000,000 shares authorized, no shares outstanding, pro forma as adjusted |
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39,683 |
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Stockholders equity (deficit): |
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Common stock, $0.001 par value; 24,060,000 shares authorized, 5,246,936 shares outstanding, actual; authorized, shares issued and outstanding, pro forma as adjusted |
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3 |
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Additional paid-in capital |
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5,201 |
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Deferred compensation |
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(431 |
) |
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Notes receivable from stockholders |
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(449 |
) |
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Accumulated deficit |
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(48,009 |
) |
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Total stockholders equity (deficit) |
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(43,685 |
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Total capitalization |
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$ |
10,684 |
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The outstanding share information as of June 30, 2005 in the table above excludes:
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2,298,753 shares of common stock issuable upon exercise of outstanding options, at a weighted average exercise price of $0.72 per share; |
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469,551 shares of common stock issuable upon the exercise of outstanding warrants, at a weighted average exercise price of $3.33 per share; and |
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|
|
up to 734,311 additional shares of our common stock reserved for issuance under our 1997 Equity Incentive Plan. |
Subject to the completion of this offering, subsequent to June 30, 2005, we reserved an additional 1,200,000 shares of common stock for issuance under our 2005 Equity Incentive Plan.
The table does not reflect any conversion of outstanding common stock warrants into shares of our common stock as a result of any deemed cashless exercise of those warrants. See Description of Capital Stock Warrants.
24
If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. Our historical net tangible book value (deficit) as of June 30, 2005 was approximately $(43.7) million or $(8.33) per share, based on 5,246,936 shares of common stock outstanding as of June 30, 2005. Historical net tangible book value (deficit) per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the actual number of shares of common stock outstanding. Our pro forma net tangible book value (deficit) as of June 30, 2005 was approximately $(4.0) million, or $(0.22) per share of our common stock, based on 18,025,062 shares of common stock outstanding, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into common stock upon the closing of this offering. Pro forma net tangible book value (deficit) per share as of June 30, 2005 represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the pro forma number of shares of common stock outstanding before giving effect to this offering.
After giving effect to our sale of shares of common stock offered by this prospectus at an assumed public offering price of $ per share and after deducting underwriting discounts and commission and estimated offering expenses payable by us, our pro forma net tangible book value (deficit) will be $ , or approximately $ per share. This represents an immediate increase in pro forma net tangible book value (deficit) of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value (deficit) of $ per share to new investors. Dilution in historical net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. The following table illustrates this per share dilution.
|
|
|
|
|
|
|
|
|
|
Assumed public offering price per share |
|
|
|
|
$ |
|
|
|
Historical net tangible book value (deficit) per share as of June 30, 2005 |
|
$ |
(8.33 |
) |
|
|
|
|
Increase per share due to the conversion of all shares of preferred stock |
|
|
8.11 |
|
|
|
|
|
Pro forma net tangible book value (deficit) per share before this offering |
|
|
(0.22 |
) |
|
|
|
|
Increase per share attributable to new investors in this offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value (deficit) per share after the offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
If the underwriters exercise their over-allotment option to purchase additional shares in this offering in full, our pro forma net tangible book value after the offering will be approximately $ or $ per share, representing an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering.
The following table sets forth, as of June 30, 2005, the number of shares of common stock purchased from us, the total consideration paid and average price per share paid by existing stockholders and by the new investors, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $ per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares |
|
Total Consideration |
|
|
|
|||||||||
|
|
|
|
|
|
Average Price
|
|
|||||||||
|
|
Number |
|
Percent |
|
Amount |
|
Percent |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Existing stockholders |
|
|
18,025,062 |
|
|
|
% |
$ |
39,349,342 |
|
|
|
% |
$ |
2.18 |
|
New investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
% |
$ |
|
|
|
|
% |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
If the underwriters exercise their over-allotment option in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after this offering.
The number of shares of our common stock referred to above that will be outstanding immediately after completion of this offering is based on 5,246,936 shares of our common stock outstanding as of June 30, 2005 and also reflects the automatic conversion of our preferred stock into 12,778,126 shares of common stock. This number does not include, as of June 30, 2005:
|
|
|
2,298,753 shares of common stock issuable upon exercise of outstanding options, at a weighted average exercise price of $0.72 per share; |
|
|
|
469,551 shares of common stock issuable upon the exercise of outstanding warrants, at a weighted average exercise price of $3.33 per share; and |
|
|
|
up to 734,311 additional shares of our common stock reserved for issuance under our 1997 Equity Incentive Plan. |
Subject to the completion of this offering, subsequent to June 30, 2005, we reserved an additional 1,200,000 shares of common stock for issuance under our 2005 Equity Incentive Plan.
In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
26
SELECTED FINANCIAL
DATA
(In thousands, except share and per share data)
The following table presents selected historical financial data. We derived the selected statements of operations data for the years ended June 30, 2003, 2004 and 2005 and balance sheet data as of June 30, 2004, and 2005 from our audited financial statements and notes thereto that are included elsewhere in this prospectus. The selected statement of operations data for the years ended June 30, 2001 and 2002 and the selected balance sheet data as of June 30, 2001, 2002 and 2003 are derived from our audited financial statements not included in this prospectus. Our historic results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Statements of Operation Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
212 |
|
$ |
719 |
|
Product revenue from related party, net |
|
|
|
|
|
|
|
|
|
|
|
401 |
|
|
1,027 |
|
Development revenue from related party |
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
836 |
|
|
2,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue (includes related-party costs of $1,377 in 2004 and $1,180 in 2005) |
|
|
|
|
|
|
|
|
|
|
|
2,105 |
|
|
2,478 |
|
Research and development |
|
|
5,058 |
|
|
5,765 |
|
|
6,698 |
|
|
5,826 |
|
|
6,289 |
|
Selling, general and administrative |
|
|
1,166 |
|
|
1,635 |
|
|
1,936 |
|
|
1,809 |
|
|
3,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
6,224 |
|
|
7,400 |
|
|
8,634 |
|
|
9,740 |
|
|
12,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,224 |
) |
|
(7,400 |
) |
|
(8,634 |
) |
|
(8,904 |
) |
|
(10,464 |
) |
Interest income |
|
|
286 |
|
|
210 |
|
|
294 |
|
|
209 |
|
|
305 |
|
Interest expense (includes related-party interest expense of $539 in 2004 and $897 in 2005) |
|
|
(65 |
) |
|
(675 |
) |
|
(885 |
) |
|
(2,001 |
) |
|
(1,048 |
) |
Other income (expense) (includes $250 from related party in 2005) |
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,003 |
) |
$ |
(7,865 |
) |
$ |
(9,225 |
) |
$ |
(10,710 |
) |
$ |
(10,950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(2.15 |
) |
$ |
(2.51 |
) |
$ |
(2.62 |
) |
$ |
(2.75 |
) |
$ |
(2.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share |
|
|
2,787 |
|
|
3,135 |
|
|
3,527 |
|
|
3,897 |
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per share (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing pro forma basic and diluted net loss per share (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments |
|
$ |
8,381 |
|
$ |
21,822 |
|
$ |
17,680 |
|
$ |
17,224 |
|
$ |
8,951 |
|
Working capital |
|
|
7,345 |
|
|
18,730 |
|
|
13,396 |
|
|
16,402 |
|
|
9,032 |
|
Total assets |
|
|
8,864 |
|
|
23,095 |
|
|
19,763 |
|
|
20,231 |
|
|
12,146 |
|
Long term-liabilities |
|
|
508 |
|
|
1,984 |
|
|
5,129 |
|
|
14,359 |
|
|
15,156 |
|
Convertible preferred stock |
|
|
16,293 |
|
|
35,038 |
|
|
35,038 |
|
|
39,683 |
|
|
39,683 |
|
Total stockholders deficit |
|
|
(9,055 |
) |
|
(17,110 |
) |
|
(25,103 |
) |
|
(35,430 |
) |
|
(43,685 |
) |
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Risk Factors and elsewhere in this prospectus.
Overview
We design and manufacture proprietary automated anastomotic systems used by surgeons to perform coronary bypass surgery. In coronary artery bypass grafting procedures, or CABG, veins or arteries are used to construct alternative conduits to restore blood flow beyond closed or narrowed portions of coronary arteries, bypassing the occluded portion of the coronary artery that is impairing blood flow to the heart muscle. Our products provide cardiovascular surgeons with easy-to-use automated systems to perform consistent, rapid and reliable connections, or anastomoses, of the vessels, which surgeons generally view as the most critical aspect of the bypass procedure. We currently sell one of our products in Europe and Japan and another product only in Europe. Our strategy is to further enhance and leverage our technology to develop next-generation automated anastomotic systems that facilitate the performance of minimally invasive endoscopic coronary bypass surgery, as well as automated systems to be used in other surgical applications, such as vascular closure.
Our first two products are the C-Port® Distal Anastomosis System, or C-Port system, and the PAS-Port® Proximal Anastomosis System, or the PAS-Port system. The C-Port system is used to perform a distal anastomosis, which is the connection of a bypass graft vessel to a coronary artery downstream of the occluded portion of the coronary artery. The PAS-Port system is used to perform a proximal anastomosis, which is the connection of a bypass graft vessel to the aorta or other source of blood.
From our inception in 1997 until May 2003, our operations consisted primarily of start-up activities, including developing the C-Port and PAS-Port systems, recruiting personnel and raising capital. Clinical trials for both the C-Port system and PAS-Port system were completed in Europe during the years 2003 through 2005. The C-Port system received the CE Mark in April 2004, and the PAS-Port system received the CE Mark in March 2003. Additionally, the PAS-Port system received regulatory approval to be sold in Japan in January 2004 and has been used in over 130 hospitals in Japan. We have applied to the FDA for 510(k) clearance to market our C-Port system in the United States. We have received conditional approval of an Investigational Device Exemption, or IDE, from the FDA to conduct a prospective, randomized clinical trial to assess the safety and efficacy of our PAS-Port system. See Risk Factors. As of September 30, 2005, we have sold over 250 C-Port systems and more than 2,400 PAS-Port systems worldwide. We believe the United States would be the largest single market for our products, and, if we receive regulatory clearance for our C-Port system, we plan to establish a direct sales force to sell our C-Port system to cardiac surgeons. As of September 30, 2005, we have had limited sales, which have been entirely outside the United States. We sell our products in Japan through our distributor Century Medical, Inc., or Century, and in Europe through limited direct sales activities. We expect our international sales to remain limited for the foreseeable future.
Guidant Corporation, referred to as Guidant, is our largest investor, having invested an aggregate of approximately $14 million in our preferred stock in June 2002 and August 2003. Additionally, in August 2003, Guidant extended a line of credit to us for $10.25 million. We have drawn down this line of credit and currently have a long-term loan of $10.25 million outstanding from Guidant, due in August 2008. Interest of 8.75% per year accrues during the life of the loan and is due at maturity. Guidant distributed our products in Europe under a distribution agreement that was signed in May 2003, amended in January 2004 and terminated in September 2004. In addition, we entered into a development and supply agreement with Guidant to develop an aortic cutter for Guidants Heartstring product, and we manufactured the first 10,000 aortic cutters. Future production of the aortic cutter has been outsourced by Guidant to a third-party manufacturer, and we will receive a modest royalty quarterly for each unit sold in the future, but will no longer manufacture the aortic cutter for Guidant.
We manufacture the C-Port and PAS- Port systems with parts we manufacture and components supplied by vendors, which we then assemble, test and package. For the fiscal year ended June 30, 2005, we generated net
29
revenue of $2.1 million, including $396,000 from sales of the aortic cutter to Guidant, and a net loss of $11.0 million. As of June 30, 2005, our accumulated deficit was $48.0 million. Since our inception, we have not been profitable. We expect to continue to incur net losses for the foreseeable future.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, including those related to accounts receivable, inventories, and deferred stock-based compensation. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ materially from those estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition. SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) title has transferred; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. We generally use contracts and customer purchase orders to determine the existence of an arrangement. We use shipping documents and third-party proof of delivery to verify that title has transferred. We assess whether the fee is fixed or determinable based upon the terms of the agreement associated with the transaction. To determine whether collection is probable, we assess a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If we determine that collection is not reasonably assured, we would defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.
Inventory. We state our inventories at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market, computed on a standard cost basis, which approximates actual cost on a first-in, first-out basis and with market being determined as the lower of replacement cost or net realizable value. Standard costs are monitored on a quarterly basis and updated as necessary to reflect changes in raw material costs and labor and overhead rates. Inventory reserves are established when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory reserves are measured as the difference between the cost of inventory and estimated market value. Inventory reserves are charged to cost of revenue and establish a lower cost basis for the inventory. We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact our financial results.
Clinical Trial Accounting. Clinical trial costs are a component of research and development expenses and include fees paid to participating hospitals and other service providers that conduct clinical trial activities with patients on our behalf and, as well as the cost of, clinical trial insurance. The various costs of the trial are contractually based on the nature of the services, and we accrue the costs as the services are provided. Accrued costs are based on estimates of the work completed under the service agreements, patient enrollment and past experience with similar contracts. Our estimate of the work completed and associated costs to be accrued includes our assessment of information received from our third-party service providers and the overall status of our clinical trial activities. If we have incomplete or inaccurate information, we may underestimate costs associated with various trials at a given point in time. Although our experience in estimating these costs is limited, the difference between accrued expenses based on our estimates and actual expenses have not been material to date.
Stock-Based Compensation. We use the intrinsic method of accounting for employee stock options under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , or APB No. 25, and present disclosure of pro forma information required under SFAS No. 123, Accounting for Stock-Based Compensation , or SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement No. 123 , or SFAS No. 148. For stock options granted to employees, no compensation expense is recognized unless the exercise price is less than fair market value at the date of grant.
30
The fair value of the common stock for options granted through June 30, 2005, was originally estimated by our board of directors, with input from management. We did not obtain contemporaneous valuations by an unrelated valuation specialist. Subsequently, we reassessed the valuations of common stock relating to options granted during the fiscal year ended June 30, 2005. As disclosed more fully in Note 1 of the notes of our financial statements, we granted stock options with an exercise price of $0.95 during the fiscal year ended June 30, 2005. We have determined that the fair value of our common stock increased from $0.95 to $2.50 per share during that period.
For financial reporting purposes, we have recorded stock-based compensation representing the difference between the estimated fair value of common stock and the option exercise price. Because shares of our common stock have not been publicly traded, we determined the estimated fair value based upon several factors, including significant milestones attained, sales of our redeemable convertible preferred stock, changes in valuations of existing comparable publicly traded medical device companies, trends in the broad market for medical device stocks and the expected valuation we would obtain in an initial public offering. Although it is reasonable to expect that the completion of our initial public offering will add value to the shares as a result of increased liquidity and marketability, the amount of additional value cannot be measured with precision or certainty. We amortize employee stock-based compensation on a straight-line basis for equity instruments subject to fixed accounting. We amortize employee stock-based compensation in accordance with the provisions of the Financial Accounting Standards Board, or FASB, Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans for equity instruments subject to variable accounting.
We have determined that, for accounting purposes, the estimated fair market value of our common stock was greater than the exercise price for certain options granted. As a result, we have recorded a deferred stock-based compensation charge for these options of $287,000 for the fiscal year ended June 30, 2005. This expense, which is a non-cash charge, will be amortized over the period in which the options vest, which is generally four years. The amortization of this expense recognized for the fiscal year ended June 30, 2005 was $22,000. We also recorded deferred stock compensation resulting from variable accounting for option exercises with non-recourse promissory notes. Deferred stock compensation related to these notes, representing compensation related to unvested options, was $166,000 as of June 30, 2005. We expect the remaining $431,000 to be amortized as follows: $186,000 for the fiscal year ending June 30, 2006, $108,000 for the fiscal year ending June 30, 2007, $88,000 for the fiscal year ending June 30, 2008 and $49,000 for the fiscal year ending June 30, 2009.
We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force, or 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 , using a fair value approach. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned. As a result, the non-cash charge to operations for non-employee options with vesting or other performance criteria is affected each reporting period by changes in the estimated fair value of our common stock. The two factors that most affect these changes are the fair value of the common stock underlying stock options for which stock-based compensation is recorded and the volatility of such fair value. If our estimates of the fair value of these equity instruments change, it would have the effect of changing compensation expenses. For options and stock granted to non-employees, we recorded $149,000 and $25,000 of stock-based compensation expense during the fiscal years ended June 30, 2004 and 2005, respectively.
In addition, during the year ended June 30, 2005, we recorded $2.0 million in stock-based compensation charges related to certain loans we made during the period from 2000 to 2004 to enable three directors, each of whom is or was also an officer, to purchase shares of our common stock. These loans were made pursuant to recourse promissory notes that were secured by the underlying shares of common stock purchased with the proceeds of the loans. Because we had modified the loans or provided below-market interest rates on the loans and extended the repayment period, for accounting purposes the issuances of the shares that were purchased with the proceeds of the loans were deemed to be compensatory. Accordingly, we are required to record a non-cash compensation charge equal to the difference between the purchase price of the stock and the fair value of the stock securing the notes in each reporting period the notes remain outstanding.
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Results of Operations
Years ended June 30, 2004 and 2005
Net Revenue. Net revenue increased $1.2 million, from $836,000 in fiscal 2004 to $2.1 million in fiscal 2005. A substantial majority of our product sales have been sales of our PAS-Port system. Revenue from Century, our distributor in Japan, accounted for 33%, and revenue from Guidant accounted for 65% of total net revenue during fiscal 2005. The increase in net revenue was attributable to increased product sales of the PAS-Port system to Century and to sales of approximately $396,000 of the aortic cutter to Guidant. Sales to Century increased in fiscal 2005 relative to fiscal 2004 primarily because we sold the PAS-Port system to Century for only five months of fiscal 2004 compared to 12 months in fiscal 2005. Additionally, sales to Century have fluctuated in the past, and we cannot assure you that our sales to Century will remain constant or grow. Product revenue from Guidant includes $510,000 for fiscal 2005, recognized as the difference between the minimum contractual purchases due from Guidant and actual purchases through the date the distribution agreement terminated in September 2004. Since Guidant terminated our distribution agreement with them in fiscal 2005, we will not have any product revenue from Guidant in fiscal 2006, and our product revenue in fiscal 2006 will probably be lower than our product revenue in fiscal 2005. During fiscal 2005, we recognized development revenue from Guidant of $310,000, based on the development and supply agreement that called for us to develop and manufacture the aortic cutter. We do not anticipate receiving any additional development revenue from Guidant. Future production of the aortic cutter has been outsourced by Guidant to a third-party manufacturer, and we will not receive any future revenue from Guidant for the manufacture of the aortic cutter. We will receive a modest royalty quarterly for each aortic cutter sold in the future, but we do not expect royalties received for sales of the aortic cutter to contribute significantly to our revenue for the foreseeable future.
Cost of Product Revenue. Cost of product revenue consists primarily of material, labor and overhead costs. Cost of product revenue increased $373,000, from $2.1 million in fiscal 2004 to $2.5 million in fiscal 2005. The increase in costs was primarily attributable to an increased number of PAS-Port systems and aortic cutters sold during the period. To the extent that sales of PAS-Port and C-Port products in fiscal 2006 do not increase to offset the loss of sales of aortic cutters, our manufacturing overhead will need to be allocated across lower sales. Future production of the aortic cutter has been outsourced by Guidant to a third party manufacturer.
Research and Development Expense. Research and development expenses consist primarily of personnel costs within our product development, regulatory and clinical groups and the costs of clinical trials. Research and development expenses increased $463,000, from $5.8 million in fiscal 2004 to $6.3 million in fiscal 2005. During fiscal 2005, increases in stock compensation expense and product development expenses for the C-Port xA and X-Port programs were offset by a decrease in expenses for the PAS-Port program. We anticipate that research and development expenses will increase in absolute terms in future periods as we conduct new clinical studies for the C-Port xA and the PAS-Port systems, continue to enhance our existing product lines and begin to develop new applications of our technology.
Selling, General and Administrative Expense. Selling, general and administrative expenses consist primarily of stock-based compensation charges in fiscal 2005 and costs for administrative and sales and marketing personnel, intellectual property and marketing expenses. Selling, general and administrative expenses increased $2.0 million, from $1.8 million in fiscal 2004 to $3.8 million in fiscal 2005. During fiscal 2005, we recorded $2.0 million in non-cash stock-based compensation expense related to loans we made to three directors, each of whom is or was also an officer, to purchase shares of our common stock with promissory notes. These loans were repaid with common stock in October 2005, and there will be no additional stock-based compensation expense for these loans after October 2005. We expect selling, general and administrative expenses to increase as we expand our sales and marketing efforts and build our corporate infrastructure to support the requirements of being a public company, including costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Interest Income . Interest income increased $96,000, from $209,000 for fiscal 2004, to $305,000 for fiscal 2005. The increase in interest income is primarily attributable to higher interest income due to higher interest rates for the period.
Interest Expense. Interest expense decreased $953,000, from $2.0 million in fiscal 2004 to $1.0 million in fiscal 2005. Interest expenses in fiscal 2005 included only interest expense for the full fiscal year associated with the $13.3 million of long-term debt. Interest expenses in 2004 included interest expense for a partial year associated
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with the $13.3 million of long-term debt and a $1.1 million charge for the early extinguishment of debt in August 2003. The $1.1 million charge consisted of issuing to the debt holder 137,236 shares of Series E preferred stock, valued at $4.70 per share, for $645,000 to pay for interest due and $460,000 related to the acceleration of amortization of warrant expense accounted for as a discount of the debt.
Other Income . In fiscal 2005, other income of $257,000 consisted primarily of a one-time payment of $250,000 from Guidant as a strategic agreement fee.
Years Ended June 30, 2003 and 2004
Net Revenue. Net revenue increased from $0 in fiscal 2003 to $836,000 in fiscal 2004 primarily due to initiating sales of the PAS-Port system in Europe and Japan. Century and Guidant accounted for 25% and 75%, respectively, of total net revenue in fiscal 2004. We commenced sales in January 2004 to Century following marketing approval of the PAS-Port system by the Ministry of Health in Japan. We recognized net product revenue in 2004 of $613,000 in connection with product sales in Europe and Japan. Also in fiscal 2004, we recognized development revenue from Guidant of $223,000 as a result of the development and supply agreement that called for us to develop the aortic cutter for Guidant.
Cost of Product Revenue. Cost of product revenue increased from $0 in fiscal 2003 to $2.1 million in fiscal 2004. The increase was primarily attributable to the initial sales of the PAS-Port and C-Port systems in fiscal 2004.
Research and Development Expense. Research and development expenses decreased $872,000, from $6.7 million in fiscal 2003 to $5.8 million in fiscal 2004. The decrease of expenses in fiscal 2004 compared to the previous year was primarily attributable to the reallocation, upon commencement of receipt of product revenue in 2004, to cost of revenue of $817,000 of personnel-related costs for manufacturing overhead included in research and development expenses in 2003. The decrease was also a result of decreases in depreciation of $199,000 and other expenses of $443,000 offset in part by a $223,000 in costs related to the development of the aortic cutter for Guidant in fiscal 2004.
Selling, General and Administrative Expense. Selling, general and administrative expenses decreased $127,000, from $1.9 million in fiscal 2003 to $1.8 million in fiscal 2004. The decrease of expenses in fiscal 2004 was primarily attributable to lower personnel costs offset in part by higher regulatory consulting costs.
Interest Income. Interest income decreased $85,000, from $294,000 in fiscal 2003 to $209,000 in fiscal 2004. The decrease in interest income in fiscal 2004 was primarily attributable to lower cash and short-term investment balances available for investing.
Interest Expense. Interest expense increased $1.1 million, from $885,000 in fiscal 2003 to $2.0 million in fiscal 2004. The increase in interest expense in fiscal 2004 was primarily due to higher interest expenses on larger average loan balances outstanding during the year from our loans from Guidant and Century, and a $1.1 million charge for the early extinguishment of debt in August 2003. The $1.1 million charge consisted primarily of issuing to the debt holder 137,236 shares of Series E preferred stock, valued at $4.70 per share, for $645,000 to pay for interest due and $460,000 related to the acceleration of amortization of warrant expense accounted for as a discount of the debt.
Income Taxes
Due to uncertainty surrounding the realization of deferred tax assets through future taxable income, we have provided a full valuation allowance and no benefit has been recognized for the net operating loss and other deferred tax assets. Accordingly, deferred tax asset valuation allowances have been established as of June 30, 2004 and 2005 to reflect these uncertainties.
As of June 30, 2005, we had net operating loss carry-forwards to reduce future taxable income, if any, of approximately $44.3 million for federal income tax purposes and $35.1 million available to reduce future taxable income, if any, for California state income taxes. The net operating loss carry-forwards begin to expire by 2013 and 2008 for federal and California income taxes, respectively. We also had federal and state research and development credit carry-forwards of approximately $700,000 and $500,000, respectively, at June 30, 2005. The federal credits will expire starting in 2013 if not utilized. Utilization of the net operating loss carry-forward may be subject to an
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annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss before utilization if certain changes in our ownership occur. This offering may result in a change in ownership percentages that will result in a limitation of our operating loss carry-forwards.
Liquidity and Capital Resources
As of June 30, 2005, our accumulated deficit was $48.0 million. We currently invest our cash and cash equivalents in large money market funds consisting of debt instruments of the U.S. government, its agencies and high-quality corporate issuers. We place our short-term investments primarily in U.S. government bonds and commercial paper. Since inception, we have financed our operations primarily through private sales of convertible preferred stock resulting in aggregate net proceeds of $38.9 million and from long-term notes payable of $13.3 million.
As of June 30, 2005, we did not have any off-balance sheet liabilities. We had cash, cash equivalents and short-term investments of $9.0 million.
The following table discloses aggregate information, as of June 30, 2005, about our contractual obligations and the periods in which payments are due, excluding the convertible preferred stock to be converted into common stock in connection with this offering:
The long-term commitments under operating leases shown above consist of payments related to our real estate leases for our headquarters in Redwood City, California expiring in 2008.
The long-term commitment under the Sponsored Research Agreement shown above consists of anticipated payments to Stanford University for use of their animal laboratory facility expiring December 31, 2006. The agreement is renewable and has been renewed annually for the past five years.
The subordinated convertible notes payable were issued in connection with our Japan Distribution Agreement with Century. The subordinated convertible notes bear interest at 5% per year, payable quarterly, and are due in June 2008. The subordinated convertible notes are convertible at the option of the holder into common stock at the price of our initial public offering at any time within six months after our initial public offering. The holder of the subordinated convertible notes has a continuing security interest in all of our personal property and assets, including intellectual property.
The notes payable and accrued interest are for a loan agreement with Guidant Investment Corporation, or Guidant Investment, with principal of $10.3 million and accrued interest as of June 30, 2005 of $1.4 million and future interest of $2.8 million at maturity. The notes bear interest at the rate of 8.75% per year and principal and all accrued interest are due in August 2008. The holder of the notes has a first priority security interest in all our personal property and assets, including intellectual property.
As of June 30, 2005, we had entered into letters of credit totaling $500,000 securing our operating lease. A certificate of deposit in the amount of $500,000 has been recorded as restricted cash at June 30, 3005 related to this letter of credit.
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Summary liquidity and cash flow data is as follows:
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As of June 30, |
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2003 |
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2004 |
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2005 |
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(in thousands) |
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Cash, cash equivalents and short-term investments |
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$ |
17,680 |
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$ |
17,224 |
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$ |
8,951 |
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Working capital |
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13,396 |
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|
16,402 |
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|
9,032 |
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Net cash used in operating activities |
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|
(8,922 |
) |
|
(7,776 |
) |
|
(7,417 |
) |
Net cash provided by (used in) investing activities |
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|
(12,157 |
) |
|
(1,795 |
) |
|
7,129 |
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Net cash provided by financing activities |
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|
5,537 |
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|
8,116 |
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14 |
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Net cash used in operating activities for the fiscal years ended June 30, 2003, 2004 and 2005, was $8.9 million, $7.8 million and $7.4 million, respectively. The use of cash for the fiscal year ended June 30, 2003, was attributable to our net loss adjusted for depreciation and non-cash stock-based compensation charges, offset by an increase in restricted cash balances for the facility lease of our new headquarters. The use of cash for the fiscal year ended June 30, 2004, was attributable to our net loss adjusted for depreciation and non-cash stock-based compensation charges, offset by an increase in non-current liabilities as a result of $539,000 of interest payable on the note to Guidant Investment. The use of cash for the fiscal year ended June 30, 2005, was attributable to our net loss adjusted for depreciation and non-cash stock-based compensation charges, offset by an increase in non-current liabilities as a result of $897,000 of interest payable on the note to Guidant Investment.
Net cash used in investing activities was $1.8 million for the fiscal year ended June 30, 2004, due to an increase in purchases of available-for-sale investments as a result of additional cash available from the sale of convertible preferred stock of $4.0 million during the year, partially offset by purchases of property and equipment of $914,000. Net cash provided by investment activities was $7.1 million for the fiscal year ended June 30, 2005, resulting from an increase in proceeds from the sale of available-for-sale investments and decrease in purchases of short-term investments offset by purchases of property and equipment of $882,000.
Net cash provided by financing activities in the fiscal year ended June 30, 2004, of $8.1 million was primarily attributable to proceeds from the sale of convertible preferred stock of $4.0 million to Guidant Investment and proceeds from notes payable to Guidant Investment of $10.3 million, less the repayment of a note payable and interest of $6.3 million. Net cash provided by financing activities of $14,000 in fiscal 2005 was attributable to cash received from stock option exercises.
Our future capital requirements depend upon numerous factors. These factors include but are not limited to the following:
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revenue generated by sales of our products; |
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costs associated with our sales and marketing initiatives and manufacturing activities; |
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rate of progress and cost of our research and development activities; |
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costs of obtaining and maintaining FDA and other regulatory clearances and approvals for our products; |
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securing, maintaining and enforcing intellectual property rights; |
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effects of competing technological and market developments; and |
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number and timing of any acquisitions and other strategic transactions we may undertake. |
We believe that our current cash, cash equivalents and short-term investments, along with the cash we expect to generate from operations and our net proceeds from this offering, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 18 months. If these sources of cash and the net proceeds from this offering are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities, obtain a credit facility or enter into development or license agreements with third parties. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Any licensing or strategic agreements we enter into may require us to relinquish valuable rights. Additional financing may not be available at all, or in amounts or upon terms acceptable to us. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and marketing efforts.
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Quantitative and Qualitative Disclosures About Market Risk
We invest our excess cash primarily in auction rate securities. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk-sensitive instruments, positions or transactions to any material extent. Accordingly, we believe that, while the instruments we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. Due to the short-term nature of these investments, a 1% change in market interest rates would not have a significant impact on the total value of our portfolio as of June 30, 2005.
Although substantially all of our sales and purchases are denominated in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the price competitiveness of our products outside the United States. We do not believe, however, that we currently have significant direct foreign currency exchange rate risk and have not hedged exposures denominated in foreign currencies.
Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning in the Companys first quarter of fiscal year 2006. The Company does not believe the adoption of SFAS No. 151 will have a material effect on its consolidated financial position, results of operations or cash flows.
On December 16, 2004, the FASB issued SFAS 123(R), which is a revision of SFAS No. 123. SFAS 123(R) supersedes APB No. 25, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS No. 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Under SFAS 123(R), pro forma disclosure is no longer an alternative. We are required to apply the prospective transition method no later than the July 1, 2007 or upon becoming a public company. We must continue to account for any equity awards outstanding at the required effective date using the accounting principles originally applied to those awards (e.g., the provisions of Opinion 25 and its related interpretative guidance). As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25s intrinsic value method. Accordingly, the adoption of SFAS 123(R)s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.
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Overview
We design and manufacture proprietary automated anastomotic systems used by surgeons to perform coronary artery bypass surgery. In coronary artery bypass grafting procedures, or CABG, veins or arteries are used to construct alternative conduits to restore blood flow beyond narrowed or occluded portions of coronary arteries, bypassing the narrowed or occluded portion of the artery that is impairing blood flow to the heart muscle. Our first two products, the C-Port® Distal Anastomosis System, referred to as the C-Port system, and the PAS-Port® Proximal Anastomosis System, referred to as the PAS-Port system, provide cardiovascular surgeons with easy-to-use automated systems to perform consistent, rapid and reliable connections, or anastomoses, of the vessels, which surgeons generally view as the most critical aspect of the bypass procedure. We currently sell both the C-Port system and the PAS-Port system in Europe, and we sell the PAS-Port system in Japan through our distributor, Century Medical, Inc., referred to as Century. We have applied for FDA clearance to market our C-Port system in the United States. Our strategy is to further enhance and leverage our technology to develop next-generation automated anastomotic systems that facilitate the performance of minimally invasive endoscopic coronary bypass surgery, as well as automated systems to be used in other surgical applications, such as vascular closure.
The current method of performing an anastomosis in a CABG procedure utilizes a tedious and time-consuming hand-sewn suturing technique to connect a bypass graft to the aorta at one end, the proximal end, and to a small-diameter coronary artery at the other end, the distal end. We estimate that approximately 1.2 million of these blood vessel connections are performed annually in the United States, of which approximately 70% are performed using veins as the bypass graft. Proper vessel alignment and suture tension among the many individually placed fine stitches are critical for optimal bypass graft blood flow and function. By replacing the hand-sewn sutures with an easy-to-use, highly reliable and consistent automated system, the time required for completing the anastomoses can be reduced. We believe that our automated systems can also improve the quality and consistency of the anastomoses, which we believe will ultimately contribute to improved patient outcomes.
Our C-Port system is used to perform a distal anastomosis, which is the connection of a bypass graft vessel to the coronary artery downstream of the narrowed or occluded coronary artery. The C-Port system received the CE Mark in April 2004, which is required for marketing in the European Union, and is currently under review by the FDA for 510(k) clearance for marketing in the United States. The C-Port system is currently being sold on a limited basis to selected customers in Europe. To date, we have sold over 250 C-Port systems. In addition, we are currently designing a next generation of our C-Port system intended for use in endoscopic coronary bypass surgery.
Our PAS-Port system is used to perform a proximal anastomosis, which is the connection of a bypass graft vessel to the aorta, the source of blood for the bypass. The PAS-Port system received the CE Mark in March 2003 and regulatory approval from Japanese regulatory authorities in January 2004 for distribution in Japan. The PAS-Port system is being sold in Japan through Century. According to Century, the PAS-Port system has been used in Japan in over 130 hospitals and has an estimated 15% market share of all proximal anastomoses performed in beating heart surgery using a vein as the bypass graft. As of September 30, 2005, more than 2,400 PAS-Port systems had been sold in Europe and Japan. We have recently obtained conditional approval of an Investigational Device Exemption, referred to as an IDE, from the FDA to perform a randomized, prospective clinical trial in centers in the United States and in Europe to study the safety and efficacy of the PAS-Port system.
Industry Background
Coronary Artery Disease
According to the American Heart Association, approximately 13 million Americans have coronary artery disease, and approximately 500,000 people in the United States die each year as a result of the disease. Coronary artery disease, sometimes referred to as atherosclerosis, is a degenerative disease resulting from the deposit of cholesterol and other fatty materials on the interior walls of blood vessels, forming a build-up known as plaque. The accumulation of plaque, usually over decades, causes the vessel to become inelastic and progressively narrows the interior of the artery, impairing its ability to supply blood and oxygen to the heart muscle. When there is insufficient blood flow to the heart muscle, an injury may occur, often resulting in chest pain, or angina, a heart attack or even death. Coronary artery disease is caused by aging and is exacerbated by dietary and environmental
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factors, as well as by genetic predisposition. As a patient ages, the disease will typically advance and become more diffuse, compromising the coronary artery system more globally and occluding more small-diameter vessels.
Current Treatment Alternatives for Coronary Artery Disease
Physicians and patients may select among a variety of treatments to address coronary artery disease, with the selection often depending upon the stage and severity of the disease and the age of the patient. In addition to changes in patient lifestyle, such as smoking cessation, weight reduction, diet changes and exercise programs, the principal existing treatments for coronary artery disease include the following:
Medical Treatment with Pharmaceuticals
Before the advent of interventional cardiology or bypass surgery, medical treatment with pharmaceuticals was the only form of therapy available to patients with coronary heart disease. In patients with less severe disease, pharmaceuticals remain the primary treatment approach and include drugs such as platelet adhesion inhibitors or drugs that reduce the blood cholesterol or triglyceride levels. The objective for medical treatment with pharmaceutical agents is to reduce the incidence, progression or exacerbation of coronary artery disease and its associated symptoms. For more serious disease, however, pharmacological therapy alone is often inadequate.
Interventional Cardiology Techniques
Coronary Angioplasty. Percutaneous transluminal coronary angioplasty, commonly referred to as balloon angioplasty, is a surgical procedure that involves the dilation of the obstructed artery with a balloon catheter. To perform an angioplasty, the surgeon maneuvers a flexible balloon catheter to the site of the blockage in the coronary artery, inflates the balloon, compressing the plaque and stretching the artery wall to create a larger channel for blood flow. The balloon is then deflated and removed. Angioplasty is generally successful in increasing immediate blood flow and, relative to current surgical procedures, offers the benefits of shorter periods of hospitalization, quicker recovery times, reduced patient discomfort and lower cost. However, angioplasty does not always provide prolonged efficacy: independent studies indicate that 25% to 45% of vessels treated with balloon angioplasty return to their pre-treatment, narrowed size, a process known as restenosis, within six months following the procedure. Restenosis is primarily the result of cell proliferation in response to the injury caused by the angioplasty procedure.
Stents. High rates of restenosis following treatment by balloon angioplasty led to the introduction of stents, mesh-like metallic tubes that are placed within the narrowed portion of the coronary vessel to hold the vessel open after the angioplasty balloon has been removed. Although clinical outcomes for procedures using stents reflect an improvement over balloon angioplasty alone, the effectiveness of stents is still limited by restenosis, which occurs in about 10% to 35% of cases within six months of the procedure.
Recently, some manufacturers have introduced drug-eluting stents, which incorporate, on the surface of the stent, specially formulated, slow-release drugs designed to prevent restenosis. According to published studies, currently marketed drug-eluting stents have been shown in clinical trials to reduce the rate of restenosis, within the first nine months after placement, to less than 10%. Market adoption of drug-eluting stents has been rapid, and industry observers predict that drug-eluting stents will capture approximately 90% of the stent market within three years.
Despite the advancements and market success of drug-eluting stents and angioplasty therapies, these interventional procedures have not been shown to be effective in addressing diffuse progressive coronary artery disease. In this advanced stage of coronary artery disease, intervention is required for multiple vessels, many of which are less than two millimeters in internal diameter, a diameter unsuited for angioplasty and stenting. In addition, stents have been shown to be difficult to place in patients with coronary lesions in sections with vessel branches and in patients with narrowings in the left main coronary artery.
Bypass Surgery. CABG involves the construction of an alternative path to bypass a narrowed or occluded coronary artery and restore blood flow from the aorta to an area past the occlusion. This procedure can be accomplished using either veins or arteries as bypass grafts. Veins are typically harvested from the patients leg, while arteries are taken from either the patients arm (radial artery) or chest wall (mammary artery). One end of the harvested vessel is then generally attached to the aorta for blood inflow, and the opposite end is attached to the
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target coronary vessel. If a mammary artery is used as the bypass graft, it must be dissected from the chest wall, leaving one end in place, while the opposite end is attached to the target vessel, providing uninterrupted blood flow from the arterial circulation. Once in place, these grafts provide sufficient blood flow to bypass the narrowed or occluded portion of the coronary artery. (See Figure Below).
Although CABG surgery is generally a highly invasive and even traumatic procedure, an independent study comparing CABG and implantation of conventional stents has shown that CABG is the more effective treatment for coronary artery disease, achieving the best long-term patient outcomes as measured by survival rate and need for intervention. Studies have shown that following CABG, grafts can remain patent, or open, and functional for as long as 10 years in approximately 50% of venous grafts and approximately 95% of arterial grafts. In addition, CABG procedures can be used to treat diffuse, end-stage coronary artery disease states that are not amenable to treatment by angioplasty or stents.
According to an independent study, an estimated 260,000 CABG procedures will be performed in 2005 in the United States, as compared to approximately 280,000 procedures in 2004. We believe that the decrease in CABG procedures is primarily attributable to the increase in other interventional cardiology procedures, including the increased use of drug-eluting stents. The average CABG surgery requires approximately three bypass grafts per patient, and a majority of grafts require an anastomotic connection at both ends of the graft. Assuming an average of approximately five anastomoses per CABG procedure, we estimate that approximately 1.2 million of these blood vessel connections are performed annually in the United States. We believe approximately 70% of the procedures are performed using veins as the bypass graft.
Types of CABG Procedures
There are currently three types of CABG, two of which are commonly performed:
Conventional On-Pump CABG Procedures . Conventional on-pump CABG procedures are particularly invasive and traumatic to the patient, typically requiring the surgeon to open the patients chest cavity by splitting the sternum and to place the patient on a pump to circulate the blood throughout the body. Redirecting the blood flow to a pump enables the surgeon to clamp the aorta and stop the heart, which results in a motionless and bloodless field in which the surgeon can perform the difficult and tedious task of manually suturing the small vessels to one another. The absence of blood flow and motion are important factors in ensuring precision and providing positive clinical outcomes; however, the use of a pump for circulation exposes the patients blood to foreign surfaces, which has been shown to increase the incidence of bleeding, infection and short-term neurocognitive defects. Additionally, stopping the heart may result in impairment or damage to the heart muscle. Moreover, clamping of the aorta has been shown, in clinical studies, to cause the release of particles into the blood stream that may produce blockages in other parts of the body, such as the brain. Blockages in the brain can lead to neurological damage, including strokes. Clamping the aorta also carries the risk of injury to the vessel wall with later bleeding complications. Notwithstanding these potential problems the majority of CABG procedures performed today use this on-pump technique.
Off-Pump CABG Procedures . In 1995, a new method of performing CABG was introduced that avoids the use of external pumps, requiring the surgeon to perform the anastomosis while the heart is beating. The clinical literature suggests that this procedure, termed off-pump coronary artery bypass, or OPCAB, offers several benefits, including reductions in bleeding, overall surgical site morbidity, kidney dysfunction, short-term neurocognitive dysfunction and length of hospital stay. OPCAB is currently used in approximately 25% of all CABG procedures performed in the United States.
Notwithstanding these advantages, the technical challenges inherent in OPCAB have impeded its widespread adoption. Because the patients heart is beating during the procedure, the surgeon is required to perform the delicate anastomosis on a target vessel, which could be as narrow as one millimeter in internal diameter, while the vessel is moving with each heart contraction. The technical demands of the procedure, together with the longer learning curve required to achieve surgical proficiency, may also initially adversely affect long-term graft patency and completion of revascularization. In addition, surgeons will still typically be required to place a partially occluding clamp on the ascending aorta to hand suture the proximal vein graft anastomosis. As a result, even in
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OPCAB procedures, patients still face the risk of the serious adverse effects associated with the application of aortic clamps.
Minimally Invasive Endoscopic Procedures. Recently, a very small number of CABG procedures have been performed using minimally invasive endoscopic procedures to reduce patient trauma. In this approach, the sternum is left intact and the surgery is performed through small access ports. The anastomoses are performed on selected, readily reachable vessels using special surgical instruments, and this procedure requires special surgical skills. Although endoscopic procedures offer the promise of faster post-operative patient recovery times, rapid ambulation, long-term graft patency and a low incidence of adverse outcomes, there are a number of challenges to wide-scale realization of that potential, in particular, the absence of a method to enable surgeons to perform reproducible and effective anastomoses that can be rapidly deployed through small incisions. Currently, fewer than 1% of CABG anastomoses are performed using minimally invasive endoscopic techniques.
Surgical Techniques for Anastomoses
The current method of performing anastomoses, the most critical aspect of CABG procedures, typically employs tedious and time-consuming hand-sewn placement of individual stitches with a continuous suture to connect the bypass graft to the aorta or coronary vessels. Conventional anastomosis can require up to 20 minutes to suture, depending upon the size of the vessels. Proper vessel alignment and suture tension among the many individually placed fine stitches are critical for optimal bypass graft blood flow and function. Furthermore, long-term clinical outcomes may be improved if the anastomosis is compliant, that is, if its shape and size can adapt to changes in flow and blood pressure by placement of many single sutures rather than one continuous suture. However, most surgeons prefer the use of a continuous suture because placement of individual sutures may be more technically challenging and time-consuming. Whether the surgeon elects to operate on the patient on- or off-pump, a hand-sewn proximal anastomosis generally requires clamping of the aorta and therefore carries with it the risk of neurological damage and other serious adverse effects. Recently, new technology has been introduced that allows the surgeon to perform hand-sewn proximal anastomoses to the aorta without clamping of the aorta. These facilitating devices temporarily cover the opening in the aortic wall from the inside while the surgeon places the stitches to create the anastomosis and are removed after the anastomosis has been completed to allow blood flow into the bypass graft. These systems, however, are not suitable for endoscopic bypass surgery.
The laborious and time-consuming nature of manually applied sutures and the limitations associated with their use, together with advances occurring in coronary surgical procedures, have fueled the need for easy-to-use, fast and highly reliable automated systems to expedite and standardize the performance of anastomoses in CABG procedures. Although a number of companies have attempted to develop automated systems to perform anastomoses, to date only one system, which is for use in performing a proximal anastomosis, is currently commercially available in the United States.
Our Solutions
We design and manufacture proprietary automated anastomotic systems used by surgeons to perform anastomoses during on- or off-pump CABG procedures. We believe that by enabling consistent and reliable anastomoses of the vessels at this most critical step in CABG surgery through a fast, automated process, our products can improve the quality and consistency of these anastomoses, which we believe will ultimately contribute to improved patient outcomes. We have designed our products to meet the needs of surgeons, including:
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Physiological features . Our clips use medical grade stainless steel that is identical to that used in conventional coronary stents, which is known to be compatible with the human body. Our products minimize trauma to both the graft and target vessel during loading and deployment, thereby reducing the risk of scar formation and associated narrowings or occlusions. Additionally, our PAS-Port system can be used without clamping the aorta, which has been shown to be a cause of adverse events, including neurological complications. In addition, our C-Port system creates compliant anastomoses, which potentially allow the shape and size of the anastomosis to adapt to changes in flow and blood pressure. |
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Handling features . Our anastomotic systems can create anastomoses more rapidly than hand suturing, resulting in a surgical procedure that can be performed more quickly. For example, both the C-Port and PAS-Port systems can be set-up and deployed in approximately two minutes compared with approximately 10 to 20 minutes for a hand-sewn anastomosis. In addition, the system is easy to use, typically requiring |
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only a few hours of training to become technically proficient in the technique. The C-Port system is compatible with coronary arteries as small as one millimeter in internal diameter, which is typically the lower limit of target vessels considered to be candidates for revascularization. The C-Port system can also be deployed at various angles, allowing access to all coronary targets during both on- and off-pump procedures. Both the C-Port system and the PAS-Port system are designed as integrated products, where all steps necessary to create an anastomosis are performed by a single tool, with one user interface. The need for target vessel preparation is minimal for the PAS-Port system, a feature that is especially important in patients undergoing a second or third coronary bypass procedure with the presence of significant scarring in and around the heart and aorta. |
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Standardized results . Our products enable consistent, reproducible results, largely independent of surgical technique and skill set, using a wide range in quality of graft tissues. In comparison with hand-sewn sutures, our systems offer mechanically-governed repeatability and reduced procedural complexity. |
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Reduced costs . Because our products can help to expedite the CABG procedure, we believe that they may contribute to reduced operating room time and associated expenses. Additionally, our C-Port system creates anastomoses rapidly and does not require the interruption of blood flow. It may reduce some of the technical challenges inherent in performing anastomosis in off-pump procedures, which may advance adoption of the off-pump approach. By helping more surgeons perform off-pump CABG, the need for a costly pump may also be reduced or eliminated, thereby potentially reducing the total costs of the procedure. Finally, to the extent complications such as strokes or injury to the heart muscle decrease, post-operative costs of a CABG procedure may be significantly reduced. |
Our Strategy
Our goal is to become the leading provider of automated anastomotic systems for cardiac bypass surgeries. Although CABG may offer the most effective treatment for many patients with coronary artery disease, patients are often deterred by the invasiveness and trauma associated with the procedure. As a result, some patients may opt to accept less invasive procedures, such as balloon angioplasty and coronary stent implantation, even though the procedure may result in a less favorable outcome for that patient. For CABG to be a more attractive treatment alternative, surgeons must strive to decrease the invasiveness and trauma associated with current procedures by introducing endoscopic or keyhole surgery for CABG, similar to the success seen in laparoscopic or arthroscopic procedures over the past decade. However, for endoscopic CABG to be widely adopted, several challenges must be overcome, including, most significantly, the development and successful implementation of innovative technology that safely accomplishes the most critical step in this procedure, the anastomosis. We believe that our anastomotic technology will become a key enabling technology for endoscopic CABG.
We believe we must follow a step-by-step process of technology development and market introduction to achieve our goals. In the first step, we must show strong clinical evidence that our products are safe and effective in an open chest setting, an environment in which the surgeon currently feels most comfortable. Anastomotic systems are disruptive technology and, to gain the trust and confidence of cardiac surgeons, we must carefully familiarize them with these systems. If we are successful in this first step of the process and the surgical community has started to adopt this technology in open chest surgery, the second step would involve introducing follow-on products that have been tested in a closed chest setting and have incorporated all the features necessary to safely and effectively perform this type of procedure.
The principal elements of our strategy to achieve our vision and goals include:
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Driving market adoption of the C-Port and PAS-Port Systems. If we receive FDA clearance or approval for these products, we intend to drive commercial adoption of our C-Port and PAS-Port systems by marketing them as integrated anastomotic tools for use in both on- and off-pump CABG procedures. We believe clinical data from our product trials and evidence of the cost-effective nature of our systems compared with alternatives will be key factors in driving physician adoption of our products. We intend to continue to seek to obtain persuasive clinical data on patient outcomes, procedure times and costs and quality of outcome through post-marketing studies, registry trials and physician-initiated studies to further drive market adoption. |
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Expanding our sales and marketing effort. If we receive FDA clearance to market our C-Port system, we plan to build a direct sales force in the United States. We expect our U.S. sales force will include clinical specialists who are skilled in training cardiovascular surgeons in the use of our products. We plan to initially target selected top-tier cardiac surgery centers and to conduct intensive focused marketing and training of surgeons affiliated with those centers. Through this effort, we will seek to capitalize on their reputations in the cardiac surgical community to increase both confidence in and demand for our products. We also intend to increase the number of distributors carrying our products in Europe and Asia. If we obtain FDA clearance or approval of the PAS-Port, the same sales force will be responsible for selling this and potentially other future products in the field of cardiac surgery. |
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Capitalizing on our proprietary technology to develop next-generation products for endoscopic cardiac procedures. We believe that the evolution of endoscopic CABG procedures, which would offer faster post-operative patient recovery times, long-term graft patency and a low incidence of adverse outcomes, could increase the number of CABG procedures performed. To help propel the effort toward more viable cardiac endoscopic procedures, we plan to develop flexible, next-generation automated anastomotic systems designed to facilitate minimally invasive endoscopic CABG. We have received a grant from the National Institute of Health, or NIH, which will, in part, support us in our efforts to reach the goal of developing products for use in endoscopic surgery. |
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Leveraging our core competency to develop innovative products for other surgical applications. We believe that our core technology, which comprises extensive technological innovations, can be adapted for a variety of surgical applications and disease indications. For example, we are currently developing products for use in other applications, such as vascular closure. We plan to continue to seek market opportunities in related fields to develop additional products that leverage our core strengths in surgical stapling and closure. |
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Establishing a strong proprietary position. As of September 30, 2005, we had 29 issued U.S. patents, 62 additional patent applications in the United States and another six patent applications filed in selected international markets. We plan to continue to invest in building our intellectual property portfolio. |
Our Products
We have developed two proprietary systems to perform anastomoses, the C-Port® Distal Anastomosis System and thePAS-Port® Proximal Anastomosis System. These products allow cardiac surgeons to perform distal and proximal coronary anastomoses using an automated approach. Our current systems are designed for use only with vein grafts and not arterial grafts. The systems are currently indicated for vein grafts with an outer diameter from four to six millimeters, which represents a majority of vein grafts encountered during bypass surgery.
C-Port® Distal Anastomosis System
Our C-Port system, which may be used in either on- or off-pump CABG procedures, is designed to perform an end-to-side distal anastomosis by attaching the end of a bypass vein graft to a coronary artery downstream of an occlusion or narrowing. The system uses miniature stainless steel staples to securely attach the bypass graft to the coronary artery. As depicted in Figure 2, the individually placed staples inserted by the C-Port system mimic individual sutures, expeditiously and easily creating a compliant anastomosis. In contrast to a non-compliant hand-sewn anastomosis using a continuous suture, the compliant nature of the C-Port anastomosis potentially allows the anastomosis to adapt to changes in blood flow or pressure. Our C-Port system is effective in creating compliant anastomoses in vessels as small as one millimeter in internal diameter. In addition, the C-Port system has been designed to:
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perform an end-to-side anastomosis without interruption of native coronary blood flow, which is not possible in a conventional hand-sewn anastomosis during off-pump surgery without the use of a temporarily placed vascular shunt; |
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be compatible with vein grafts of different diameters and wall thicknesses; |
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achieve nearly complete alignment of the natural blood lining surfaces of the coronary artery and the vein graft to minimize scarring and potential occlusion of the anastomosis; and |
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minimize the amount of foreign material in the blood stream that may cause clotting and subsequent graft failure. |
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Figure 1: C-Port Distal Anastomosis System
Figure 2: C-Port Anastomosis
In preparing to deploy the C-Port system, the surgeon cuts the end of the bypass graft as he would for a hand-sewn anastomosis and attaches the graft to four hooks situated on the base of the cartridge. The surgeon then creates a small incision in the target coronary artery and inserts the anvil, a small metal structure of one millimeter diameter. Pressing the button on the C-Port system handle, the surgeon lowers the cartridge with the graft attached onto the target coronary artery and then deploys the staples through the graft and coronary artery against the anvil. The staples are formed on the anvil surface, joining the coronary artery and graft. In addition, a small knife located inside the anvil is released to cut the coronary artery from the inside out to create an opening in the coronary wall through which the blood can flow. Following completion of the anastomosis, the surgeon removes the anvil from the coronary artery and, with a single stitch, manually closes the small opening initially created to insert the anvil. The entire procedure is typically performed in one to three minutes.
The C-Port system is currently approved for use in Europe, and we have applied for 510(k) clearance to market the C-Port system in the United States.
PAS-Port® Proximal Anastomosis System
Our PAS-Port® Proximal Anastomosis System is a fully automated device used to perform an end-to-side proximal anastomosis between a saphenous vein and the aorta. To complete a proximal anastomosis, the cardiac surgeon simply loads the bypass graft vessel into the PAS-Port system, places the end of the delivery device against the aorta and turns the knob on the opposite end of the delivery tool. The device first creates an opening in the aorta and subsequently securely attaches the bypass graft to the aortic wall, using a medical grade stainless steel implant that is formed into its final shape by the delivery tool. The innovative design of the PAS-Port system allows the surgeon to load the bypass graft and rapidly complete the anastomosis, typically in less than two minutes, with little or no injury to the bypass graft vessel or the aorta.
Figure 3: PAS-Port® Proximal Anastomosis System
Figure 4: Cross Section of PAS-Port anastomosis
An important advantage of our PAS-Port system is that, in contrast to conventional hand-sewn proximal anastomoses, the vascular connections created can be performed without clamping the aorta, potentially avoiding the associated risks such as neurological complications. Surgeons use our PAS-Port system in conventional CABG procedures and in OPCAB. We will be working on adaptations to the PAS-Port system for use in endoscopic applications.
The PAS-Port system is approved for sale and marketed in Europe and Japan. As of September 30, 2005, over 2,400 PAS-Port systems had been sold, primarily in Japan. In addition, we have recently obtained conditional approval from the FDA for an Investigational Device Exemption to conduct a prospective, randomized, multi-center and multi-national clinical trial to evaluate the safety and efficacy of the PAS-Port system.
Future Product Programs
Our product research and development efforts are focused on building innovative devices that enhance our current products or leverage our core competency in mechanical clip formation for applications in endoscopic CABG and other medical fields. We currently have active programs to design and develop the following products:
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C-Port xA Anastomosis System
Figure 5: C-Port xA Anastomosis System
The C-Port xA Anastomosis System, referred to as the C-Port xA system, is our second-generation C-Port system. In addition to the benefits of the C-Port system, the C-Port xA system is designed to enable distal anastomoses using either arterial or venous bypass grafts. The C-Port xA system is designed to deploy more staples around the periphery of the anastomosis than the original C-Port system to help ensure leak-proof sealing of the anastomosis. We are currently conducting preclinical animal-model studies of this product candidate.
Endoscopic Anastomosis System (C-Port Flex A System)
Figure 6: C-Port Flex A Anastomosis System
The C-Port Flex A Anastomosis System, or the C-Port Flex A system, includes modifications to the C-Port xA system that are designed to enable automated anastomoses to be performed as part of robot- facilitated CABG procedures. The C-Port Flex A system includes all the features and benefits of the C-Port xA system and has a flexible, rather than rigid, shaft. The flexible shaft is designed to allow the working end of the device that creates the anastomosis to be inserted through a 12-millimeter diameter port to access the chest cavity and heart. The device would then be loaded with the bypass graft vessel inside or outside the chest cavity and deployed to create the anastomosis to the coronary artery. This product is designed to enable technology for completion of robotically assisted, including endoscopic, CABG surgery through four or five relatively small incisions between the ribs. Avoiding both the incision through the sternum and the use of a pump should significantly reduce patient trauma and accelerate post-operative recovery. We are currently conducting preclinical animal-model studies with the C-Port Flex A, supported in part by a grant from the NIH.
X-Port Vascular Access Closure Device
We believe that our proprietary technology used in our automated vascular anastomosis systems may provide an innovative, simple mechanical solution to close the vascular access sites used in interventional vascular procedures. We are currently designing the X-Port Vascular Access Closure Device, or X-Port, to address this clinical need.
Similar to our other products, the X-Port consists of a deployment tool and a vascular clip. At the end of an interventional vascular procedure, the surgeon would insert the deployment tool into a standard introducer sheath and then simply press a button to deploy a micro-stainless steel clip over the opening in the vessel wall, sealing off the vascular access site.
Currently, vascular closure is accomplished by one of two methods, manual compression or alternative vascular closure devices. Simple manual compression, the most frequently used method of closure, is a time-consuming process that requires the patient to lie flat while pressure is manually applied directly to the access site for approximately 30 to 60 minutes. Once this initial period of compression is completed, the patient must continue to remain immobile for up to another six to 24 hours, depending upon the amount of anticoagulant drug therapy used during and after the procedure. Manual compression causes patient discomfort, is resource intensive and can increase the duration of the patients hospitalization. As a result, a variety of devices have been developed and commercialized to replace manual compression. Most of these products substantially decrease the duration of hospitalization, time to ambulation and, in most instances, patient discomfort.
It is estimated that approximately 9 million diagnostic and interventional catheterization procedures will be performed worldwide in 2005. In each of these procedures, the access site must be closed by one of these closure methods. It is estimated that in approximately 45% of these patients a device is employed. The worldwide market for femoral artery closure devices is estimated to be $500 million in 2005 and is estimated to increase to approximately $790 million by 2008.
We have targeted this rapidly growing market because we believe that, by integrating many of the desired features into a single product, the X-Port, if it is successfully developed and receives regulatory clearance or
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approval, may be well-positioned to outperform existing vascular access closure devices. Potential X-Port advantages include:
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a simple user interface; |
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placement through the same introducer sheath used for the interventional procedure; |
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minimal amount of foreign material in the vessel wall with only a fraction of this material exposed to blood; |
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a low manufactured cost; and |
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scalable to various sizes of introducer sheaths. |
We are currently conducting preclinical animal-model studies of the X-Port to assess its safety and efficacy.
Clinical Trial Summary and Timeline
Regulatory Status:
International
The C-Port system received the CE Mark in April 2004 and the PAS-Port system received the CE Mark in March 2003. The PAS-Port system also received regulatory approval to be sold in Japan in January 2004. We plan to submit the C-Port xA for regulatory approval in Japan as well.
United States
We commenced our European pivotal clinical trial to study our PAS-Port system in 2002. In the same year, the FDA approved two proximal anastomosis devices for sale in the United States, the Symmetry system developed by St. Jude Medical and the CorLink system developed by Bypass, Inc. and Johnson & Johnson. The design of the pivotal clinical trial for the PAS-Port was based on the trial designs of these two predicate devices. We submitted the results of our pivotal clinical trial for the PAS-Port system to the FDA in an application for 510(k) clearance in 2003. After receiving reports of apparently device-related adverse events with the Symmetry device, the FDA revisited the criteria for a 510(k) clearance of subsequent anastomosis products. The FDA sponsored a special panel meeting on March 19, 2004 to redefine objective performance criteria for safety and efficacy of anastomosis products, which are significantly more rigorous than when we submitted our data. Following redefinition of the objective performance criteria, we resubmitted pooled data from two trials evaluating safety and efficacy of the PAS-Port system to the FDA. In April of 2005, the FDA asked the Circulatory System Devices Panel to consider the data submitted on the PAS-Port system. The panel concurred that vascular anastomotic devices have great potential and the data regarding the PAS-Port system looked promising. The majority of panel members, however, believed that more robust data were required. Following this recommendation from the panel, we withdrew our 510(k) submission. To collect data to address the new criteria, we obtained a conditional approval of an Investigational Device Exemption, or IDE, for a new randomized prospective clinical trial to be conducted in the United States and Europe.
We commenced our pivotal clinical trial to study our C-Port system in 2003 and submitted the data from this trial in an application for 510(k) clearance in 2004. We subsequently submitted to the FDA additional data from the same clinical trial, which is currently under review.
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International Clinical Studies
The following table summarizes the international clinical studies we have sponsored:
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Study |
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Sites |
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Enrollment
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Patients |
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Objective |
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Length of
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Status & Results |
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C-Port Pivotal Trial |
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5 European Sites |
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February 2004 |
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133 |
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Determine safety and efficacy of distal anastomotic device. |
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12 months |
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1) 6-month patency rate of
96%
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PAS-Port European Pivotal Trial |
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3 European Sites |
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September 2002 |
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55 |
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Determine safety and efficacy of proximal anastomotic device. |
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24 months |
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1) 6-month patency rate of
87.2%
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PAS-Port II Trial |
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4 European Sites |
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February 2004 |
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54 |
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Increase data pool for study of safety and efficacy with an improved PAS-Port device |
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12 months |
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1) 6-month patency rate of
96.2%
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* MACE: Major adverse cardiac events (death, heart attack, target vessel revascularization)
C-Port Pivotal Trial
The C-Port system pivotal trial was designed to prospectively assess the safety and effectiveness of the C-Port system in creating an anastomosis between a coronary artery and a vein graft harvested from the patient. The primary effectiveness endpoint was angiographic evidence of patency at six months and absence of major adverse cardiac events, or MACE, at one year.
Patient enrollment for the C-Port system pivotal clinical trial began in July 2003. Ultimately, 133 patients met the criteria for enrollment in this multi-center, prospective, non-randomized clinical trial conducted in four hospitals in Germany and one hospital in Switzerland. In this study, surgeons successfully used the C-Port system for anastomosis for 113, or approximately 85%, of these patients. Of the remaining 20 patients, three died for reasons that were unrelated to the device, 16 were converted to hand-sewn anastomoses, and the coronary target vessel for one patient was deemed unsuitable after intra-operative site assessment. In 45 of these patients (40%), the C-Port systems were used in small diameter coronary arteries with an internal diameter of 1.5 millimeters. At six and 12 months following the surgical procedure involving the C-Port system, 105 patients and 107 patients, respectively, were available for clinical follow-up. Graft patency was assessed angiographically prior to discharge and again at six months following the procedure. The six-month assessment indicated patent grafts in 96% of the patients assessed. By contrast, an analysis of published data studying hand-sewn anastomoses generally showed average patency of approximately 84% three to six months following the procedure in more than 29,000 bypass grafts collectively studied. The results of the 12-month follow-up assessment of patients enrolled in the C-Port pivotal trial also demonstrated MACE rates comparable to those of patients with hand-sewn grafts presented in the medical literature.
After submitting the results from the clinical trial and implementing corrections to resolve the minor mechanical reliability problems, the C-Port system received the CE Mark and was approved for sale in Europe.
PAS-Port European Pivotal Trial
The PAS-Port European pivotal trial was designed to prospectively assess the safety and effectiveness of the PAS-Port system in creating an anastomosis between an aorta and a vein graft harvested from the patient. We sought to demonstrate rates of patency at six months that were at least as favorable as those for hand-sewn anastomoses as well as absence of MACE at two years. Based on the FDAs criteria as defined in March 2004, quantitative angiography was to be used to assess patency of grafts connected with an anastomotic device at a minimum of six months after surgery. Following March 2004, the FDA expects an average vein graft patency rate of at least 85% with a specified statistical confidence level. For the FDAs purposes, graft patency is defined as less
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than 50% stenosis, or narrowing, at the site of the mechanical anastomosis, and patency must be determined by angiography and evaluated by an independent core laboratory.
We enrolled 55 patients in this study, which commenced in June 2002. This multi-center, prospective, non-randomized clinical trial was conducted at three sites in Europe, two in Germany and one in Switzerland.
Of the 55 patients enrolled in the study, 47 patients, or approximately 85%, were successfully implanted with an aggregate of 50 PAS-Port implants. In eight patients, the PAS-Port deployments were unsuccessful either due to technical errors with the PAS-Port or technique errors by the surgeons. Patients who were not successfully implanted with the PAS-Port device were successfully converted to hand-sewn anastomoses without compromise to long-term patient outcome.
Graft patency was assessed angiographically prior to discharge and again at six months post-procedure. Angiograms were evaluated by a core laboratory at Stanford University Medical Center for independent analysis. The original study called for follow-up at three and six months. The study was later amended to obtain a two-year follow-up evaluation to meet FDA requirements for long-term follow-up. Clinical follow-up at three months was available on all 47 PAS-Port implanted patients, on 44 patients (93.6%) with PAS-Port implants at six months and on 42 PAS-Port implanted patients (89.4%) at two years. Angiograms were obtained at six months on 39 patients (42 PAS-Port grafts). Stress electrocardiograms, or ECG, tests were obtained at two years on 36 patients with 38 PAS-Port grafts.
The angiographic observed rate of patency of the PAS-Port system at six months was 85.7% for the patients available for evaluation. Five patients with five PAS-Port grafts were evaluated by magnetic resonance imaging, or MRI, and these grafts were shown to be patent. Including this data, the overall patency was 87.2% at six months. At 24 months,, 97.2% of the implanted patients evaluated did not show any evidence of oxygen deprivation to the heart muscle assessed through stress ECG.
This trial demonstrated favorable long-term (24-month) clinical outcomes for the patients implanted with the PAS-Port implant, including an overall patency rate after six months of 87.2%. Historical data compiled from many studies indicates a 84.1% patency rate for grafts anastomosed using hand-sewn suturing techniques and studied six months after surgery. This clinical trial also revealed minor mechanical reliability problems with the PAS-Port system that prevented successful implantation in several patients. Of the 47 patients successfully implanted with our PAS-Port system, 42 were evaluated 24 months after surgery for evidence of MACE, and these follow-up evaluations indicate that the rate of MACE of these patients was comparable to the rates in historical clinical trials regarding hand-sewn sutures. After submitting the results from the clinical trial and implementing corrections to address the mechanical reliability problems, the product received the CE Mark and was approved for sale in Europe.
PAS-Port II Trial
To gain further clinical experience with the PAS-Port system, the PAS-Port device was also used in 54 of the 133 patients enrolled in the C-Port pivotal trial described above. In patients receiving more than one vein graft, the study protocol allowed usage of the PAS-Port system in additional vein grafts in which the C-Port system was not used.
Of the patients in the C-Port pivotal trial, 50 patients were successfully implanted with an aggregate of 59 PAS-Port implants. Clinical follow-up was available on 47 (94%) of these patients at three months and on 46 (92%) of these patients at six and 12 months. The original protocol called for follow-up at three and six months. The protocol was later amended to include a 12-month follow-up evaluation to meet FDA requirements for long-term follow-up. Angiograms were obtained at six month follow-up on 38 patients having an aggregate of 47 PAS-Port grafts. Stress ECG tests were obtained at 12 months on 42 patients (51 PAS-Port grafts).
Angiograms were performed at six months and demonstrated average patency rates for the PAS-Port grafts of 96%. Throughout the 12 months of follow-up, 86% of the patients with PAS-Port implants remained free of MACE.
Based on the PAS-Port European pivotal trial and the additional data gathered during the PAS-Port II trial, we believe we have confirmed the safety and effectiveness of the PAS-Port system; however, our data did not
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achieve the level of statistical confidence required to obtain FDA clearance at that time. As discussed under Clinical Trial Summary and Timeline United States above, the Circulatory System Devices Panel determined that additional data is required before a conclusion as to safety and effectiveness could be formed by the FDA. We cannot assure you that additional data we obtain will be as favorable as the data discussed above or will establish the safety or efficacy of our PAS-Port system.
Post-Marketing Surveillance
Post-marketing studies are conducted to provide data regarding disease treatment outcomes. These studies often collect acute, procedural, safety and long-term efficacy data. Acute data from post-marketing studies on CABG procedures often describe the amount of stenosis immediately pre- and post-procedure, and provide data as to procedure-related morbidity, such as heart attack or stroke. Long-term efficacy data collected weeks, months or years after a procedure can be measured in terms of patency or re-intervention rates. Reintervention, also referred to as revascularization, rates measure the number of grafts that have required treatment within a defined period of time because of narrowing or occlusion.
Studies are subject to a number of factors that can influence results, making it difficult to draw general conclusions. The rate of graft occlusion and the need for re-intervention may be influenced by factors unrelated to the method of treatment, such as the type of artery in which the stenosis is located or a patients overall health. Because of the relatively small number of treated patients, these factors can influence the meaningfulness of clinical study results. Consequently, findings from one study should not be used to predict limitations or benefits of a particular means of treatment.
The PAS-Port system has been marketed in Europe since March 2003 and in Japan since January 2004. Since commercial launch, we have sold more than 2,400 PAS-Port systems. We have obtained data on the performance of the PAS-Port System from three different sources:
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Cardica sponsored European PAS-Port Registry |
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Investigator sponsored single center, prospective, randomized trial (Heartcenter Leipzig) |
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Cardica initiated world-wide post-market survey |
European PAS-Port Registry . A multi-center patient registry for the PAS-Port system was compiled from data reported by five centers in Europe, which reported data on 95 patients implanted with 123 PAS-Port devices between April 2003 and March 2004. The registry was designed to collect information on the performance of the delivery system during the formation of the anastomosis and to assess any device-related adverse events in the short-term following the procedure. There were no defined exclusion criteria; therefore, this registry was conducted in a patient population that we believe had a greater extent of underlying coronary artery disease, co-existing cardiac conditions, previous coronary interventions or surgery and other adverse health factors than the patient populations in our clinical studies. Acute procedural success was demonstrated by a successful PAS-Port system deployment rate of 95%. There were no reports of re-operation for revision or bleeding associated with a PAS-Port anastomosis. Average clinical follow-up in these patients was at six months following surgery. In these follow-up evaluations, there were no PAS-Port-related patient deaths and only approximately 6% of grafts demonstrated stenosis or occlusion.
Investigator-Sponsored Single Center Randomized Trial . In June 2005, data was presented at the annual meeting of the International Society for Minimally Invasive Cardiac Surgery describing results from a single center, prospective, randomized clinical trial comparing the PAS-Port system to hand-sewn anastomosis in patients requiring CABG. The primary outcome variable in this study was one-year graft patency assessed by computer tomography. An aggregate of 97 patents were enrolled in the study, of whom 51 were enrolled to receive anastomoses performed using the PAS-Port system and 46 were enrolled to receive anastomoses completed by hand-sewn sutures. Of the 46 patients originally enrolled for hand-sewing, five patients were converted to a PAS-Port anastomosis due to presence of severely calcified aortas, which makes hand-sewing more challenging. At discharge, 55 PAS-Port-implanted patients and 44 hand-sutured patients had CT scans. These scans demonstrated graft patency of 100% in PAS-Port grafts and 97.4% in hand-sewn grafts. At 12 months, the patency rates of 32 patients with PAS-Port anastomoses and 15 patients with hand-sewn anastomoses were 96.8% and 86.7%, respectively.
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Worldwide Market Survey . We performed a post-market survey with five European centers and four Japanese centers using the PAS-Port system. The primary outcome variable evaluated in this survey was the incidence of myocardial ischemia and MACE in patients with PAS-Port devices. The surgeons using the PAS-Port system were asked to submit adverse outcomes of all patients that had received a PAS-Port implant. This study included 499 patients, and 496 PAS-Port implants were successfully implanted. During the follow-up period, which was approximately one year for most patients, 11 patients died. During this follow-up period, six, or approximately 1.4% of patients returned to the treating center for evaluation of recurrent chest pain. This data compares favorably to the reoccurrence rate of angina in patients with hand-sewn anastomoses over a similar observation period.
We intend to continue to gather additional clinical data for our products to further support our sales and marketing efforts. We believe these studies will primarily consist of registry trials and physician-initiated studies.
Sales and Marketing
Our initial products focus on the needs of cardiovascular surgeons worldwide. If our products receive FDA clearance or approval, we intend to build a direct sales force in the United Sates, initially targeting selected influential surgeons in high volume cardiac surgery centers. Approximately half of all U.S. CABG procedures are performed at 225 cardiac surgery centers. If we receive FDA clearance or approval to market our devices, we plan to selectively target institutions within this group of centers and to conduct intensive focused marketing and training. Through this effort, we hope to generate wider demand for our products by training well-respected clinical supporters of our products and leveraging their reputations in the clinical community. In addition, we intend to promote our systems at major medical conventions and through other marketing efforts such as seminars, workshops, brochures and internet-based training. We will also work with our investigators to present the results of our clinical trials at cardiovascular meetings.
We currently distribute our PAS-Port system in Japan through our exclusive distributor, Century Medical, Inc., or Century. In the fiscal year ended June 30, 2005, sales to Century comprised approximately 33% of our net revenue. Century has a direct sales organization of approximately 16 representatives who are responsible for the development of the anastomotic device market and directly contact cardiac surgeons. Century provides clinical training and support for end-users in Japan. We provide Century with promotional support, ongoing clinical training, representation at trade shows and guidance in Centurys sales and marketing efforts. Our agreement with Century has an initial term of five years, which will end in June 2008. The agreement renews automatically for a second five-year term if Century meets certain sales milestones. Either party may terminate this agreement if the other party defaults in performance of material obligations and such default is not cured within a specified period or if the other party becomes insolvent or subject to bankruptcy proceedings. In addition, we may terminate the agreement within 90 days following a change of control by payment of a specified termination fee.
We are currently building a distribution network in Europe for both our PAS-Port and C-Port systems, and we hope to engage distributors in several countries by the end of 2005. We are continuing to sell to selected customers and will continue to evaluate further opportunities to expand our distribution network in Europe and in other parts of the world where the healthcare economics are conducive to the introduction and adoption of new medical device technologies.
Competition
The market for medical devices used in the treatment of coronary artery disease is intensely competitive, subject to rapid change, and significantly affected by new product introductions and other market activities of industry participants. We believe the principal competitive factors in the market for medical devices used in the treatment of coronary artery disease include:
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improved patient outcomes; |
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access to and acceptance by leading physicians; |
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product quality and reliability; |
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ease of use; |
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device cost-effectiveness; |
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training and support; |
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novelty; |
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physician relationships; and |
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sales and marketing capabilities. |
There are numerous potential competitors in the medical device, biotechnology and pharmaceutical industries, such as Boston Scientific Corporation, Edwards Lifesciences Corporation, Guidant Corporation, Johnson & Johnson, Inc., Medtronic, Inc. and St. Jude Medical, that are targeting the treatment of coronary artery disease broadly. Each of these companies has significantly greater financial, clinical, manufacturing, marketing, distribution and technical resources and experience than we have. In addition, new companies have been, and are likely to continue to be, formed to pursue opportunities in our market.
The landscape of active competitors in the market for anastomotic solutions is currently limited. Medtronic, with its recent acquisition of Coalescent Surgical, obtained the only marketed proximal anastomotic system in United States, the Spyder, which deploys a series of nitinol-based U-Clips to attach a graft to the aorta. Several companies market systems designed to facilitate or stabilize proximal anastomoses, such as Guidants Heartstring Aortic Occluder and Novare Surgical Systems Enclose anastomotic assist device. St. Jude Medical previously had a commercially available proximal anastomotic system that was marketed both in the United States and Europe; however, St. Jude Medical voluntarily withdrew this product from the market in 2004. Johnson & Johnson has obtained FDA clearance for a proximal system that has been developed by Bypass Inc.
Today, there are no automated anastomosis devices for distal anastomosis approved for distribution in the United States. The only currently marketed facilitating device for distal anastomosis is the U-Clip, which substitutes clips for sutures, but still requires manual application of typically 12 to 14 individually placed clips per anastomosis by the surgeon.
Currently, the vast majority of anastomoses are performed with sutures and, for the foreseeable future, sutures will continue to be the principal competitor for alternative anastomotic solutions. The leading supplier of sutures is Johnson & Johnson. Other major suppliers include U.S. Surgical and Genzyme Corporation. The sutures used for anastomoses in CABG procedures are far less expensive than automated anastomotic systems, and surgeons, who have been using sutures for their entire careers, may be reluctant to consider alternative technologies, despite potential advantages.
In addition, cardiovascular diseases may also be treated by other methods that do not require anastomoses, including interventional techniques such as balloon angioplasty and use of drug-eluting stents, pharmaceuticals, atherectomy catheters and lasers. Further, technological advances with other therapies for cardiovascular disease such as drugs, local gene therapy or future innovations in cardiac surgery techniques could make other methods of treating this disease more effective or less expensive than CABG procedures.
Our X-Port system, if developed and approved, would compete in the market for femoral artery closure devices. Two large competitors, St. Jude Medical and Abbott Vascular Devices, currently control over 80% of this market. St Jude Medicals Angioseal vascular closure device, which is licensed from Kensey-Nash, is based on a collagen plug and has the leading market share. Other FDA-cleared products in this market include Abbott Vascular Devices Perclose suture-based device and nitinol-based StarClose and Medtronics Angiolink Stapler. In addition to these large existing and potential competitors, there are a number of venture capital-backed private companies that are developing devices and technologies for this market.
Manufacturing
Our headquarters provides space for our manufacturing operations, sterile products manufacturing, packaging, storage and shipping, as well as for our research and development laboratories and general administrative facilities. We believe that our current facilities will be sufficient to meet our manufacturing needs for at least the next two years.
We believe our manufacturing operations are in compliance with regulations mandated by the FDA and the European Union. Our facility is ISO 13485:2003 certified. In connection with our CE mark approval and compliance with European quality standards, our facility was initially certified in June 2002 and has been inspected annually thereafter.
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There are a number of critical components and sub-assemblies required for manufacturing the C-Port and PAS-Port systems that we purchase from third-party suppliers. The vendors for these materials are qualified through stringent evaluation and monitoring of their performance over time. We audit our critical component manufacturers on a regular basis and at varied intervals based on the nature and complexity of the components they provide and the risk associated with the components failure.
We use or rely upon sole source suppliers for certain components and services used in manufacturing our products, and we utilize materials and components supplied by third parties, with which we do not have any long-term contracts. In recent years, many suppliers have ceased supplying raw materials for use in implantable medical devices. We cannot quickly establish additional or replacement suppliers for certain components or materials, due to both the complex nature of the manufacturing processes employed by our suppliers and the time and effort that may be required to obtain FDA clearance or other regulatory approval to use materials from alternative suppliers. Any significant supply interruption or capacity constraints affecting our facilities or those of our suppliers would affect our ability to manufacture and distribute our products.
Third-Party Reimbursement
Sales of medical products are increasingly dependent in part on the availability of reimbursement from third-party payors such as government and private insurance plans. Currently, payors provide coverage and reimbursement for CABG procedures only when they are medically necessary. Our technology will be used concomitantly in CABG procedures. We realize though that Cardica technologies will bring added costs to medical providers and may not be reimbursed separately by third-party payors at rates sufficient to allow us to sell our products on a competitive and profitable basis.
We believe the majority of bypass graft patients in the United States will be Medicare beneficiaries. Further, private payors often consider Medicares coverage and payment decisions when developing their own policies. The Centers for Medicare and Medicaid Services, referred to as CMS, is the agency within the Department of Health and Human Services that administers Medicare and will be responsible for reimbursement decisions for the Cardica devices when used to treat Medicare beneficiaries during CABG surgery.
Once a device has received approval or clearance for marketing by the FDA, there is no assurance that Medicare will cover the device and related services. In some cases, CMS may place certain restrictions on the circumstances in which coverage will be available. In making such coverage determinations, CMS considers, among other things, peer-reviewed publications concerning the effectiveness of the technology, the opinions of medical specialty societies, input from the FDA, the National Institutes of Health, and other government agencies. We cannot assure you that once our products are commercially available, they will be covered by Medicare and other third-party payors. Limited coverage of our products could have a material adverse effect on our business, financial condition and results of operations.
In general, Medicare makes a predetermined, fixed payment amount for its beneficiaries receiving covered inpatient services in acute care hospitals. This payment methodology is part of the prospective payment system, or PPS. For acute care hospitals, under PPS, payment for a patients stay is based on diagnosis-related groups, or DRGs, which include reimbursement for all covered medical services and medical products that are provided during a hospital stay. Additionally, a relative weight is calculated for each individual DRG which represents the average resources required to care for cases in that particular DRG relative to the average resources required to treat cases in all DRGs. DRG relative weights are adjusted annually to reflect changes in medical practice in a budget neutral manner.
CMS has made no decisions with respect to DRG assignment when patients undergo CABG procedures in which our products would be used, and there can be no assurance that the DRG to which such patients will be assigned will result in Medicare payment levels that are considered by hospitals to be adequate to support purchase of our products.
Under current CMS reimbursement policies, CMS offers a process to obtain add-on payment for a new medical technology when the existing DRG prospective payment rate is inadequate. To obtain add-on payment, a technology must be considered new, demonstrate substantial improvement in care and exceed certain payment thresholds. Add-on payments are made for no less than two years and no more than three years. In addition to CMS requirements we must demonstrate the safety and effectiveness of our technology to the FDA before add-on
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payments can be made. Further, Medicare coverage is based on our ability to demonstrate the treatment is reasonable and necessary for Medicare beneficiaries. The process involved in applying for additional reimbursement for new medical technologies from CMS is lengthy and expensive. Our products may not be awarded separate reimbursement in the foreseeable future, if at all. Moreover, many private payors look to CMS in setting their reimbursement policies and payment amounts. If CMS or other agencies decrease or limit reimbursement payments for hospitals and physicians, this may affect coverage and reimbursement determinations by many private payors.
Medicare policies allow Medicare contractors discretion to cover items involving Category B investigational devices. However, even with items or services involving Category B devices, Medicare coverage may be denied if any other coverage requirements are not met, for example if the treatment is not medically necessary for the specific patient. In our conditionally approved IDE, the PAS-Port system has been classified by the FDA as a Category B1 device. To that end, the five planned U.S. investigational sites for our upcoming trial may be able to seek specific CMS reimbursement for use of the PAS-Port.
For classification of physician services, the American Medical Association, referred to as the AMA, has developed a coding system known as the Current Procedural Terminology, or CPT. CPT codes are established by the AMA and adopted by the Medicare program to describe and develop payment amounts for physician services. Physician services are reimbursed by Medicare based on a physician fee schedule whereby payment is based on the number of relative value units assigned by CMS to the service furnished by the physician. No decision has been made concerning whether existing CPT codes would be appropriate for use in coding anastomosis procedures when our products are used or if new CPT codes and payment are required. We cannot assure you that codes used for submitting claims for anastomosis procedures using our products will result in incremental payment to physicians. CPT codes are used by many other third-party payors in addition to Medicare. Failure by physicians to receive what they consider to be adequate reimbursement for anastomosis procedures in which our products are used could have a material adverse effect on our business, financial condition and results of operations.
Research and Development
As of September 30, 2005, we had 15 employees in our research and development department. We currently have a preclinical program to develop smaller devices designed for endoscopic use and for use with automated surgical robotic systems. Future research and development efforts will involve continued enhancements to and cost reductions for our current C-Port and PAS-Port systems. We are also exploring the development of other products that can be derived from our core technology platform and intellectual property. Research and development expenses for fiscal years ended June 30, 2003, 2004 and 2005 were $6.7 million, $5.8 million and $6.3 million, respectively. We expect research and development efforts and expenses to increase in absolute dollar terms as we enhance the capabilities of our current products and explore new applications and indications for our automated anastomosis technology platform.
Patents and Intellectual Property
We believe our competitive position will depend significantly upon our ability to protect our intellectual property. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our technology, inventions and improvements that are important to the development of our business. As of September 30, 2005, we have 29 issued U.S. patents, 62 additional U.S. patent applications and another six patent applications filed in select international markets. Our issued patents expire between 2018 and 2023.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We typically require our employees, consultants and advisors to execute confidentiality and assignment of inventions agreements in connection with their employment, consulting or advisory relationships with us. There can be no assurance, however, that these agreements will not be breached or that we will have adequate remedies for any breach. Furthermore, no assurance can be given that competitors will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary technology, or that we can meaningfully protect our rights in unpatented proprietary technology.
Patent applications in the United States and in foreign countries are maintained in secrecy for a period of time after filing, which results in a delay between the actual discoveries and the filing of related patent applications
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and the time when discoveries are published in scientific and patent literature. Patents issued and patent applications filed relating to medical devices are numerous, and there can be no assurance that current and potential competitors and other third parties have not filed or in the future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products, devices or processes used or proposed to be used by us. We are aware of patents issued to third parties that contain subject matter related to our technology. We believe that the technologies we employ in our products and systems do not infringe the valid claims of any such patents. There can be no assurance, however, that third parties will not seek to assert that our devices and systems infringe their patents or seek to expand their patent claims to cover aspects of our products and systems.
The medical device industry in general, and the industry segment that includes products for the treatment of cardiovascular disease in particular, has been characterized by substantial litigation regarding patents and other intellectual property rights. Any such claims, regardless of their merit, could be time-consuming and expensive to respond to and could divert our technical and management personnel. We may be involved in litigation to defend against claims of infringement by other patent holders, to enforce patents issued to us, or to protect our trade secrets. If any relevant claims of third-party patents are upheld as valid and enforceable in any litigation or administrative proceeding, we could be prevented from practicing the subject matter claimed in such patents, or would be required to obtain licenses from the patent owners of each such patent, or to redesign its products, devices or processes to avoid infringement. There can be no assurance that such licenses would be available or, if available, would be available on terms acceptable to us or that we would be successful in any attempt to redesign our products or processes to avoid infringement. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which would have a material adverse effect on our business, financial condition and results of operations. We intend to vigorously protect and defend our intellectual property. Costly and time-consuming litigation brought by us may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of the proprietary rights of others. See Risk Factors.
On October 28, 2005, we received a letter from Integrated Vascular Interventional Technologies, Inc., referred to as IVIT, advising us for the first time of IVITs effort (thus far unsuccessful) to provoke an interference in the U.S. Patent and Trademark Office between one of IVITs patent applications (serial no. 10/243,543) and a patent currently held by us (U.S. patent no. 6,391,038) and relating to the C-Port® system. We also learned on that date that IVIT is attempting to provoke an interference in the U.S. Patent and Trademark Office between another of its U.S. patent applications (serial no. 10/706,245) and another of our issued patents (U.S. Patent No. 6,478,804). IVIT makes no specific demands in the letter, but alleges that it has an indication of an allowed claim and that it expects to receive a declaration of interference regarding that claim, and states that it would be strategically beneficial for us to discuss this matter prior to receiving a declaration of interference.
An interference is a proceeding within the U.S. Patent and Trademark Office to determine priority of invention of the subject matter of patent claims. The decision to declare an interference is solely within the power of the Board of Patent Appeals and Interferences of the U.S. Patent and Trademark Office, and can be made only after claims in a patent application are allowed by the examiner and a determination is made that interfering subject matter exists. As yet, no claims have been allowed in either of IVITs two patent applications referenced above.
We believe, after conferring with intellectual property counsel, that IVITs attempts to provoke an interference are unlikely to succeed, and we will vigorously defend our patents against such claims of interference, although there can be no assurance that we will succeed in doing so. We further believe that if IVITs patent claims are allowed in their present form, our products would not infringe such claims. There can be no assurance that IVITs patent claims, if allowed, will be in their present form, or that our products would not be found to infringe such claims or any other claims that are issued.
Government Regulation
The FDA and other regulatory bodies extensively regulate the research, development, manufacture, labeling, distribution and marketing of our products. Our current products are regulated by the FDA as medical devices, and we are required to obtain review and clearance or approval from the FDA prior to commercializing our devices in the United States. As discussed above under the heading Clinical Trial Summary and Timeline, none of our current products has been approved for commercialization in the United States, though we currently are seeking FDA clearance under a 510(k) application for use of our C-Port system for vein grafts in CABG procedures. In addition, we have obtained conditional approval of an IDE for the PAS-Port system from the FDA to study this product in the United States and abroad in a prospective, randomized trial. We cannot assure you that we will obtain clearance or approval from the FDA for the PAS-Port or C-Port systems.
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FDA regulations govern nearly all of the activities that we perform, or that are performed on our behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended uses. The activities that the FDA regulates include the following:
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product design, development and manufacture; |
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product safety, testing, labeling and storage; |
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pre-clinical testing in animals and in the laboratory; |
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clinical investigations in humans; |
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premarketing clearance or approval; |
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record keeping and document retention procedures; |
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advertising and promotion; |
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product marketing, sales and distribution; and |
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post-marketing surveillance and medical device reporting, including reporting of deaths, serious injuries, device malfunctions or other adverse events. |
FDAs Premarket Clearance and Approval Requirements. Unless an exemption applies, each medical device distributed commercially in the United States will require either prior 510(k) clearance or premarket approval, referred to as a PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices are subject to only general controls, such as establishment registration and device listing, labeling, medical devices reporting, and prohibitions against adulteration and misbranding. Class II medical devices require prior 510(k) clearance before they may be commercially marketed in the United States. The FDA will clear marketing of a medical device through the 510(k) process if the FDA is satisfied that the new product has been demonstrated to have the same intended use and is substantially equivalent to another legally marketed device, including a 510(k)-cleared, or predicate, device, and otherwise meets the FDAs requirements. Class II devices are also subject to general controls and may be subject to established standards and other special controls. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a predicate device, are placed in Class III, generally requiring submission of a PMA supported by clinical trial data.
510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a notification to the FDA demonstrating that our proposed device is substantially equivalent to a predicate device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a PMA application. The FDAs 510(k) clearance process generally takes from three to 12 months from the date the application is submitted, but can take significantly longer. If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously-cleared device or use, the device is automatically placed into Class III, requiring the submission of a PMA. Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, in connection with safety and effectiveness, a PMA. The FDA requires every manufacturer to make the determination regarding a new 510(k) submission in the first instance, but the FDA may review any manufacturers decision. If the FDA disagrees with a manufacturers determination, the FDA can require the manufacturer to cease marketing and/or recall the device until 510(k) clearance or PMA is obtained. If the FDA requires us to seek 510(k) clearance or PMAs for any modifications to any product for which we obtain clearance, we may be required to cease marketing and/or recall the device until 510(k) clearance or PMA is obtained and we could be subject to significant regulatory fines or penalties. Furthermore, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Delays in receipt or failure to receive clearances or approvals, the loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.
Premarket Approval Pathway. A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. The PMA process is much more demanding than the 510(k) notification process. A PMA must be supported by extensive data, including but not limited to data obtained from technical, preclinical, or clinical studies or relating to manufacturing and labeling to demonstrate to the FDAs satisfaction the safety and effectiveness of the device.
After a PMA is complete, the FDA begins an in-depth review of the submitted information, which generally takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide
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recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with Quality System Regulation, or QSR. New PMA applications or PMA supplements are required for significant modifications to the device, including modifications to the indicated use, manufacturing process, labeling and design of a device approved through the PMA process. PMA supplements often require submission of the same type of information as a PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA application and may not require as extensive clinical data or the convening of an advisory panel.
Clinical Trials. Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. To perform a clinical trial in the United States for a significant risk device, prior submission of an application for an IDE to the FDA is required. An IDE amendment must also be submitted before initiating a new clinical study under an existing IDE, such as initiating a pivotal trial following the conclusion of a feasibility trial. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, and any available data on human clinical experience, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The animal and laboratory testing must meet the FDAs good laboratory practice requirements.
The IDE and any IDE supplement for a new trial must be approved in advance by the FDA for a specific number of patients. Clinical trials conducted in the United States for significant risk devices may not begin until the IDE application or IDE supplement is approved by the FDA and the appropriate institutional review boards, or IRBs, overseeing the welfare of the research subjects and responsible for that particular clinical trial. If the product is considered a non-significant risk device under FDA regulations, only the patients informed consent and IRB approval are required. Under its regulations, the agency responds to an IDE or an IDE amendment for a new trial within 30 days. The FDA may approve the IDE or amendment, grant an approval with certain conditions, or identify deficiencies and request additional information. It is common for the FDA to require additional information before approving an IDE or amendment for a new trial, and thus final FDA approval on a submission may require more than the initial 30 days. The FDA may also require that a small-scale feasibility study be conducted before a pivotal trial may commence. In a feasibility trial, the FDA limits the number of patients, sites and investigators that may participate. Feasibility trials are typically structured to obtain information on safety and to help determine how large a pivotal trial should be to obtain statistically significant results.
Clinical trials are subject to extensive recordkeeping and reporting requirements. Our clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites and must comply with FDA regulations, including but not limited to those relating to good clinical practices. We are also required to obtain the patients informed consent in form and substance that complies with both FDA requirements and state and federal privacy and human subject protection regulations. We, the FDA or the IRB may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA approval to market the product in the United States. Similarly, in Europe the clinical study must be approved by a local ethics committee and in some cases, including studies with high-risk devices, by the ministry of health in the applicable country.
Educational Grants. The FDA permits a device manufacturer to provide financial support, including support by way of grants, to third parties for the purpose of conducting medical educational activities. If these funded activities are considered by the FDA to be independent of the manufacturer, then the activities fall outside the restrictions on off-label promotion to which the manufacturer is subject.
The FDA considers several factors in determining whether an educational event or activity is independent from the substantive influence of the device manufacturer and therefore nonpromotional, including the following:
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whether the intent of the funded activity is to present clearly defined educational content, free from commercial influence or bias; |
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whether the third-party grant recipient and not the manufacturer has maintained control over selecting the faculty, speakers, audience, activity content and materials; |
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whether the program focuses on a single product of the manufacturer without a discussion of other relevant existing treatment options; |
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whether there was meaningful disclosure to the audience, at the time of the program, regarding the manufacturers funding of the program, any significant relationships between the provider, presenters, or speakers and the supporting manufacturer, and whether any unapproved uses will be discussed; and |
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whether there are legal, business, or other relationships between the supporting manufacturer and the provider or its employees that could permit the supporting manufacturer to exert influence over the content of the program. |
Pervasive and Continuing Regulation. There are numerous regulatory requirements governing the approval and marketing of a product. These include:
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QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process; |
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication; |
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clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use; |
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medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to an adverse event, a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; |
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post-approval restrictions or conditions, including post-approval study commitments; |
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post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; and |
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notices of correction or removal and recall regulations. |
Advertising and promotion of medical devices are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Recently, some promotional activities for FDA-regulated products have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.
We have registered with the FDA as a medical device manufacturer. The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR, and other regulations, and these inspections may include the manufacturing facilities of our suppliers.
Failure by us or by our suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include any of the following sanctions:
|
|
|
warning letters, fines, injunctions, consent decrees and civil penalties; |
|
|
|
customer notifications, repair, replacement, refunds, recall or seizure of our products; |
|
|
|
operating restrictions, partial suspension or total shutdown of production; |
|
|
|
refusing our requests for 510(k) clearance or PMA of new products, new intended uses or modifications to existing products; |
|
|
|
withdrawing 510(k) clearance or PMA that have already been granted; and |
|
|
|
criminal prosecution. |
Fraud and Abuse and False Claims. We are directly and indirectly subject to various federal and state laws governing our relationship with healthcare providers and pertaining to healthcare fraud and abuse, including anti-kickback laws. In particular, the federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending a good or service, for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector General of the U.S. Department of Health
56
and Services, or OIG, has issued a series of regulations, known as the safe harbors. These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.
The Federal False Claims Act imposes civil liability on any person or entity who submits, or causes the submission of a false or fraudulent claim to the United States Government. Damages under the Federal False Claims Act can be significant and consist of the imposition of fines and penalties. The Federal False Claims Act also allows a private individual or entity with knowledge of past or present fraud on the federal government to sue on behalf of the government to recover the civil penalties and treble damages. The U.S. Department of Justice on behalf of the government has successfully enforced the Federal False Claims Act against pharmaceutical manufacturers. The federal suit has alleged that pharmaceutical manufacturers whose marketing and promotional practices were found to have included the off-label promotion of drugs or the payment of prohibited kickbacks to doctors violated the Federal False Claims Act on the grounds that these prohibited activities resulted in the submission of claims to federal and state healthcare entitlement programs such as Medicaid, resulting in the payment of claims by Medicaid for the off-label use of the drug that was not a use of the drug otherwise covered by Medicaid. Such manufacturers have entered into settlements with the federal government under which they paid amounts and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions.
The Federal authorities, and state equivalents, may likewise seek to enforce the False Claims Act against medical device manufacturers. We believe that our marketing practices are not in violation of the Federal False Claims Act or state equivalents, but we cannot assure you that the federal authorities will not take action against us and, if such action were successful, we could be required to pay significant fines and penalties and change our marketing practices. Such enforcement could have a significant adverse effect on our ability to operate.
We engage in a variety of activities that are subject to these laws and that have come under particular scrutiny in recent years by federal and state regulators and law enforcement entities. These activities have included, consulting arrangements with cardiothoracic surgeons, grants for training and other education, grants for research, and other interactions with doctors.
International Regulation. International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country to country. The time required to obtain certification or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.
The primary regulatory body in Europe is the European Union, which has adopted numerous directives and has promulgated voluntary standards regulating the design, manufacture and labeling of and clinical trials and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror these directives. The method for assessing conformity varies depending upon the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a notified body, which is an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturers quality system and specific testing of the manufacturers device. Such an assessment is required for a manufacturer to commercially distribute the product throughout these countries. International Standards Organization, or ISO, 9001 and ISO 13845 certifications are voluntary standards. Compliance establishes the presumption of conformity with the essential requirements for the CE Mark. We have the authorization to affix the CE Mark to the PAS-Port and C-Port devices and to commercialize the devices in the European Union for coronary artery bypass grafting.
In Japan, medical devices must be approved prior to importation and commercial sale by the Ministry of Health, Labor and Welfare, or MHLW. Manufacturers of medical devices outside of Japan must utilize a contractually bound In-Country Caretaker, or ICC, to submit an application for device approval to the MHLW. The MHLW evaluates each device for safety and efficacy. As part of its approval process, the MHLW may require that the product be tested in Japanese laboratories. The approval process for products such as our existing anastomotic
57
products is typically 13 to 14 months. Other medical devices may require a longer review period for approval. Once approved, the manufacturer may import the device into Japan for sale by the manufacturers contractually bound importer or distributor.
After a device is approved for importation and commercial sale in Japan, the MHLW continues to monitor sales of approved products for compliance with labeling regulations, which prohibit promotion of devices for unapproved uses and reporting regulations, which require reporting of product malfunctions, including serious injury or death caused by any approved device. Failure to comply with applicable regulatory requirements can result in enforcement action by the MHLW, which may include fines, injunctions, and civil penalties, recall or seizure of our products, operating restrictions, partial suspension or total shutdown of sales in Japan, or criminal prosecution.
We have received approval from the MHLW to distribute our PAS-Port system in Japan. We will be required to submit applications with respect to all new products and product enhancements for review and approval by the MHLW. Our contract with Century, our Japanese distributor and ICC in Japan, has a multi-year term and is renewable for additional multi-year terms upon mutual agreement of the parties.
In addition to MHLW oversight, the regulation of medical devices in Japan is also governed by the Japanese Pharmaceutical Affairs Law, or PAL. PAL was substantially revised in July 2002, and the new provisions were implemented in stages through April 2005. Revised provisions of the approval and licensing system of medical devices in Japan, which constitutes the core of import regulations, came into effect on April 1, 2005. The revised law changes class categorizations of medical devices in relation to risk, introduces a third-party certification system, strengthens safety countermeasures for biologically derived products, and reinforces safety countermeasures at the time of resale or rental. The revised law also abolishes the ICC system and replaces it with the primary distributor system. Under the PAL in effect prior to April 1, 2005, manufacturers of medical devices outside of Japan were required to utilize an ICC to obtain on their behalf approval of each product by the MHLW prior to the sale or distribution of their products in Japan. Under the revised PAL, manufacturers outside of Japan must now appoint a primary distributor located in Japan that holds a primary distributor license for medical devices to provide primary distribution services, including conducting quality assurance and safety control tasks, for each product at the time an application for the approval of each such product is submitted to the MHLW. Century Medical serves as the primary distributor for Cardica. As an interim measure, an ICC licensed under the PAL in effect prior to April 1, 2005 will be deemed to be the primary distributor under the revised PAL if that ICC had a license to import and distribute the relevant medical devices that was applied for and obtained under the old PAL. We are unable at this time to determine the impact of such changes on our approved products or future products. We do not anticipate that these changes will have a material impact on our existing level of third-party reimbursement for sales of our products in Japan.
Employees
As of September 30, 2005, we had 37 employees, including 11 employees in manufacturing, one employee in sales and marketing, five employees in clinical, regulatory and quality assurance, five employees in general and administrative and 15 employees in research and development. We believe that our future success will depend upon our continued ability to attract, hire and retain qualified personnel. None of our employees is represented by a labor union or party to a collective bargaining agreement, and we believe our employee relations are good.
Facilities
We currently lease approximately 29,000 square feet in Redwood City, California, containing approximately 9,000 square feet of manufacturing space, 7,000 square feet used for research and development and 3,000 square feet devoted to administrative offices. Our facility is leased through August 2008. We believe that our existing facility should meet our needs for at least the next 24 months. Our facility is subject to periodic inspections by state and federal regulatory authorities.
58
Litigation
We are not party to any material pending or threatened litigation.
59
Executive Officers and Directors
The following table sets forth certain information concerning our executive officers and directors as of September 30, 2005:
|
|
|
|
|
Name |
|
Age |
|
Position |
|
|
|
|
|
Bernard A. Hausen, M.D., Ph.D. |
|
45 |
|
President, Chief Executive Officer, Chief Medical Officer and Director |
Robert Y. Newell |
|
57 |
|
Vice President, Finance & Operations, Chief Financial Officer |
Douglas T. Ellison |
|
42 |
|
Vice President, Sales and Marketing |
Bryan D. Knodel, Ph.D. |
|
45 |
|
Vice President, Research and Development |
J. Michael Egan (1)(2) |
|
52 |
|
Chairman of the Board |
Richard P. Powers (1)(2) |
|
61 |
|
Director |
Robert C. Robbins, M.D.(2) |
|
47 |
|
Director |
John Simon |
|
62 |
|
Director |
Stephen A. Yencho, Ph.D. |
|
43 |
|
Director |
William H. Younger, Jr.(1) |
|
55 |
|
Director |
|
|
|
|
||
|
(1) |
Member of the Audit Committee |
|
|
|
|
(2) |
Member of the Compensation Committee |
Bernard A. Hausen, M.D., Ph.D. has been our President and Chief Executive Officer since December 2000. Dr. Hausen co-founded the Company in October 1997 and has served as a director and our Chief Medical Officer since inception. Dr. Hausen received a medical degree from Hannover Medical School in Germany in 1988 and was trained there as a general and cardiothoracic surgeon. Upon completion of his training, he received a Ph.D. degree in Medical Physiology in 1999. From 1996 to 2000, he was employed as a Senior Research Scientist in the Laboratory for Transplantation Immunology of the Department of Cardiothoracic Surgery at Stanford University. Until Dr. Hausen became our full-time employee in October of 2000, he remained responsible for all surgery-related research in that laboratory.
Robert Y. Newell has been our Vice President, Finance, and Chief Financial Officer since March 2003 and was appointed Vice President, Finance and Operations, in July 2005. From January 2000 to February 2003 he was Vice President, Finance and Chief Financial Officer for Omnicell, Inc., a hospital supply and medication management company. Mr. Newell holds a B.A. degree in Mathematics from the College of William & Mary and an M.B.A. degree from the Harvard Business School.
Douglas T. Ellison joined us in December 2004 as our Vice President of Sales and Marketing. From June 2004 to December 2004, Mr. Ellison consulted for medical device companies. From June 2001 until June 2004 Mr. Ellison was Vice President of Sales of Artemis Medical, Inc., a medical device company. From December 1997 until June 2001, Mr. Ellison held sales and sales management positions with Heartport, Inc., a medical device company focused on minimally-invasive cardiac surgery. Mr. Ellison holds a B.S.C.E. degree from Purdue University.
Bryan D. Knodel joined Cardica as our Vice President of Research and Development in July 2005. Since January 1998, he has been president of Bryan D. Knodel, Inc., a consulting firm specializing in medical device design and product development. From April 2001 until June 2005, Mr. Knodel consulted for us in product development. From 1992 to 1997, he was a principal engineer with Ethicon Endo-Surgery, a Johnson & Johnson company developing medical devices for less invasive surgery. Mr. Knodel holds B.S., M.S. and Ph.D. degrees in Mechanical Engineering from the University of Illinois.
J. Michael Egan has served as the Chairman of the Board and a director since August 2000. From April 1996 through May 2004, Mr. Egan was President and CEO of Bluebird Development, LLC, a financial partnership with Kobayashi Pharmaceutical Company, an Osaka, Japan-based major distributor of medical devices in Asia. Mr. Egan is a director of several privately held companies. Mr. Egan holds a B.A. degree in Business Administration from Colorado College.
60
Richard P. Powers has been a director and chairman of our Audit Committee since October 2005. From October 2001 to the present, Mr. Powers has been Vice President and Chief Financial Officer of Corgentech Inc., a biotechnology company. From March 1999 to August 2000, Mr. Powers served as Executive Vice President and Chief Financial Officer of Eclipse Surgical Technologies, Inc., a medical device company. From February 1996 to March 1999, Mr. Powers served as Executive Vice President and Chief Financial Officer of CardioGenesis Corporation, a medical device company. From January 1981 to August 1995, Mr. Powers held a number of senior management positions at Syntex Corporation, a biopharmaceutical company, including Senior Vice President and Chief Financial Officer. Mr. Powers also currently serves on the board of directors of HemoSense Inc., a manufacturer of blood monitoring equipment. Mr. Powers holds a B.S. degree in Accounting from Canisius College and an M.B.A. degree from the University of Rochester, New York.
Robert C. Robbins, M.D. has been a director since January 2001 and has been a member of our Scientific Advisory Board since October 1997. Dr. Robbins is the Chairman of the Department of Cardiothoracic Surgery at the Stanford University School of Medicine, where he has been a member of the faculty since 1993. Dr. Robbins is also the director of the Stanford Cardiovascular Institute. Previously, Dr. Robbins was a Pediatric Fellow of Cardiothoracic Surgery at Emory University, and Royal Childrens Hospital in Melbourne, Australia. Dr. Robbins is the guest editor for Circulation and is a manuscript reviewer for a number of periodicals, including the New England Journal of Medicine and the Annals of Thoracic Surgery. He is also on the editorial board for the Journal of Thoracic and Cardiovascular Surgery. Dr. Robbins is certified by the American Board of Surgery and American Board of Thoracic Surgery. Dr. Robbins holds a B.S. degree from Millsaps College and an M.D. degree from the University of Mississippi Medical Center. Dr. Robbins completed his residency in Cardiothoracic Surgery at Stanford.
John Simon has been a director since June 2001. Mr. Simon is a Managing Director of the investment banking firm, Allen & Company LLC, where he has been employed for over 25 years. He currently serves on the board of directors for Neurogen Corporation, as well as on the boards of several privately held companies. Mr. Simon holds a B.S. degree in Chemistry from The College of William & Mary, a Ph.D. degree in Chemical Engineering from Rice University, and both an M.B.A. degree in finance and a J.D. degree from Columbia University.
Stephen A. Yencho, Ph.D. has been a director since inception. Dr. Yencho co-founded Cardica in October 1997 with Dr. Hausen. From October 1997 through December 2000, Dr. Yencho was our chief executive officer. From December 2000 through July 2003, Dr. Yencho was our Chief Technology Officer, and Dr. Yencho provided consulting services to us until February 2004. Since February 2004, Dr. Yencho has been engaged in the development of early stage ventures separate from us. Dr. Yencho holds a B.S. degree in Mechanical Engineering from the University of Illinois and an M.S. degree in Manufacturing Systems Engineering from Stanford University. In addition, Dr. Yencho was sponsored by a Hewlett Packard Fellowship in the Ph.D. program in Precision Machinery Engineering at the University of Tokyo. He holds a Ph.D. degree in Materials Science and Engineering from Stanford University.
William H. Younger, Jr. has been a director since August 2000. Mr. Younger is a managing director of the general partner of Sutter Hill Ventures, a venture capital firm, where he has been employed since 1981. Mr. Younger holds a B.S. degree in Electrical Engineering from the University of Michigan and an M.B.A. degree from Stanford University. Mr. Younger is also a director of Vitria Technology, Inc. and Omnicell, Inc., as well as of several privately held companies.
Scientific Advisors
Stefanos Demertzis, M.D., Ph.D., Department of Cardiovascular Surgery, Cardiocentro Ticino, Lugano, Switzerland
Wolfgang Harringer, M.D., Ph.D., Chairman of the Department of Cardiac, Thoracic and Vascular Surgery, Braunschweig Hospital, Braunschweig, Germany
Michael Mack, M.D., Chairman Cardiothoracic Associates of North Texas, Medical City Dallas Hospital
Robert C. Robbins, M.D., Associate Professor of Surgery, Department of Cardiothoracic Surgery, Stanford Medical Center
61
Board Composition
Upon the completion of this offering, we will have an authorized board of directors consisting of seven members. We expect to be compliant with the independence criteria for boards of directors under applicable law at the time this offering is completed, and we will continue to evaluate our compliance with these criteria over time. To the extent we determine necessary, we will seek to appoint additional independent directors.
The amended and restated certificate of incorporation that will be in effect upon the closing of this offering provides that the authorized number of directors may be changed only by resolution of the board of directors.
Voting Agreement
Our current directors have been elected pursuant to a voting agreement that we entered into with some of the holders of our common stock and holders of our preferred stock and related provisions of our certificate of incorporation in effect at the time of their election. The holders of our common stock have designated Messrs. Hausen and Yencho for election to our board of directors. The holders of our convertible preferred stock have designated Messrs. Younger and Simon for election to our board of directors. The holders of our common stock and convertible preferred stock, voting together as a single class on an as-converted basis, have designated Messrs. Egan and Robbins. Upon the completion of this offering, the voting agreement will terminate in its entirety and none of our stockholders will have any special rights regarding the election or designation of board members.
Board Committees
Our board of directors has an audit committee and a compensation committee.
Audit Committee. Our audit committee currently consists of Richard Powers, as chairman, J. Michael Egan and William Younger. The Committee has designated Richard Powers to be our audit committee financial expert, as currently defined under applicable SEC rules. We expect that the composition of our audit committee will comply with the applicable requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC and Nasdaq at the time of completion of this offering, although we will be required by Nasdaq rules to add one additional independent director to this committee within one year after this offering. We anticipate adding at least one independent director within the required time period, and we will add that member to our audit committee at that time. We intend to continue to evaluate the requirements applicable to us and we will comply with future requirements to the extent they become applicable to us. The functions of our audit committee include, among other things:
|
|
|
appointment, compensation and retention of our independent accountants and oversight of their work; |
|
|
|
review of our financial statements and financial reporting and the adequacy of those disclosures; |
|
|
|
discussions with management and our independent accountants regarding the quality of accounting principles, reasonableness of significant judgments and estimates, propriety of certain critical accounting policies and the scope and effectiveness of internal controls; |
|
|
|
consideration of certain audit adjustments and resolution of any disagreements with our independent accountants regarding financial reporting; |
|
|
|
approval of related-party transactions; |
|
|
|
pre-approval of audit and non-audit services to be rendered by our independent accountants; and |
|
|
|
establishment of procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, and auditing matters. |
Our independent accountants will regularly meet privately with the audit committee and have unrestricted access to this committee.
Compensation Committee. Our compensation committee currently consists of Robert Robbins as chairman, Richard Powers and J. Michael Egan, and we expect to expand this committee when we obtain the services of additional independent directors. The functions of this committee include:
|
|
|
evaluation of and recommendation to the board for approval of compensation plans and programs, including equity plans; |
62
|
|
|
oversight of our compensation policies, plans and programs, including administration of our equity compensation plans; |
|
|
|
review and determination of the compensation to be paid to our officers and directors; |
|
|
|
approval of our overall compensation strategy, including review of performance goals and obligations relevant to the compensation of our officers; and |
|
|
|
review and approval of the terms of any employment or severance agreements. |
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. For information with respect to transactions between us and any member of the compensation committee, see Certain Relationships and Related-Party Transactions.
Director Compensation
Our non-employee directors are reimbursed for certain of their out-of-pocket expenses incurred in connection with attending board and committee meetings. In the past we have not provided cash compensation to any director for his or her service as a director. Additionally, we have in the past made loans to Drs. Hausen and Yencho and Mr. Egan that may be considered to have been made at below-market interest rates. These loans have been repaid in full as of the date of this prospectus. These loans are described more fully in Certain Relationships and Related-Party Transactions. On October 13, 2005, we granted a fully vested restricted stock award consisting of 10,000 shares to Richard Powers.
Additionally, in the past we have granted options to some of our directors for their service as directors, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Date of Grant |
|
Number of Shares |
|
Exercise
Price
|
|
|||||||
|
|
|
|
|
|
|
|
|||||||
J. Michael Egan |
|
|
July 21, 2000 |
|
|
|
590,053 |
|
|
|
$ |
0.45 |
|
|
|
|
|
January 31, 2002 |
|
|
|
118,011 |
|
|
|
$ |
0.45 |
|
|
|
|
|
March 5, 2003 |
|
|
|
50,000 |
|
|
|
$ |
0.75 |
|
|
|
|
|
March 24, 2004 |
|
|
|
50,000 |
|
|
|
$ |
0.95 |
|
|
Richard Powers |
|
|
October 13, 2005 |
|
|
|
40,000 |
|
|
|
$ |
3.00 |
|
|
Robert C. Robbins |
|
|
February 26, 2001 |
|
|
|
20,000 |
|
|
|
$ |
0.45 |
|
|
|
|
|
February 26, 2001 |
|
|
|
10,000 |
|
|
|
$ |
0.45 |
|
|
|
|
|
January 31, 2002 |
|
|
|
40,000 |
|
|
|
$ |
0.45 |
|
|
|
|
|
March 24, 2005 |
|
|
|
75,000 |
|
|
|
$ |
0.95 |
|
|
William H. Younger, Jr. |
|
|
April 12, 1999 |
|
|
|
7,000 |
|
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
1,000,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Robbins, M.D., is also one of our scientific advisors. Dr. Robbins has received $2,000 in connection with his attending a meeting we had with the FDA. Additionally, in connection with his being a scientific advisor, Dr. Robbins received an option grant exercisable for 10,000 shares of our common stock that is now fully vested. The exercise price of this option is $0.45 per share.
63
Executive Compensation
The following table sets forth summary information concerning compensation of our chief executive officer and each of our four other most highly compensated executive officers as of the end of the last fiscal year. We refer to these persons as our named executive officers elsewhere in this prospectus.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation |
|
Long-Term Compensation |
|
||||||||||
|
|
|
|
|
|
||||||||||
Name and Position |
|
Salary
|
|
Bonus
|
|
Securities
|
|
All Other
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
Bernard Hausen, M.D., Ph.D. |
|
|
236,250 |
|
|
|
|
|
|
|
|
|
2,925 |
(1),(2) |
|
Chief Executive Officer and Chief Medical Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Robert Newell |
|
|
183,000 |
|
|
|
|
|
|
|
|
|
1,089 |
(1) |
|
Chief Financial Officer and Vice President, Finance and Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Ellison |
|
|
110,833 |
|
|
86,667 |
|
|
|
300,000 |
|
|
3,784 |
(1),(3) |
|
Vice President of Sales and Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian DuBois (4) |
|
|
160,155 |
|
|
|
|
|
|
|
|
|
38,816 |
(1),(5) |
|
Former Vice President of Research and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Pool (6) |
|
|
146,559 |
|
|
|
|
|
|
|
|
|
36,399 |
(1),(7) |
|
Former Vice President of Quality and Regulatory Compliance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes amounts paid for group term life insurance |
|
|
(2) |
Includes $1,490 paid for life insurance and deemed compensation related to a below-market rate loan described in Certain Relationships and Related-Party Transactions |
|
|
(3) |
Includes $3,500 paid for a car allowance |
|
|
(4) |
Mr. DuBois employment with us terminated on July 1, 2005 |
|
|
(5) |
Includes a severance payment of $38,500 |
|
|
(6) |
Mr. Pools employment with us terminated on July 1, 2005 |
|
|
(7) |
Includes a severance payment of $35,438 |
Option Grants in Last Fiscal Year
In our fiscal year ended June 30, 2005, referred to as fiscal 2005, we granted options to purchase an aggregate of 444,798 shares of our common stock to our employees, directors and consultants, all of which were granted under our 1997 Equity Incentive Plan.
The following table sets forth certain information with respect to stock options granted to each of our named executive officers during fiscal 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Number of
|
|
Individual Grants
|
|
Exercise
|
|
Expiration Date |
|
Potential Realizable
|
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
Name |
|
|
|
|
|
5% |
|
10% |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bernard Hausen, M.D., Ph.D. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Robert Newell |
|
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|
|
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|
|
|
|
|
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|
|
|
|
|
|
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||
Douglas Ellison |
|
300,000 |
(3) |
|
|
72.9 |
% |
|
|
$ |
0.95 |
|
2/1/2015 |
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|
|
||
Brian DuBois |
|
|
|
|
|
|
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|
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|
|
|
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|
||
Larry Pool |
|
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|
(1) |
Based on options to purchase an aggregate of 411,500 shares granted to employees during fiscal 2005. |
|
|
(2) |
The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC, and do not represent our estimate or projection of our future common stock prices. The potential |
64
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|
|
realizable values are calculated based on an assumed initial public offering price of $ , the midpoint of the range on the front cover of this prospectus, and assume that (i) the common stock appreciates at the indicated rate for the entire 10-year term of the option, and (ii) the option is exercised at the exercise price and sold on the last day of the option term at the appreciated price. Actual gains, if any, on stock option exercises are dependent on the future performance of our common stock and overall stock market conditions. The amounts reflected in the table may not necessarily be realized. |
|
|
(3) |
Option vests as follows: 25% of the shares subject to the option vest on December 1, 2005, and the remaining shares vest ratably over the following 36 months. Upon a change of control, 50% of the then unvested shares will vest. If within one month prior to or 13 months following a change of control Mr. Ellisons employment is terminated without cause or Mr. Ellison resigns for good reason, the remaining unvested shares will become immediately and fully vested. See Management Change in Control Agreements. |
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth certain information concerning the number and value of unexercised options held by each of the named executive officers as of June 30, 3005. No options were exercised by the named executive officers in fiscal 2005. These options have an early-exercise provision that permits exercise of the options prior to full vesting, subject to repurchase of the shares issued on early exercise by us if the executive officers employment terminates. The amount described in the column captioned Value of Unexercised In-The-Money Options at June 30, 2005 represents the difference between the exercise price of stock options and $ , which is the midpoint of the range on the front cover of this prospectus, minus the exercise price per share.
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|
Number of
|
|
Value
|
|
Number of Securities
|
|
Value of Unexercised
|
|
||||||||||||||||
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|
||||||||||||||||||
Name |
|
|
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
|
||||||||||||||
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|
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|
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|
|
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|
|
|
||||||||||||
Bernard Hausen, M.D., Ph.D. |
|
|
|
|
$ |
|
|
|
|
400,000 |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
||
Robert Newell |
|
|
|
|
|
|
|
|
|
98,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Douglas Ellison |
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Brian DuBois |
|
|
|
|
|
|
|
|
|
193,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Larry Pool |
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Agreements
Dr.Hausen has entered into an employment agreement that provides that, if at any time Dr. Hausens employment is terminated by us without cause or if Dr. Hausen resigns for good reason, we would be obligated to pay Dr. Hausen severance equal to 12 months of salary. Subject only to our obligation to pay this severance amount under the circumstances described, Dr. Hausens employment by us is at will, which means that either he or we may terminate his employment with us at any time and for any reason or for no reason.
Employee Benefit Plans
1997 Equity Incentive Plan
In November 1997, our board of directors adopted, and our stockholders approved, the 1997 Equity Incentive Plan, referred to as the 1997 Plan. Upon the closing of this offering, the 1997 Plan will terminate so that no further stock awards may be thereafter granted under the 1997 Plan. Although the 1997 Plan will terminate, all outstanding options thereunder will continue to be governed by their existing terms.
Stock Awards . The 1997 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock purchase awards and stock bonus awards, also known collectively as stock awards, which may be granted to employees, including officers, non-employee directors, and consultants.
Share Reserve . As of September 30, 2005, the aggregate number of shares of common stock that may be issued pursuant to stock awards under the 1997 Plan is 5,745,000 shares, of which options to purchase 2,700,264 shares of common stock were outstanding at a weighted average exercise price of $0.77 per share and 320,970 shares of common stock remained available for future grant.
65
If a stock award granted under the 1997 Plan expires or otherwise terminates without being exercised in full, the shares of common stock not acquired pursuant to the award become available for subsequent issuance under the 2005 Equity Incentive Plan described below.
Changes to Capital Structure . In the event that there is a specified type of change in our capital structure, such as a stock split, reorganization, recapitalization, stock dividend, combination of shares or the like, appropriate adjustments will be made to the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards.
Corporate Transactions . In the event of certain significant corporate transactions, such as a sale of substantially all of our assets, a merger or consolidation in which we are not the surviving entity or a reverse merger in which we are the surviving entity but our common stock outstanding immediately prior to the transaction is converted into other property, all outstanding stock awards under the 1997 Plan may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such stock awards, then with respect to any outstanding stock award that has not terminated prior to the effective date of the corporate transaction, the vesting and exercisability provisions of such stock awards will be accelerated in full and such awards will be terminated if not exercised prior to the effective date of the corporate transaction. The completion of this offering will not constitute a change of control, change of capital structure or significant corporate transaction for purposes of our 1997 Plan.
2005 Equity Incentive Plan
In October 2005, our board of directors adopted, subject to stockholder approval, the 2005 Equity Incentive Plan, referred to as the EIP. The EIP will become effective immediately upon the date of the underwriting agreement pertaining to this offering and will terminate on October , 2015, unless sooner terminated by our board of directors.
Stock Awards . The EIP provides for the grant of incentive stock options, nonstatutory stock options, stock purchase awards, stock bonus awards, stock appreciation rights, stock unit awards and other forms of equity compensation, referred to collectively as stock awards, which may be granted to employees, including officers, non-employee directors, and consultants. The board of directors or its delegate will, in its sole discretion, determine the criteria that will be used in selecting recipients of receive stock awards under the EIP.
Share Reserve . Following this offering, the aggregate number of shares of common stock that may be issued initially pursuant to stock awards under the EIP is 1,200,000 shares, plus any shares subject to a stock award granted under the 1997 Plan that expires or otherwise terminates without having been exercised in full following the closing of this offering.
No person may be granted awards covering more than 600,000 shares of common stock under the EIP during any calendar year pursuant to an appreciation-only stock award. An appreciation-only stock award is a stock award whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value of our common stock on the date of grant. A stock option with an exercise price equal to the value of the stock on the date of grant is an example of an appreciation-only award. This limitation is designed to help assure that any tax deductions to which we would otherwise be entitled upon the exercise of an appreciation-only stock award or upon the subsequent sale of shares purchased under such an award, will not be subject to the $1 million limitation on the income tax deductibility of compensation paid per covered executive officer imposed under Section 162(m) of the Internal Revenue Code.
Shares issued under the EIP may again become available for the grant of new awards under the EIP if shares are:
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|
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forfeited to or repurchased by us prior to becoming fully vested; |
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|
|
withheld to satisfy income and employment withholding taxes; |
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|
|
used to pay the exercise price of an option in a net exercise arrangement; |
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|
|
tendered to us to pay the exercise price of an option; of |
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|
|
cancelled pursuant to an exchange or repricing program. |
66
In addition, if a stock award granted under the EIP expires or otherwise terminates without being exercised in full, the shares of common stock not acquired pursuant to the award again become available for subsequent issuance under the EIP. Shares issued under the EIP may be previously unissued shares or reacquired shares we have bought on the market or otherwise. As of the date of this prospectus, no shares of common stock have been issued under the EIP.
Administration . Our board of directors has delegated its authority to administer the EIP to our compensation committee. Subject to the terms of the EIP, our board of directors or an authorized committee, referred to as the plan administrator, determines recipients, dates of grant, the numbers and types of equity awards to be granted and the terms and conditions of the equity awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted, the purchase price of stock purchase awards and the strike price of stock appreciation rights.
The plan administrator has the authority to:
|
|
|
|
reduce the exercise price of any outstanding option; |
|
|
||
|
cancel any outstanding option and to grant in exchange one or more of the following: |
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|
||
|
|
new options covering the same or a different number of shares of common stock, |
|
||
|
|
new stock awards, |
|
||
|
|
cash; and/or |
|
||
|
|
other valuable consideration; or |
|
||
|
engage in any action that is treated as a repricing under generally accepted accounting principles. |
Stock Options . The plan administrator determines the exercise price for a stock option, within the terms and conditions of the EIP and applicable law, provided that the exercise price of an incentive stock option cannot be less than 100% of the fair market value of our common stock on the date of grant and the exercise price of a nonstatutory stock option cannot be less than 85% of the fair market value of our common stock on the date of grant. Options granted under the EIP vest at the rate specified by the plan administrator.
Generally, the plan administrator determines the term of stock options granted under the EIP, up to a maximum of ten years (except in the case of some incentive stock options, as described below). Unless the terms of an optionees stock option agreement provide otherwise, if an optionees service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or following a change in control, the optionee may exercise any vested options for a period of three months following the cessation of service. If an optionees service relationship with us, or any of our affiliates, ceases due to disability or death (or an optionee dies within a specified period following cessation of service), the optionee or a beneficiary may exercise any vested options for a period of 12 months, in the event of disability, and 18 months, in the event of death. In no event, however, may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (i) cash or check, (ii) a broker-assisted cashless exercise, (iii) the tender of common stock previously owned by the optionee, (iv) a net exercise of the option, (v) a deferred payment arrangement, and (vi) other legal consideration approved by the plan administrator.
Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may designate a beneficiary, however, who may exercise the option following the optionees death.
Tax Limitations on Incentive Stock Option Grants . Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionee during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the incentive stock option does not exceed five years from the date of grant.
67
Stock Purchase Awards . The purchase price for stock purchase awards will not be less than the par value of our common stock. The purchase price for a stock purchase award may be payable:
|
|
|
in cash or by check; |
|
|
|
according to a deferred payment arrangement; or |
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|
|
in consideration of the recipients past or future services performed for us or our affiliates. |
Shares of common stock acquired under a stock purchase award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a stock purchase award may be transferred only upon such terms and conditions as set by the plan administrator.
Stock Bonus Awards . A stock bonus award may be granted in consideration for the recipients past or future services performed for us or our affiliates or any other form of legal consideration. Shares of common stock acquired under a stock bonus award may, but need not, be subject to forfeiture to us in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a stock bonus award may be transferred only upon such terms and conditions as set by the plan administrator.
Stock Unit Awards . Payment of any purchase price may be made in any form permitted under applicable law; however, we will settle a payment due to a recipient of a stock unit award by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the stock unit award agreement. Additionally, dividend equivalents may be credited in respect to shares covered by a stock unit award. Except as otherwise provided in the applicable award agreement, stock units that have not vested will be forfeited upon the participants cessation of continuous service for any reason.
Stock Appreciation Rights . The plan administrator determines the strike price for a stock appreciation right. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (i) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (ii) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the EIP vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.
The plan administrator determines the term of stock appreciation rights granted under the EIP. If a participants service relationship with us, or any of our affiliates, ceases, then the participant, or the participants beneficiary, may exercise any vested stock appreciation right for three months (or such longer or shorter period specified in the stock appreciation right agreement) after the date such service relationship ends. In no event, however, may an option be exercised beyond the expiration of its term.
Other Equity Awards . The plan administrator may grant other awards related to our common stock. The plan administrator will set the number of shares under the award, the purchase price, if any, the timing of exercise and vesting and any repurchase rights associated with such awards.
Changes to Capital Structure . In the event that there is a specified type of change in our capital structure, such as a merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by us, appropriate adjustments will be made to:
|
|
|
the number of shares reserved under the EIP; |
|
|
|
the maximum number of shares by which the share reserve may increase automatically each year; |
|
|
|
the maximum number of appreciation-only stock awards that can be granted in a calendar year; and |
|
|
|
the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards. |
Corporate Transactions . In the event of specified significant corporate transactions, such as a sale of all or substantially all of our assets, a sale of at least 90% of our outstanding securities, a merger in which we are not the surviving entity, or a merger in which we are the surviving entity but our common stock outstanding immediately
68
prior to the transaction is exchanged or converted into other property, all outstanding stock awards under the EIP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such stock awards, then:
|
|
|
with respect to any such stock awards that are held by individuals whose service with us or our affiliates has not terminated more than three months prior to the effective date of the corporate transaction, the vesting and exercisability provisions of such stock awards will be accelerated in full and such awards will be terminated if not exercised prior to the effective date of the corporate transaction; and |
|
|
|
all other outstanding stock awards will terminate if not exercised prior to the effective date of the corporate transaction. |
Our board of directors may also provide that the holder of an outstanding stock award not assumed in the corporate transaction will surrender such stock award in exchange for a payment equal to the excess of (i) the value of the property that the optionee would have received upon exercise of the stock award, over (ii) the exercise price otherwise payable in connection with the stock award.
Changes in Control . Our board of directors has the discretion to provide that a stock award under the EIP will immediately vest as to all or any portion of the shares subject to the stock award (i) immediately upon the occurrence of specified change-in-control transactions, whether or not such stock award is assumed, continued or substituted by a surviving or acquiring entity in the transaction, or (ii) in the event a participants service with us or a successor entity is terminated actually or constructively within a designated period following the occurrence of specified change in control transactions. Stock awards held by participants under the EIP will not vest on such an accelerated basis unless specifically provided by the participants applicable award agreement.
401(k) Plan
We maintain a retirement savings plan, or 401(k) Plan, for the benefit of our eligible employees. Our 401(k) Plan is intended to qualify as a defined contribution arrangement under Sections 401(a), 401(k) and 501(a) of the Internal Revenue Code. Employees eligible to participate in our 401(k) Plan are those employees who have completed 1,000 hours of service in a plan year and have attained the age of 21. Participants may elect to defer a percentage of their eligible pretax earnings each year up to the maximum contribution permitted by the Internal Revenue Code. All assets of our 401(k) Plan are currently invested, subject to participant-directed elections, in a variety of mutual funds chosen from time to time by us. Distribution of a participants vested interest generally occurs upon termination of employment, including by reason of retirement, death or disability.
Change-in-Control Arrangements
Options granted to Dr. Hausen, Mr. Newell and Mr. Ellison are subject to accelerated vesting such that 50% of the then-unvested shares subject to the options shall become vested upon a change of control, and 100% of the then-unvested shares subject to the options held by each shall become vested if, within one month prior to or 13 months following a change of control, such officer is terminated without cause or resigns for good reason.
Except as otherwise noted above, all options to purchase common stock issued to our named executive officers may be subject to accelerated vesting upon a change of control, as described in Management Employee Benefit Plans.
69
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
We describe below transactions and series of transactions that have occurred since July 1, 2002 to which we were a party in which:
|
|
|
|
|
the amounts involved exceeded or will exceed $60,000; and a |
|
|
|
|
|
director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. |
Compensation arrangements with our named executive officers are described under the caption Management Executive Compensation.
Equity Transactions
Since July 1, 2002, the following directors, executive officers, entities affiliated with directors, and other holders of more than 5% of our securities purchased from us securities at the purchase prices or with the exercise prices and in the amounts, and as of the dates, set forth below. Shares purchased by all affiliated persons and entities have been aggregated. For additional details, if any, relating to all shares beneficially owned by each of these purchasers, please refer to the information under the caption Principal Stockholders. Each share of preferred stock will convert automatically into one share of common stock upon the closing of this offering.
Name |
|
Common Stock |
|
Series E
|
|
||
|
|
|
|
|
|
||
Directors |
|
|
|
|
|
|
|
J. Michael Egan |
|
|
100,000 |
(1) |
|
0 |
|
|
|
|
|
|
|
|
|
Other 5% Stockholders |
|
|
|
|
|
|
|
Guidant Investment Corporation |
|
|
0 |
|
|
851,064 |
(2) |
|
|
|
|
(1) |
Acquired 50,000 shares pursuant to the exercise of options on May 21, 2003, and 50,000 shares pursuant to the exercise of options on April 30, 2004. The per share exercise prices were $0.75 and $0.95, respectively. |
|
|
(2) |
Acquired on August 19, 2003, for a per share price of $4.70, in connection with the strategic agreement described below. |
Strategic Agreements
Pursuant to an agreement dated August 18, 2003, between us and Guidant Investment Corporation, a California corporation, referred to as Guidant Investment, Guidant Investment loaned to us an aggregate of $10.3 million with simple interest calculated at a rate of 8.75% per annum accruing during the life of the loan that is payable at maturity. In connection with this loan, we granted Guidant Investment a right to negotiate exclusively for our acquisition and also agreed not to enter into any change of control transaction during the period between the signing of the strategic agreement and November 2004. The exclusive negotiation right terminated in November 2004. As of September 30, 2005, the principal and interest outstanding under this loan was $11.9 million. The loan is secured by our assets, including our intellectual property.
Under a distribution agreement dated May 2003 and amended in January 2004 with Guidant Corporation, or Guidant, Guidant distributed our C-Port and PAS-Port products in Europe. This agreement was terminated by Guidant in September 2004. Revenue from Guidant under this agreement was $401,000 and $631,000 in fiscal 2004 and 2005, respectively.
In addition, on December 4, 2003, we entered into a development and supply agreement with Guidant to develop and manufacture an aortic cutter for Guidants Heartstring product. Future production of the aortic cutter has been outsourced by Guidant to a third-party manufacturer, and we will receive a modest royalty quarterly for each unit sold in the future, but will no longer manufacture the aortic cutter for Guidant. Revenue from Guidant under this agreement was $223,000 and $706,000 in fiscal 2004 and 2005, respectively.
70
Amended and Restated Investor Rights Agreement
We, Guidant Investment and some of our other preferred stockholders and warrant holders, including stockholders affiliated with members of our board of directors, have entered into an amended and restated investor rights agreement pursuant to which these stockholders will have registration rights with respect to their shares of common stock following this offering. For a further description of this agreement, see Description of Capital StockRegistration Rights. The amended and restated investor rights agreement also provides that we must notify Guidant if we receive a written indication that a third party desires to acquire us or certain core aspects of our technology. Additionally, we must provide Guidant with an opportunity to negotiate a similar transaction, Guidants notification and negotiation rights under this agreement will terminate upon the effective date of the registration statement of which this prospectus forms a part.
Limitations on Liability and Indemnification
Our amended and restated certificate of incorporation provides that the liability of our directors for monetary damages shall be eliminated to the fullest extent permissible under the General Corporation Law of the State of Delaware. This provision does not eliminate a directors duty of care and, in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available. Each director will continue to be subject to liability for any breach of the directors duty of loyalty to us or our stockholders and for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for unlawful payment of dividends or stock repurchases or for any transaction in which the director derived an improper personal benefit. This provision also does not affect a directors responsibilities under any other laws, such as the federal securities laws or other state or federal laws.
Our amended and restated bylaws provide that we will indemnify our directors and executive officers, and may indemnify our other officers, employees and agents, to the fullest extent permitted by the General Corporation Law of the State of Delaware. Under our amended and restated bylaws, we are also empowered to enter into indemnification agreements with our directors, officers and other agents and to purchase insurance on behalf of any person whom we are required or permitted to indemnify. We have procured and intend to maintain a directors and officers liability insurance policy that insures such persons against the costs of defense, settlement or payment of a judgment under certain circumstances.
We have entered into an indemnification agreement with Stephen Yencho. Under this agreement, we are required to indemnify Dr. Yencho against all expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any actual or threatened proceeding, if he may be made a party to such proceeding because he is or was one of our directors or officers. We are obligated to pay these amounts only if Dr. Yencho acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests. With respect to any criminal proceeding, we are obligated to pay these amounts only if Dr. Yencho had no reasonable cause to believe that his or her conduct was unlawful. The indemnification agreement also sets forth procedures that will apply in the event of a claim for indemnification. We are also obligated to advance expenses, subject to an undertaking to repay amounts advanced if Dr. Yencho is ultimately determined not to be entitled to indemnification.
There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
Loans to Executive Officers and Directors
Certain of our officers and directors had the loans set forth in the two tables below outstanding with us, as of September 30, 2005.
Loans Entered Into Prior to January 1, 2003
The loans described in the table below were evidenced by recourse promissory notes and used to purchase the number of shares of our common stock, indicated in the table above, upon the exercise of stock options. The shares purchased upon exercise secured the various loans and were valued in excess of the principal balances of the applicable loans. Effective January 1, 2003, these loans were amended to increase the principal amounts to the
71
aggregate amounts of principal and interest then due, and the increased principal amounts are set forth in the table above. Also effective January 1, 2003, the interest rates on these loans were reduced to 1.58%, which was below the then-current applicable federal rate, or AFR, for short-term loans with interest that compounds annually. Because the interest rate was below the then-current AFR, the named individuals may be deemed to have compensation equal to the difference between the amount of interest that actually accrued on these loans and the amount of interest that would have accrued had the loans bore interest at the then-current AFR, which amount is shown under the heading Deemed Compensation.
In October 2005, each of the named individuals tendered to us shares of our common stock, valued at $3.00 per share (which was the fair value of one share of our common stock on October 13, 2005, as determined in good faith by our board of directors), in full payment of principal and interest due under the applicable loans.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Officer or
|
|
Date of
|
|
Amended
|
|
Number of
|
|
Amended
|
|
Largest
|
|
Deemed
|
|
Outstanding
|
|
Outstanding
|
|
|||||||||||
|
|
|
|
|
|
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|
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|
|
|
|||||||||||
J. Michael Egan |
|
|
August 10, 2000 |
|
$ |
154,365.29 |
|
|
295,027 |
|
|
|
1.58 |
% |
|
$ |
161,169.26 |
|
|
|
$ |
161,169.26 |
|
|
$ |
|
|
|
J. Michael Egan |
|
|
February 28, 2002 |
|
$ |
55,977.38 |
|
|
118,011 |
|
|
|
1.58 |
% |
|
$ |
58,444.70 |
|
|
|
$ |
58,444.70 |
|
|
$ |
|
|
|
Bernard Hausen |
|
|
July 12, 2001 |
|
$ |
75,625.83 |
|
|
150,000 |
|
|
|
1.58 |
% |
|
$ |
78,959.19 |
|
|
|
$ |
78,959.19 |
|
|
$ |
|
|
|
Bernard Hausen |
|
|
February 28, 2002 |
|
$ |
116,046.75 |
|
|
244,650 |
|
|
|
1.58 |
% |
|
$ |
121,161.75 |
|
|
|
$ |
121,161.75 |
|
|
$ |
|
|
|
Stephen Yencho |
|
|
February 28, 2002 |
|
$ |
11,307.29 |
|
|
23,437 |
|
|
|
1.58 |
% |
|
$ |
11,877.54 |
|
|
|
$ |
11,877.54 |
|
|
$ |
|
|
|
|
|
|
|
(1) |
Amount being computed. |
Loans Entered Into Following January 1, 2003:
The loans described in the table below were evidenced by recourse promissory notes and used to purchase the number of shares of our common stock, indicated in the table above, upon the exercise of stock options. These loans bore interest at rates that may be deemed below market rates. Because the interest rate may be below market rates, the named individuals may be deemed to have compensation equal to the difference between the amount of interest actually accrued on these loans and the amount that would have accrued had the loans bore interest at a market rate, which amount is shown under the heading Deemed Compensation. The shares purchased upon exercise secured the various loans and were valued in excess of the principal balances of the applicable loans. In October 2005, each of the named individuals tendered to us shares of our common stock, valued at $3.00 per share (which was the fair value of one share of our common stock on October 13, 2005, as determined in good faith by our board of directors), in full payment of principal and interest due under the applicable loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer or
|
|
Date
of
|
|
Principal
|
|
Number
of
|
|
Interest
|
|
Largest
|
|
Deemed
|
|
Outstanding
|
|
Outstanding
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
J. Michael Egan |
|
|
May 21, 2003 |
|
$ |
37,450.00 |
|
|
|
50,000 |
|
|
|
|
1.58 |
% |
|
|
$ |
38,865.09 |
|
|
|
|
|
|
$ |
38,865.09 |
|
|
|
$ |
|
|
|
J. Michael Egan |
|
|
April 30, 2004 |
|
$ |
47,450.00 |
|
|
|
50,000 |
|
|
|
|
1.58 |
% |
|
|
$ |
48,519.14 |
|
|
|
|
|
|
$ |
48,519.14 |
|
|
|
$ |
|
|
|
Stephen Yencho |
|
|
April 21, 2003 |
|
$ |
73,416.17 |
|
|
|
150,000 |
|
|
|
|
1.58 |
% |
|
|
$ |
76,286.41 |
|
|
|
|
|
|
$ |
76,286.41 |
|
|
|
$ |
|
|
|
|
|
|
|
(1) |
Amount being computed. |
Change of Control Vesting Provisions
Stock options held by our named executive officers are subject to accelerated vesting upon a change of control, as described under Management Change-in-Control Arrangements.
Additionally, stock options held by Bryan Knodel, our Vice President of Research and Development, are subject to accelerated vesting upon a change of control. These option provide that, if within one year following a change of control Mr. Knodels employment is terminated by us without cause or if Mr. Knodel resigns for good reason, shares subject to stock options held by Mr. Knodel will immediately vest in an amount equal to the lesser of (a) 25% of the total number of shares subject to the option and/or purchased or (b) 50% of the total number of shares subject to the option and/or purchased that have not yet vested or been released from our repurchase option. Subject only to our obligation to provide this severance benefit under the circumstances described, Mr. Knodels
72
employment by us is at will, which means that either he or we may terminate his employment at any time and for any reason or for no reason.
Severance Obligations
Dr. Hausen is entitled to severance pay as described under Management Employment Agreements.
Severance and Consulting Agreements with Officers
We entered severance agreements with Messrs. DuBois and Pool and with James Zuegel, another of our officers whose employment with us terminated in July 2005. Pursuant to these agreements, Messrs. DuBois, Pool and Zuegel also executed releases of claims against us, and we paid them each severance equal to three months of their pre-termination base salary. Under these agreements, each is entitled to receive additional payments of up to three months base salary starting in October 2005 unless and until each secures employment, and as of the date of this prospectus, Mr. Pool has secured employment. Additionally, we entered into consulting agreements with each of Messrs. Dubois, Pool and Zuegel under which the post-termination option exercise period for each option they hold was extended from three to 12 months. These consulting agreements each have a term of one year.
Agreements with Allen & Company LLC
Pursuant to a letter of intent dated September 12, 2005, between us and Allen & Company LLC, Allen & Company LLC has agreed to act as underwriters, along with A.G. Edwards & Sons, Inc., on a firm commitment basis in the offering of our common stock to the public at the offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus and described more fully under Underwriting. One of our directors, John Simon, is affiliated with Allen & Company LLC. As of September 30, 2005, entities and persons affiliated with Allen & Company Incorporated, including John Simon, owned an aggregate of 1,712,798 shares of our common stock, including 96,439 shares of common stock issuable upon the exercise of a warrant. Allen & Company Incorporated may be deemed to be an affiliate of Allen & Company LLC.
Under the terms of the letter of intent, we made an initial payment to the underwriters of $25,000 as an advance against out-of-pocket expenses incurred in connection with this offering. Additionally, if this offering is terminated, we are obligated to reimburse the underwriters for actual, documented out-of-pocket expenses, including the fees and disbursements of counsel, up to an additional $75,000.
Sutter Hill Loan to Director
As of September 30, 2005, one of our directors, Mr. Egan, had an outstanding loan in the principal amount of $154,764 with one of our principal stockholders, Sutter Hill Ventures. Another of our directors, Mr. Younger, is affiliated with Sutter Hill Ventures. This loan had an interest rate of 1.81%, compounded annually, and was made pursuant to a full recourse promissory note entered into on January 1, 2003. The proceeds of the loan were used to purchase shares of our common stock upon the exercise of stock options. The shares purchased upon exercise secured the loan and were valued in excess of the principal balance of the loan. As of September 30, 2005, individuals and entities affiliated with Sutter Hill Ventures owned 2,935,561shares of our common stock, on an as-converted basis, including 7,000 shares of common stock issuable upon exercise of stock options. See Principal Stockholders,
Transactions with a Relative of an Executive Officer
Timothy Knodel, son of Bryan Knodel, our Vice President of Research and Development, is an independent contractor for us. We have paid Timothy Knodel $86,900 and $76,950 in the fiscal years ended June 30, 2004 and 2005, respectively, for his services as an independent contractor. We engage, and may from time to time in the future engage, other relatives of our executive officers and directors to perform services for us. However, except as set forth herein, none of these relationships has involved payments in excess of $60,000 in the fiscal years ended June 30, 2003, 2004, or 2005.
73
The following table sets forth certain information with respect to beneficial ownership of common stock as of September 30, 2005 by each of our directors, each of our named executive officers, each person who is known by us to own beneficially more than 5% of our issued and outstanding shares of common stock, assuming conversion of all preferred stock, and by our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. The percentage of ownership indicated in the following table is based on 18,036,892 shares of common stock outstanding on September 30, 2005 and shares of common stock outstanding immediately following the completion of this offering. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of September 30, 2005 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such persons name. Except as otherwise indicated, the address of each of the persons in this table is c/o Cardica, Inc., 900 Saginaw Drive, Redwood City, California 94063.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Owner |
|
Number of Shares
|
|
Percentage of
|
|
Percentage of
|
|
|||||||
|
|
|
|
|
|
|
|
|||||||
Guidant Investment Corporation |
|
|
|
3,441,737 |
|
|
|
|
19.1 |
% |
|
|
|
|
Entities and Persons Affiliated with Sutter Hill Ventures |
|
|
|
2,935,561 |
(1) |
|
|
|
16.3 |
|
|
|
|
|
Allen & Company Incorporated |
|
|
|
2,907,875 |
(2) |
|
|
|
16.0 |
|
|
|
|
|
Bernard A. Hausen, M.D., Ph.D. |
|
|
|
1,987,900 |
(3) |
|
|
|
10.7 |
|
|
|
|
|
Brian R. Dubois |
|
|
|
181,358 |
(4) |
|
|
|
1.0 |
|
|
|
|
|
Douglas T. Ellison |
|
|
|
300,000 |
(5) |
|
|
|
1.6 |
|
|
|
|
|
Robert Y. Newell |
|
|
|
299,000 |
(6) |
|
|
|
1.6 |
|
|
|
|
|
Larry D. Pool |
|
|
|
109,915 |
(7) |
|
|
|
* |
|
|
|
|
|
J. Michael Egan |
|
|
|
823,401 |
(8) |
|
|
|
4.6 |
|
|
|
|
|
Richard P. Powers |
|
|
|
0 |
(9) |
|
|
|
* |
|
|
|
|
|
Robert C. Robbins, M.D. |
|
|
|
174,062 |
(10) |
|
|
|
1.0 |
|
|
|
|
|
John Simon |
|
|
|
2,907,875 |
(2) |
|
|
|
16.0 |
|
|
|
|
|
Stephen A. Yencho, Ph.D. |
|
|
|
1,691,843 |
|
|
|
|
9.4 |
|
|
|
|
|
William H. Younger, Jr. |
|
|
|
2,236,799 |
(12) |
|
|
|
12.4 |
|
|
|
|
|
All executive officers and directors as a group |
|
|
|
11,101,834 |
(13) |
|
|
|
55.9 |
|
|
|
|
|
|
|
* |
Indicates less than 1%. |
|
|
(1) |
Consists of: (a) 1,959,543 shares held by Sutter Hill Ventures, a California Limited Partnership (Sutter Hill Ventures), (b) 19,615 shares held by Sutter Hill Entrepreneurs Fund (AI) L.P. (SHAI), (c) 49,668 shares held by Sutter Hill Entrepreneurs Fund (QP) L.P. (SHQP), (d) 698,762 shares held by individuals affiliated with Sutter Hill Ventures and entities affiliated with such individuals, (e) 15,000 shares of Common Stock owned by William H. Younger, one of our directors, (f) 7,000 shares subject to stock options exercisable within 60 days after September 30, 2005 held by Mr. Younger, (g) 111,350 shares held by William H. Younger, Trustee of the Younger Living Trust; (h) 74,623 shares held by William H. Younger, Jr., Trustee, The Younger Living Trust U/A/D 1/20/95. Mr. Younger has shared voting and dispositive power with respect to the shares held by William H. Younger, Trustee of the Younger Living Trust and by William H. Younger, Jr., Trustee, The Younger Living Trust U/A/D 1/20/95. Mr. Younger, Sutter Hill Ventures, SHAI and SHQP do not have any voting or dispositive power with respect to the shares held by individuals affiliated with Sutter Hill Ventures and entities affiliated with such individuals referenced under part (d) of this note. Mr. Younger shares voting and dispositive power with respect to the shares held by Sutter Hill Ventures, SHAI and SHQP with the |
74
|
|
|
following natural persons: David L. Anderson, G. Leonard Baker, Jr., Tench Coxe, Gregory P. Sands, James C. Gaither, James N. White, Jeffrey W. Bird and David E. Sweet. As a result of the shared voting and dispositive powers referenced herein, each of Sutter Hill Ventures, SHAI, SHQP, and Messrs. Younger and David L. Anderson, G. Leonard Baker, Jr., Tench Coxe, Gregory P. Sands, James C. Gaither, James N. White, Jeffrey W. Bird and David E. Sweet may be deemed to beneficially own the shares held by the Sutter Hill Ventures, SHAI, SHQP. |
|
|
(2) |
Includes 96,439 shares issuable upon the exercise of a warrant that is exercisable within 60 days after September 30, 2005. |
|
|
(3) |
Includes 20,388 shares subject to repurchase as of September 30, 2005 and 520,000 shares subject to stock options that are exercisable within 60 days after September 30, 2005. |
|
|
(4) |
Includes 150,265 stock options that are exercisable within 60 days after September 30, 2005. As of July 1, 2005, Mr. DuBois is no longer our employee. |
|
|
(5) |
Consists of shares subject to stock options that are exercisable within 60 days after September 30, 2005. |
|
|
(6) |
Includes 158,000 shares subject to stock options that are exercisable within 60 days of September 30, 2005. |
|
|
(7) |
Includes 109,915 stock options that are exercisable within 60 days after September 30, 2005. As of July 1, 2005, Mr. Pool is no longer our employee. |
|
|
(8) |
Includes 50,000 shares subject to repurchase as of September 30, 2005. |
|
|
(9) |
Does not include 10,000 shares issued and 40,000 shares subject to options granted to Mr. Powers in October 2005 that are exercisable within 60 days after September 30, 2005. |
|
|
(10) |
Includes 159,062 shares subject to stock options that are exercisable within 60 days after September 30, 2005. |
|
|
(11) |
Includes all shares referenced under footnote (1) other than the 698,762 shares held by individuals affiliated with Sutter Hill Ventures and entities affiliated with such individuals. |
|
|
(12) |
Includes 1,861,151 shares issuable upon exercise of stock options and warrants beneficially owned by all executive officers and directors that are exercisable within 60 days after September 30, 2005, including 286,978 shares issuable upon exercise of stock options held by Bryan Knodel, an executive officer of ours who is not a named executive officer. Also includes 52,703 shares beneficially owned by Mr. Knodel. Does not include shares beneficially owned by named executive officers who are not currently employed by us (See notes 4 and 7). See notes (3), (5), (6), and (8) through (11) above. |
75
The
following is a summary of the material
terms of our capital stock. For
more detail, please see our amended and
restated certificate of incorporation and our amended and restated bylaws,
which are exhibits to the registration statement of which this prospectus forms
a part
.
Upon
the completion of this offering, we will be authorized to issue up
to shares
of common stock, par value $0.0001, and up to 5,000,000 shares of undesignated
preferred stock, par value $0.001.
General
Outstanding Shares
As
of September 30, 2005, we had 164 stockholders, and, after giving effect to the
conversion of all outstanding preferred stock into common stock, 18,036,892
shares of common stock issued and outstanding. In addition, as of September,
30, 2005, options to purchase 2,700,264 shares of common stock were
outstanding, and warrants to purchase 469,551 shares of common stock were also
outstanding. Based on our outstanding capital stock as of September 30, 2005,
upon completion of this offering, there will
be
shares of common stock outstanding, assuming no exercise of the underwriters
over-allotment option or exercise of outstanding warrants or stock options.
Voting Rights
Each
holder of our common stock is entitled to one vote for each share on all
matters submitted to a vote of the stockholders, including the election of
directors. Under our amended and restated certificate of incorporation and
amended and restated bylaws, our stockholders will not have cumulative voting
rights. As a result, the holders of a majority of the shares of common stock
entitled to vote in any election of directors will be able to elect all of the
directors standing for election.
Dividends
Subject
to limitations under Delaware law and preferences that may be applicable to any
then outstanding preferred stock that we may designate and issue in the future,
holders of common stock are entitled to receive ratably those dividends, if
any, as may be declared from time to time by the board of directors out of
legally available funds.
Liquidation
In
the event we liquidate, dissolve or wind up, holders of common stock will be
entitled to share ratably in the net assets legally available for distribution
to stockholders after the payment of all our debts and other liabilities and
the satisfaction of any liquidation preference granted to the holders of any
then outstanding shares of preferred stock that we may designate and issue in
the future.
Rights and Preferences
Holders
of common stock have no preemptive, conversion or subscription rights. There
are no redemption or sinking fund provisions applicable to our common stock.
The rights, preferences and privileges of holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future.
Fully Paid and Nonassessable
All
outstanding shares of our common stock are, and all shares of common stock to
be issued pursuant to this offering will be, fully paid and nonassessable.
76
Preferred Stock
Following
the offering, our board of directors will have the authority, without further
action by our stockholders, to issue up to 5,000,000 shares of preferred stock
in one or more series, to establish from time to time the number of shares to
be included in each such series, to fix the rights, preferences and privileges
of the shares of each wholly unissued series and any qualifications,
limitations and restrictions on those shares. Our board of directors may also
increase or decrease the number of shares of any series, but not below the
number of shares of that series then outstanding, without any further vote or
action by our stockholders.
Our
board of directors may authorize the issuance of preferred stock with voting or
conversion rights that adversely affect the voting power or other rights of the
holders of our common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of delaying, deterring or preventing
a change in control and may adversely affect the market price of the common
stock and the voting and other rights of the holders of common stock. After the
closing of this offering, no shares of our preferred stock will be outstanding.
Warrants
In
connection with equipment leasing and other credit facility arrangements, we
have issued to entities affiliated with Venture Lending and Leasing, Inc.
warrants to purchase (i) up to an aggregate of 36,810 shares of common stock,
with an exercise price of $1.63 per share, (ii) up to an aggregate of 156,250
shares of common stock, with an exercise price of $2.80 per share, and (iii) up
to an aggregate of 180,052 shares of common stock, with an exercise price of
$3.86 per share. These warrants will
expire on March 17, 2010, July 5, 2008 and October 31, 2010, respectively.
In
connection with a financing, we have issued to Allen & Company Incorporated
a warrant to purchase up to an aggregate of 96,439 shares of common stock, with
an exercise price of $3.86 per share. This warrant will expire on June 13, 2009.
These
warrants contain customary provisions providing for adjustments of the exercise
price and the number of shares of stock underlying the warrant upon the occurrence
of any recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transactions.
Each of these warrants has a net exercise provision under which its
holder may, in lieu of payment of the exercise price in cash, surrender the
warrant and receive a net amount of shares based on the fair market value of
our common stock at the time of exercise of the warrant after deduction of the
aggregate exercise price.
Other
than one warrant issued to Venture Lending and Leasing, Inc. to purchase
180,052 shares of common stock, the warrants described above provide that they
will automatically be net exercised upon our sale or acquisition in a
transaction in which the consideration received for our common stock is valued
at a per-share price in excess of the respective warrant exercise prices and is
paid in cash or in securities of a publicly traded company, subject to
additional requirements described in the warrants.
Delaware Anti-Takeover Law and Certain Provisions of our
Certificate of Incorporation and Bylaws
Delaware Law
We
are governed by Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a public Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes mergers, asset sales or
other transactions resulting in a financial benefit to the stockholder. An
interested stockholder is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporations outstanding voting stock. These provisions may have the effect of
delaying, deterring or preventing a change in control.
77
Certificate of Incorporation
and Bylaws
Our
amended and restated certificate of incorporation and bylaws, which will be
effective following the completion of this offering, include a number of
provisions that may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management, including transactions in which
stockholders might receive a premium for their shares or transactions that
stockholders might otherwise deem to be in their best interests. As a result, these provisions could
adversely affect the price of our common stock. These provisions include the following:
Our board of directors can
issue up to 10,000,000 shares of preferred stock, with any rights or
preferences, including the right to approve or not approve an acquisition or
other change in control, without stockholder approval;
Our amended and restated
certificate of incorporation provides that all stockholder actions following
the completion of this offering must be effected at a duly called meeting of
stockholders and not by written consent, which may make it more difficult for
stockholders to take action quickly;
Our bylaws provide that
stockholders seeking to present proposals before a meeting of stockholders or
to nominate candidates for election as directors at a meeting of stockholders
must provide timely notice in writing satisfying specified content requirements;
Our amended and restated
certificate of incorporation provides that all vacancies, including any newly
created directorships, may, except as otherwise required by law, be filled by
the affirmative vote of a majority of our directors then in office, even if
less than a quorum. In addition, our amended and restated certificate of
incorporation provides that our board of directors may fix the number of
directors by resolution;
Our amended and restated
certificate of incorporation does not provide for cumulative voting for our
directors, the absence of which may make it more difficult for stockholders
owning less than a majority of our stock to elect any directors to our board;
and
The provisions within our
amended and restated certificate of incorporation relating to the corporate
actions described above may be amended only with the approval of 66
2/3%
of our outstanding voting stock, and our amended and restated bylaws may be
amended either by the board of directors or by the approval of 66 2/3% of our
outstanding voting stock.
Registration Rights
Demand Registration Rights
Beginning
180 days following the closing of this offering, the holders of an aggregate of
12,778,126 shares of our common stock and the holders of warrants to purchase
an aggregate of 469,551 shares of our common stock may require us, upon written
request from holders of a majority of these shares, and on not more than three
occasions, to file a registration statement under the Securities Act of 1933 with
respect to their shares.
Piggyback Registration Rights
Following
this offering, if we propose to register any of our securities under the
Securities Act of 1933, either for our own account or for the account of other
stockholders, these holders of registration rights will be entitled to notice
of the registration and will be entitled to include their shares of common
stock in the registration statement. These registration rights are subject to
specified conditions and limitations, including the right of the underwriters
to limit the number of shares included in any such registration under certain
circumstances. The holders of these
rights have waived their rights to have their shares included in this offering.
Registration on Form S-3
Beginning
12 months following the effective date of this offering, the holders of these
registration rights will be entitled, upon their written request, to have such
shares registered by us on a Form S-3 registration statement at our expense,
provided that the requested registration has an anticipated aggregate offering
size to the public of at least $1,000,000 and that we have not already effected
three registrations on Form S-3.
Expenses of Registration
78
We
will pay all expenses relating to any demand, piggyback or Form S-3
registrations, other than underwriting fees, discounts, allowances and
commissions, subject to specified conditions and limitations.
Expiration of Registration
Rights
The
registration rights granted to these holders under the Amended and Restated
Investor Rights Agreement will terminate on the third anniversary of this
offering. Additionally, as to any
holder of registration rights, the holders rights under this agreement expire
at such time, following this offering, as the holder, together with its
affiliates, holds less than 1% of our outstanding stock and all shares of our
stock held by the holder, together with its affiliates, may be sold pursuant to
Rule 144 during any 90-day period.
Nasdaq National Market Listing
We
have applied for quotation of our common stock on The Nasdaq National Market
under the symbol CRDC.
Transfer Agent and Registrar
Upon the closing of this
offering, the transfer agent and registrar for our common stock will be .
79
SHARES ELIGIBLE FOR
FUTURE SALE
Prior
to this offering, there has been no public market for our common stock. Market
sales of shares or the availability of shares for sale may decrease the market
price of our common stock prevailing from time to time. As described below,
only a portion of our outstanding shares of common stock will be available for
sale shortly after this offering due to contractual and legal restrictions on
resale. Nevertheless, sales of substantial amounts of common stock in the
public market after these restrictions lapse, or the perception that such sales
could occur, could adversely affect the market price of the common stock and
could impair our future ability to raise capital through the sale of our equity
securities.
We
will have shares
of common stock outstanding after the completion of this
offering ( shares if the
underwriters over-allotment is exercised in full). Of those shares,
the shares
of common stock sold in the offering
( shares
if the underwriters over-allotment option is exercised in full) will be freely
transferable without restriction, unless purchased by persons deemed to be our affiliates
as that term is defined in Rule 144 under the Securities Act. Any shares
purchased by an affiliate may not be resold except pursuant to an effective
registration statement or an applicable exemption from registration, including
an exemption under Rule 144 promulgated under the Securities Act. The remaining
shares
of common stock to be outstanding immediately following the completion of this
offering are restricted, which means they were originally sold in offerings
that were not registered under the Securities Act. These restricted shares may
only be sold through registration under the Securities Act or under an
available exemption from registration, such as provided through Rule 144.
All
of our officers, directors and holders of more than 1% of our securities have
entered into lock-up agreements pursuant to which they have agreed, subject to
limited exceptions, not to offer, sell, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for a period of
180 days from the date of this prospectus without the prior written consent of
A.G. Edwards & Sons, Inc. After the 180-day lock-up period, these shares
may be sold, subject to applicable securities laws. A.G. Edwards & Sons, Inc., in its sole discretion
and at any
time without notice, may release any or all of the securities subject to the
lock-up agreements. When determining
whether to release shares from the lock-up agreements, A.G. Edwards &
Sons, Inc. will consider, among other factors, the stockholders reasons for
requesting the release, the number of shares for which the release is being
requested and market conditions at the time. There are no agreements between
the representatives and any of our affiliates or other stockholders or option
holders releasing them from these lock-up agreements prior to the expiration of
the 180-day period. The lock-up period
may be extended under certain circumstances as more completely described under
Underwriting.
After
the offering, the holders of approximately 13,247,677 shares of our common
stock (including 469,551 shares issuable upon exercise of outstanding warrants)
will be entitled to registration rights. For more information on these
registration rights, see the section captioned Description of Capital
StockRegistration Rights.
In
general, under Rule 144, as currently in effect, beginning 90 days after the
effective date of this offering, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares of our
common stock for one year or more, may sell in the open market within any
three-month period a number of shares that does not exceed the greater of:
one percent
of the then outstanding shares of our common stock
(approximately shares
immediately after the offering); or
the average
weekly trading volume in the common stock on The Nasdaq National Market
during the four calendar weeks preceding the sale.
Sales
under Rule 144 are also subject to certain limitations on the manner of sale,
notice requirements and the availability of our current public information. A
person (or persons whose shares are aggregated) who is deemed not to have been
our affiliate at any time during the 90 days preceding a sale by him or her and
who has beneficially owned his or her shares for at least two years, may sell
the shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information we refer to above.
80
Any
of our employees, officers, directors or consultants who purchased his or her
shares before the completion of this offering or who hold options as of that
date pursuant to a written compensatory plan or contract are entitled to rely
on the resale provisions of Rule 701, which permits non-affiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 commencing 90 days after completion of an
initial public offering. Neither Rule 144 nor Rule 701 supersedes the
contractual obligations of our security holders set forth in the lock-up
agreements described above.
Subject
to the lock-up agreements, the shares of our common stock that will become
eligible for sale without registration pursuant to Rule 144 or Rule 701 under
the Securities Act are as follows:
shares
will be immediately eligible for sale in the public market without
restriction pursuant to Rule 144(k); and
shares
will be eligible for sale in the public market under Rule 144 or Rule 701
beginning 90 days after the date of this prospectus, subject to volume,
manner of sale, and other limitations under those rules.
Upon
completion of this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register shares of common stock reserved for
issuance under the 1997 Plan, the EIP, the Directors Plan, and the Purchase
Plan, thus permitting the resale of these shares by non-affiliates in the
public market without restriction under the Securities Act. This registration
statement will become effective immediately upon filing.
81
Subject
to the terms and conditions of the underwriting agreement among us and the
underwriters, each underwriter has severally agreed to purchase from us the
following respective number of shares of common stock at the offering price
less the underwriting discounts and commissions set forth on the cover page of
this prospectus.
Underwriter
Shares
A.G. Edwards & Sons, Inc.
Allen &
Company LLC
Total
The
underwriting agreement provides that the obligations of the underwriters are
subject to certain conditions precedent and that the underwriters will purchase
all such shares of the common stock if any of these shares are purchased. The
underwriters are obligated to take and pay for all of the shares of common
stock offered hereby, other than those covered by the over-allotment option
described below, if any are taken.
The
underwriters have advised us that they propose to offer the shares of common
stock to the public at the offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The
underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per
share to certain other dealers. If all the shares are not sold at the initial
offering price, the underwriters may change the offering price and other
selling terms.
Pursuant
to the underwriting agreement, we have granted to the underwriters an option,
exercisable for 30 days after the date of this prospectus, to purchase up
to additional
shares of common stock from us at the offering price, less the underwriting
discounts and commissions set forth on the cover page of this prospectus,
solely to cover over-allotments.
To
the extent that the underwriters exercise such option, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to the
underwriters name in the preceding table bears to the total number of shares
in the table, and we will be obligated, pursuant to the option, to sell such
shares to the underwriters.
We,
our directors, senior executive officers and certain stockholders have agreed
that during the 180 days after the date of this prospectus, subject to limited
exceptions, they will not, without the prior written consent of A.G. Edwards
& Sons, Inc., directly or indirectly, issue, sell, offer, agree to sell,
grant any option or contract for the sale of, pledge, make any short sale of,
maintain any short position with respect to, establish or maintain a put
equivalent option (within the meaning of Rule 16a-1(h) under the Exchange Act)
with respect to, enter into any swap, derivative transaction or other
arrangement (whether any such transaction is to be settled by delivery of
common stock, other securities, cash or other consideration) that transfers to
another, in whole or in part, any of the economic consequences of ownership, or
otherwise dispose of, any shares of our common stock (or any securities
convertible into, exercisable for or exchangeable for our common stock or any
interest therein or any capital stock of our subsidiary). These lock-up
agreements will cover
approximately shares
of our outstanding common stock in the aggregate. A.G. Edwards may, in its sole
discretion, allow any of these parties to dispose of common stock or other
securities prior to the expiration of the 180-day period. There are, however,
no agreements between A.G. Edwards and the parties that would allow them to do
so as of the date of this prospectus.
The
180-day restricted period described above is subject to extension such that, in
the event that either (1) during the last 17 days of the 180-day
restricted period, we issue an earnings release or material news or a material
event relating to us occurs or (2) prior to the expiration of the 180-day
restricted period, we announce that we will release earnings results during the
16-day period beginning on the last day of the 180-day period, the lock-up
restrictions described above will, subject to limited exceptions, continue to
apply until the expiration of the 18-day period beginning on the earnings
release or the occurrence of the material news or material event.
Prior
to the offering, there has been no public market for the common stock. The initial
public offering price for the shares of common stock included in this offering
has been determined by negotiation among us and the representatives. Among the
factors considered in determining the price were:
The history of and prospects for our business
and the industry in which we operate;
82
An assessment of our management;
Our past and present revenues and earnings;
The prospects for growth of our revenues
and earnings; and
Currently prevailing conditions in the
securities markets, including current market valuations of publicly traded
companies which are comparable to us.
The
representatives have advised us that they do not intend to confirm sales to any
account over which they exercise discretionary authority.
The
following table summarizes the 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.
Total
Per Share
No Exercise
Full Exercise
Underwriting discounts paid by us
$
$
$
Total
$
$
$
We
expect to incur expenses of approximately $ in
connection with this offering.
We
have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Until
the distribution of the common stock is completed, rules of the Securities and
Exchange Commission may limit the ability of the underwriters and certain
selling group members to bid for and purchase the common stock. As an exception
to these rules, the underwriters are permitted to engage in certain transactions
that stabilize, maintain or otherwise affect the price of the common stock.
In
connection with this offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Act of 1934.
Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum.
Over-allotment transactions involve sales
by the underwriters of the shares of common stock in excess of the number of
shares the underwriters are obligated to purchase, which creates a syndicate
short position. The short position may be either a covered short position or
a naked short position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number of shares
they may purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares in the
over-allotment. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares of common
stock in the open market.
Syndicate covering transactions involve
purchases of the shares of common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
In determining the source of the shares of common stock to close out the
short position, the underwriters will consider, among other things, the price
of shares of common stock available for purchase in the open market as
compared to the price at which they may purchase shares of common stock
through the over-allotment option. If the underwriters sell more shares of
common stock than could be covered by the overallotment option, a naked short
position, the position can only be closed out by buying 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 could be downward pressure on
the price of the shares of common stock in the open market after pricing that
could adversely affect investors who purchase in the offering.
83
Penalty bids permit representatives to
reclaim a selling concession from a syndicate member when the shares of
common stock originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate short
positions.
Similar
to other purchase transactions, the underwriters purchases to cover the
syndicate short sales may have the effect of raising or maintaining the market
price of the shares of common stock or preventing or retarding a decline in the
market price of the shares of common stock. As a result, the price of the
shares of common stock may be higher than the price that might otherwise exist
in the open market.
The
underwriters will deliver a prospectus to all purchasers of shares of common
stock in the short sales. The purchases of shares of common stock in short
sales are entitled to the same remedies under the federal securities laws as
any other purchaser of shares of common stock covered by this prospectus.
Passive
market making may stabilize or maintain the market price of our common stock at
a level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
The
underwriters are not obligated to engage in any of the transactions described
above. If they do engage in any of these transactions, they may discontinue
them at any time.
As
of September 30, 2005, Allen & Company Incorporated owned 1,712,798 shares
of our common stock, including 96,439 shares of common stock issuable upon the
exercise of a warrant. Additionally,
one of our directors, John Simon, is affiliated with Allen & Company LLC. See Certain
Relationships and Related-Party
Transactions.
We
have applied for quotation of our common stock on The Nasdaq National Market
under the symbol CRDC.
From
time to time in the ordinary course of their respective businesses, some of the
underwriters and their affiliates may in the future engage in commercial
banking or investment banking transactions with our affiliates and us.
84
The
validity of the shares of common stock offered hereby has been passed upon for
us by Cooley Godward LLP. GC&H
Investments, LLC, an investment fund affiliated with Cooley Godward LLP, owns
an aggregate of 61,925 shares of our common stock, and Cooley Godward LLP owns
an aggregate of 13,000 shares of our common stock. Heller Ehrman LLP is counsel for the underwriters in
connection
with this offering.
Ernst
& Young LLP, independent registered
public accounting firm, has audited our financial statements at June 30, 2004
and 2005, and for each of the three years in the period ended June 30, 2005, as
set forth in its report included in this prospectus. We have included our financial statements in this
prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLPs
report, given on its authority as expert in auditing and accounting.
WHERE YOU CAN FIND
MORE INFORMATION
We
have filed a registration statement on Form S-1 under the Securities Act with
the SEC with respect to the shares of stock we are offering by this prospectus.
This prospectus, which is a part of the registration statement, does not
include all of the information contained in the registration statement or the
exhibits filed therewith. For further information about us and the common stock
offered by this prospectus, please see the registration statement and its
exhibits. Statements contained in this prospectus as to the contents of any
contract or any other document that is filed as an exhibit to the registration
statement are not necessarily complete.
If a contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed.
You
can read our SEC filings, including the registration statement, over the
Internet at the SECs web site at
www.sec.gov.
You may also read and
copy any document we file with the SEC at its public reference facilities at
100 F Street, NE, Washington, DC 20549. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 100 F Street, NE, Washington, DC 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the public reference
room and on the Website of the SEC referred to above. We maintain a website on
the worldwide web at
cardica.com.
The reference to our Web address does not
constitute incorporation by reference of the information contained at such
site.
85
Cardica, Inc.
Page
F-2
F-3
F-5
Statements
of Convertible Preferred Stock and Stockholders Deficit
F-6
F-8
F-10
F-1
Report of Independent
Registered Public Accounting Firm
The Board of Directors and
Stockholders
We
have audited the accompanying balance sheets of Cardica, Inc. as of June 30,
2004 and 2005, and the related statements of operations, convertible preferred
stock and stockholders deficit, and cash flows for each of the three years in
the period ended June 30, 2005. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Cardica, Inc. at June 30, 2004 and
2005, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 2005, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
F-2
Cardica, Inc.
Pro
Forma
June
30,
2004
2005
2005
(unaudited)
Assets
Current
assets:
Cash
and cash equivalents
$
2,225
$
1,951
Short-term
investments
14,999
7,000
Accounts receivable
58
104
Accounts receivable
from related party
131
5
Inventories
470
526
Stockholder note
receivable
73
Interest receivable from stockholders
20
Prepaid expenses and
other current assets
138
345
Total
current assets
18,021
10,024
Property and equipment,
net
1,615
1,611
Stockholder note receivable
73
Interest receivable
from stockholders
12
1
Restricted cash
510
510
Total
assets
$
20,231
$
12,146
Liabilities, convertible
preferred stock and stockholders deficit
Current
liabilities:
Accounts payable
$
196
$
244
Accrued
compensation
139
133
Other
accrued liabilities
223
431
Accrued clinical trial
fees
684
Deferred other income - related party
250
Current portion of
leasehold improvement
obligation
127
122
Deferred rent
62
Total current
liabilities
1,619
992
Deferred rent
174
214
Notes payable to
related party
10,250
10,250
Interest payable to related party
539
1,436
Subordinated
convertible note
3,000
3,000
Leasehold improvement obligation
369
255
Other non-current
liabilities
27
1
Commitments
Series A convertible
preferred stock,
$0.001 par value: 683,000 shares authorized, issued and outstanding at June
30, 2004 and 2005, aggregate liquidation preference of $683 at June 30, 2004
and 2005; no shares outstanding pro forma (unaudited)
683
683
Series B convertible preferred stock,
$0.001 par value: 1,700,000 shares authorized; 1,585,838 shares issued and
outstanding at June 30, 2004 and 2005, aggregate liquidation preference of
$2,585 at June 30, 2004 and 2005; no shares outstanding pro forma (unaudited)
2,585
2,585
Series C convertible
preferred stock,
$0.001 par value: 5,500,000 shares authorized; 4,698,996 shares issued and
outstanding at June 30, 2004 and 2005, aggregate liquidation preference of
$13,157 at June 30, 2004 and 2005; no shares outstanding pro forma (unaudited)
13,157
13,157
F-3
Series D convertible preferred stock,
$0.001 par value: 6,500,000 shares authorized; 4,821,992 shares issued and
outstanding at June 30, 2004 and 2005, aggregate liquidation preference of
$18,613 at June 30, 2004 and 2005; no shares outstanding pro forma
(unaudited)
18,613
18,613
Series E convertible
preferred stock,
$0.001 par value: 1,006,000 shares authorized; 988,300 shares issued and
outstanding at June 30, 2004 and 2005, aggregate liquidation preference of
$4,645 at June 30, 2004 and 2005; no shares outstanding pro forma (unaudited)
4,645
4,645
Stockholders deficit:
Common stock, $0.001
par value, 24,060,000
shares authorized, 5,220,019 and 5,246,936 shares issued and outstanding at
June 30, 2004 and 2005, respectively, and
18,025,062 outstanding pro
forma (unaudited)
3
3
16
Additional paid-in capital
2,054
5,201
44,871
Deferred stock
compensation
(431
)
(431
)
Notes
receivable from stockholders
(428
)
(449
)
(449
)
Accumulated
deficit
(37,059
)
(48,009
)
(48,009
)
Total
stockholders deficit
(35,430
)
(43,685
)
$
(4,002
)
Total liabilities, convertible preferred stock and
stockholders deficit
$
20,231
$
12,146
See accompanying notes.
F-4
Cardica, Inc.
Year ended June
30,
2003
2004
2005
Net
revenue:
Product revenue,
net
$
$
212
$
719
Product revenue from related party, net
401
1,027
Development revenue
from related party
223
310
Total
net revenue
836
2,056
Operating costs and
expenses:
Cost
of product revenue (includes related
party costs of product revenue of $1,377 in 2004 and $1,180 in 2005)
2,105
2,478
Research and
development
6,698
5,826
6,289
Selling, general and administrative
1,936
1,809
3,753
Total operating costs
and expenses
8,634
9,740
12,520
Loss
from operations
(8,634
)
(8,904
)
(10,464
)
Interest
income
294
209
305
Interest expense (includes related party
interest expense of $539 in 2004 and $897 in 2005)
(885
)
(2,001
)
(1,048
)
Other income (includes
$250 from related
party in 2005)
(14
)
257
Net
loss
$
(9,225
)
$
(10,710
)
$
(10,950
)
Basic and diluted net
loss per share
$
(2.62
)
$
(2.75
)
$
(2.60
)
Shares used in computing basic and diluted
net loss per share
3,527
3,897
4,204
Pro forma basic and
diluted net loss per share (unaudited)
$
(0.64
)
Shares used in computing pro forma basic
and diluted net loss per share (unaudited)
16,982
See accompanying notes.
F-5
Cardica, Inc.
Convertible Preferred
Common Stock
Additional
Deferred
Notes
Accumulated
Total
Shares
Amount
Shares
Amount
Balance at July 1, 2002
11,789,826
$
35,038
4,255,997
$
2
$
457
$
$
(445
)
$
(17,124
)
$
(17,110
)
Issuance of common stock at $0.10 to $0.75 per
share upon exercise of
employee stock options for cash
208,082
77
77
Issuance of common stock to employees at $0.75
per share upon early
exercise of stock options for promissory note
50,000
2
(2
)
Issuance of common stock to non-employees at
$0.45 to $0.75 per share
for services throughout 2003
156,428
90
90
Issuance of stock options to non-employees
throughout 2003 for
services
67
67
Warrants issued in October 2002 in conjunction
with notes payable
685
685
Additional Series D convertible preferred stock
issuance costs
(3
)
(3
)
Repayment of stockholder notes receivable for
cash
67
67
Increase of stockholder notes receivable due to
accrued interest
which was converted into principal of notes
(40
)
(40
)
Stock-based compensation expense related to
variable accounting of
certain employee stock options
288
288
Net loss and comprehensive loss
(9,225
)
(9,225
)
Balance
at June 30, 2003
11,789,826
35,038
4,670,507
2
1,663
(420
)
(26,349
)
(25,104
)
Issuance of common stock at $0.10 to $0.75 per
share upon exercise of
employee stock options for cash
482,897
1
199
200
Issuance of common stock at $0.75 to $0.95 per
share upon exercise of
stock options for promissory notes
50,000
12
(12
)
Issuance of common stock to non-employees at
$0.75 and $0.95 per
share for services throughout 2004
24,428
22
22
Issuance of stock options to non-employees
through 2004 for services
127
127
Issuance of Series E convertible preferred stock
at $4.70 per share
to related party for cash in August 2003, including issuance costs of $50
851,064
4,000
(50
)
(50
)
Issuance of Series E convertible preferred stock
at $4.70 per share
for prepayment of interest due on notes payable
137,236
645
Repurchase of common stock at $0.45 per share in
January 2004
(7,813
)
(4
)
4
Stock-based compensation expense related to
variable accounting of
certain employee stock options
85
85
Net loss and comprehensive loss
(10,710
)
(10,710
)
Balance
at June 30, 2004
12,778,126
39,683
5,220,019
3
2,054
(428
)
(37,059
)
(35,430
)
F-6
Convertible Preferred
Common Stock
Additional
Deferred
Notes
Accumulated
Total
Shares
Amount
Shares
Amount
Issuance of common stock at $0.75 to $0.95 per
share upon exercise of
stock options for promissory notes
21
(21
)
Issuance of common stock at $0.45 to $0.95 per
share upon exercise of
employee stock options for cash
26,917
14
14
Stock-based compensation expense related to
variable accounting of certain
employee stock options
2,009
2,009
Stock-based compensation expense related to
modifications of certain
employee stock options
590
590
Issuance of stock options to non-employees
through 2005 for services
25
25
Early exercise of stock options no longer
subject to repurchase
35
35
Deferred stock-based compensation
453
(453
)
Amortization of deferred stock-based
compensation
22
22
Net loss and comprehensive loss
(10,950
)
(10,950
)
Balance at June 30, 2005
12,778,126
$
39,683
5,246,936
$
3
$
5,201
$
(431
)
$
(449
)
$
(48,009
)
$
(43,685
)
See accompanying notes.
F-7
Cardica, Inc.
Year ended
June 30,
2003
2004
2005
Operating activities:
Net loss
$
(9,225
)
$
(10,710
)
$
(10,950
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
669
672
850
Amortization of debt discount
140
460
Loss on disposal of property and equipment
205
24
Amortization of deferred stock-based
compensation expense
22
Stock-based compensation on grants of stock
options to non-employees
68
127
25
Stock-based compensation related to
issuance of common shares for consulting services rendered
90
22
Stock-based compensation on grants of stock
options to employees
288
85
2,599
Conversion of interest to preferred stock
on prepayment of note payable
645
Changes in assets and liabilities:
Accounts receivable
(58
)
(46
)
Accounts receivable from related party
(131
)
126
Prepaid expenses and other current assets
(87
)
42
(207
)
Inventories
(160
)
(310
)
(56
)
Interest receivable from stockholders
(3
)
(9
)
(9
)
Other non-current assets
24
3
Restricted cash
(500
)
72
Accounts payable and other accrued
liabilities
(270
)
258
(419
)
Accrued compensation
44
5
(7
)
Deferred rent
174
102
Deferred other income from related party
250
(250
)
Leasehold improvement obligation
(117
)
(118
)
Interest payable to related party
539
897
Net cash used in operating activities
(8,922
)
(7,776
)
(7,417
)
Investing activities:
Purchases of property and equipment
(757
)
(914
)
(882
)
Leasehold improvement reimbursement by
landlord
118
Proceeds from sale of equipment
12
Purchases of short-term investments
(16,250
)
(3,089
)
(13,076
)
Proceeds from sales of short-term
investments
4,850
2,090
21,075
Net cash (used in) provided by investing
activities
(12,157
)
(1,795
)
7,129
Financing activities:
Proceeds from issuance of convertible
preferred stock, net of issuance costs
(3
)
3,950
Proceeds from issuance of common stock
pursuant to the exercise of stock options for cash
42
198
14
Proceeds from repayment of stockholder
notes receivable
67
Proceeds from early exercise of stock
options
63
Issuance of stockholder promissory note
(73
)
Proceeds from notes payable
5,500
Proceeds from notes payable from related
party
10,250
Proceeds from subordinated convertible note
3,000
Repayment of principal on notes payable
(3,069
)
(6,272
)
Net cash provided by financing activities
5,537
8,116
14
F-8
Net decrease in cash and cash equivalents
(15,542
)
(1,455
)
(274
)
Cash and cash equivalents at beginning of
period
19,222
3,680
2,225
Cash and cash equivalents at end of period
$
3,680
$
2,225
$
1,951
Supplemental disclosures of cash flow
information:
Cash paid for interest
$
745
$
328
$
150
Supplemental disclosure of
non-cash activities:
Deferred stock-based compensation
$
$
$
453
Issuance of warrants in
conjunction with notes payable
$
140
$
$
Note receivable from exercise of stock
options
$
37
$
47
$
Accrued interest converted to principal on
modified notes
$
40
$
$
Leasehold improvements paid for directly by
landlord
$
$
422
$
See
accompanying notes.
F-9
Cardica, Inc.
Notes to Financial
Statements
Note 1.
Organization and Summary of Significant Accounting Policies
Organization
Cardica,
Inc. (the Company) was incorporated in the state of Delaware on October 15,
1997, as Vascular Innovations, Inc. On November 26, 2001, the Company changed
its name to Cardica, Inc. The Company designs, manufactures and markets
proprietary automated anastomotic systems used in surgical procedures. The
Companys first product, the PAS-Port system, received the CE Mark for sales in
Europe in March 2003, and regulatory approval for sales in Japan in January
2004. The second product, the C-Port system, received the CE Mark for sales in
Europe in April 2004 and is currently under review for 510(k) clearance in the
United States.
Need to Raise Additional Capital
The
Company has incurred significant net losses and negative cash flows from
operations since its inception. At June 30, 2005, the Company had an
accumulated deficit of $48.0 million. At June 30, 2005, management believed
that currently available cash, cash equivalents and short-term investments
together with existing financing agreements would provide sufficient funds to
enable the Company to meet its obligations through at least July 1, 2006.
Management plans to continue to finance the Companys operations with a
combination of equity issuances, debt arrangements and in the longer term,
product sales and royalties. If adequate funds are not available, the Company
may be required to delay, reduce the scope of, or eliminate one or more of its
development programs or obtain funds through collaborative arrangements with
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself.
Use of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles generally requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from these estimates.
Reclassifications
Certain
amounts of revenue reported as an offset to research and development expense in
the previous year have been reclassified to conform to the 2005 presentation.
Certain balance sheet and cash flow amounts in prior years have been
reclassified to conform to the 2005 presentation. Such reclassifications had no
effect on previously reported results of operations, total assets or
accumulated deficit.
Unaudited Pro Forma Stockholders
Equity
In
September 2005, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission for the
Company to sell shares of its common stock to the public. If the initial public
offering is completed under the terms presently anticipated, all of the
Series A, Series B, Series C, Series D, and Series E
convertible preferred stock outstanding at the time of the offering will
convert into 12,778,126 shares of common stock, assuming a one-for-one
conversion ratio. Unaudited pro forma stockholders equity, as adjusted for the
assumed conversion of the preferred stock, is set forth on the accompanying
balance sheets.
Cash
and Cash Equivalents
The
Companys cash and cash equivalents are maintained in checking, money market
and mutual fund investment accounts. For purposes of the statement of cash
flows, the Company considers all highly liquid investments with maturities
remaining on the date of purchase of three months or less to be cash
equivalents. The carrying amount reported in the balance sheets approximates
fair value.
F-10
Cardica, Inc.
Notes to Financial Statements(Continued)
Available-for-Sale Securities
The
Company has classified its investments in marketable securities as
available-for-sale. Such investments are reported at market value, and
unrealized gains and losses, if any, are excluded from earnings and are reported
in other comprehensive income (loss) as a separate component of stockholders
equity until realized. The cost of securities sold is based on the
specific-identification method. Interest on securities classified as
available-for-sale is included in interest income. The net realized gains on
sales of available-for-sale securities were not material in fiscal years 2003,
2004 and 2005.
There
are no unrealized gains or losses on available-for-sale securities at June 30,
2004 and 2005.
Available-for-sale
securities at June 30, 2004 and 2005 consist primarily of auction rate
securities. The underlying contractual maturities of the auction rate
securities are greater than one year. Although maturities may extend beyond one
year, it is managements intent that these securities will be used for current
operations, and therefore, are classified as short-term. The Companys auction
rate securities have settlement dates within at least 35 days from purchase
date.
Restricted Cash
Under
a facility-operating lease for its facility in Redwood City, California, the
Company is required to secure a letter of credit with a restricted cash balance
with the Companys bank. A certificate of deposit of $500,000 has been recorded
as restricted cash in the accompanying balance sheets at June 30, 2004 and 2005
related to the letter of credit (see Note 5).
A
certificate of deposit of $10,000 has been recorded as restricted cash in the
accompanying balance sheets at June 30, 2004 and 2005 related to the deposit on
the company credit card.
Fair Value
of Financial Instruments
The
carrying amounts of certain of the Companys financial instruments, including
cash and cash equivalents and investments, approximate fair value due to their
short maturities. Based on borrowing rates currently available to the Company
for loans and capital lease obligations with similar terms, the carrying value
of the Companys debt obligations approximates fair value.
Concentrations of
Credit Risk and Certain Other Risks
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, available-for-sale
securities and accounts receivable. The Company places its cash and cash equivalents
and available-for-sale securities with high-credit quality financial
institutions. The Company is exposed to credit risk in the event of default by
the institutions holding the cash and cash equivalents, and available-for-sale
securities to the extent of the amounts recorded on the balance sheet.
The
Company sells its products to hospitals in Europe and to distributors in Japan
who in turn sells the product to hospitals. The Company does not require
collateral to support credit sales. The Company has had no credit losses to
date.
Two
customers individually accounted for 65% and 33% of total revenue during the
year ended June 30, 2005, and 4% and 79% of total accounts receivable as of
June 30, 2005.
Two
customers individually accounted for 75% and 25% of total revenue during the
year ended June 30, 2004, and 69% and 29% of total accounts receivable as of
June 30, 2004. The Company had no revenue prior to the year ended June 30,
2004.
The
Company depends upon a number of key suppliers, including single source
suppliers, the loss of which would materially harm the Companys business.
Single source suppliers are relied upon for certain components and services
used in manufacturing the products. The Company does not have long-term
contracts with any of the
F-11
Cardica, Inc.
Notes to Financial Statements(Continued)
suppliers; rather, purchase
orders are submitted for each order. Because long-term contracts do not exist,
none of the suppliers are required to provide the company any guaranteed
minimum quantities.
Inventories
Inventories
are recorded at the lower of standard cost (which approximates actual cost on a
first-in, first-out basis) or market. The Company periodically assesses the
recoverability of all inventories, including raw materials, work-in-process and
finished goods, to determine whether adjustments for impairment are required.
Inventory that is obsolete or in excess of forecasted usage is written down to
its estimated realizable value based on assumptions about future demand and
market conditions.
Property and Equipment
Property
and equipment are stated at cost and depreciated on a straight-line basis over
the estimated useful lives of the related assets, which are generally three to
five years for all property and equipment categories. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
remaining lease term or the estimated useful life of the related assets. Upon
sale or retirement of assets, the costs and related accumulated depreciation
and amortization are removed from the balance sheet and the resulting gain or
loss is reflected in the statement of operations.
Impairment
of Long-Lived Assets
The Company
reviews long-lived assets, including property and equipment, for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. An impairment loss would be
recognized when estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition are less than its
carrying amount. Impairment, if any, is assessed using discounted cash flows.
Through June 30, 2005, there have been no indications of impairment, and the
Company has recorded no such losses.
Revenue Recognition
The
Company recognizes product revenue upon shipment and related transfer of title
to customers and when collectibility is probable. Product revenue is recognized
upon receipt of payments when collectibility is not probable. Amounts received
in advance of revenue recognition criteria are recorded as deferred revenue.
Customers have the right to return products that are defective. There are no
other return rights. Research funding related to collaborative research is
recognized as the related research services are performed. The Company includes
shipping and handling costs in cost of revenue.
Research and Development
Research
and development expenses consist of costs incurred for internally sponsored
research and development, direct expenses, and research-related overhead
expenses. Research and development costs are charged to research and
development expense as incurred.
Clinical Trials
The
Company accrues and expenses costs for clinical trial activities performed by
third parties based upon estimates of the percentage of work completed over the
life of the individual study in accordance with agreements established with
contract research organizations and clinical trial sites. The Company
determines the estimates through discussion with internal clinical personnel
and outside service providers as to progress or stage of completion of trials
or services and the agreed upon fee to be paid for such services. Costs of
setting up clinical trial sites for participation in the trials are expensed
immediately as research and development expenses. Clinical trial site costs
related to patient enrollment are accrued as patients are entered into the
trial and reduced by any initial payment made to the clinical trial site when
the first patient is enrolled.
F-12
Cardica, Inc.
Notes to Financial Statements(Continued)
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes as
required by SFAS No. 109,
Accounting
for Income Taxes.
Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
reporting bases of assets and liabilities and are measured using enacted tax
rates and laws that are expected to be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Segments
The
Company operates in one segment. Management uses one measurement of
profitability and does not segregate its business for internal reporting. All
long-lived assets are maintained in the United States.
Net loss
per common share
Basic
net loss per share is calculated by dividing the net loss by the
weighted-average number of common shares outstanding for the period less the
weighted average unvested common shares subject to repurchase and without
consideration for potential common shares. Diluted net loss per share is
computed by dividing the net loss by the weighted-average number of common
shares outstanding for the period less the weighted average unvested common
shares subject to repurchase and dilutive potential common shares for the
period determined using the treasury-stock method. For purposes of this
calculation, preferred stock, options and warrants to purchase stock are
considered to be potential common shares and are only included in the
calculation of diluted net loss per share when their effect is dilutive.
The
unaudited pro forma basic and diluted net loss per share calculations assume
the conversion of all outstanding shares of preferred stock into shares of
common stock using the as-if-converted method as of June 30, 2005 or the date
of issuance, if later (in thousands, except per share data).
Year ended
June 30,
2003
2004
2005
Historical
Numerator:
Net loss
$
(9,225
)
$
(10,710
)
$
(10,950
)
Denominator:
Weighted-average common shares outstanding
4,448
4,920
5,240
Less: Weighted-average unvested common
shares subject to repurchase
(553
)
(358
)
(217
)
Less: Vested common shares outstanding
exercised with promissory notes subject to variable accounting
(368
)
(665
)
(819
)
Denominator for basic and diluted net loss
per share
3,527
3,897
4,204
Basic and diluted net loss per share
$
(2.62
)
$
(2.75
)
$
(2.60
)
Pro forma
Numerator:
Net loss
$
(10,950
)
Denominator:
Shares used above
4,204
Pro forma adjustments to reflect assumed
weighted-average effect of conversion of preferred stock (unaudited)
12,778
Shares used to compute pro forma basic and
diluted net loss per share (unaudited)
16,982
Pro forma basic and diluted net loss per
share (unaudited)
$
(0.64
)
Outstanding securities not included in historical diluted net loss
per share calculation
Convertible preferred stock
11,790
12,778
12,778
F-13
Cardica, Inc.
Notes to Financial Statements(Continued)
Options to purchase common stock
2,070
1,965
2,299
Vested common shares outstanding exercised
with promissory notes subject to variable accounting
368
665
819
Warrants to purchase common stock and
preferred stock
470
470
470
14,698
15,878
16,366
Stock-Based
Compensation
The
Company has elected to follow the intrinsic-value method in accordance with
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25),
and
related interpretations, including Financial Accounting Standards Board Interpretation
No. 44,
Accounting for Certain Transactions
involving Stock Compensation,
in accounting for its employee stock
options. Under APB 25, no compensation expense is recorded for stock option
grants to employees with an exercise price equal to the estimated fair value of
the underlying stock as determined by the Companys Board of Directors at the
date of grant. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation
(SFAS
123), as amended by SFAS 148,
Accounting for Stock-Based Compensation
Transition and Disclosure.
Options
granted to non-employees, including lenders and consultants, are accounted for
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force (EITF) Consensus No. 96-18,
Accounting
for Equity Instruments That Are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services.
The Company
applies the Black-Scholes method to determine the estimated fair value of such
awards, which are periodically remeasured as they vest. The resulting value is
recognized as an expense over the period of services received or the term of
the related financing.
During
the fiscal year ended June 30, 2005, certain stock options were granted with
exercise prices that were below the estimated fair value of the common stock at
the date of grant. In accordance with APB Opinion No. 25, a deferred
stock-based compensation expense of $287,000 was recorded during the fiscal
year ended June 30, 2005. The deferred stock compensation will be amortized
over the related vesting terms of the options. The Company recorded a deferred
stock-based compensation expense of $22,000 for the fiscal year ended June 30,
2005. The Company also records deferred stock compensation resulting from
variable accounting for options exercises with non-recourse promissory notes.
Deferred stock compensation related to these notes, representing compensation
related to unvested options, was $166,000 as of June 30, 2005.
The
fair value of the common stock for options granted through June 30, 2005, was
originally estimated by the Companys board of directors, with input from
management. The Company did not obtain contemporaneous valuations by an
unrelated valuation specialist. Subsequently, the Company reassessed the
valuations of common stock relating to grants of options during the fiscal year
ended June 30, 2005. The Company granted stock options with an exercise price
of $0.95 during the fiscal year ended June 30, 2005. Subsequently, the Company
determined that the fair value of common stock increased from $0.95 to $2.50
per share during that period.
As
of June 30, 2005, the expected future amortization expense for deferred
stock compensation during each of the following periods is as follows (in
thousands):
Fiscal year
ending June 30,
2006
$
186
2007
108
2008
88
2009
49
$
431
F-14
Cardica, Inc.
Notes to Financial Statements(Continued)
The
following table illustrates the effect on the Companys net loss if the Company
had applied the fair-value recognition provisions of SFAS 123 to stock-based
employee compensation (in thousands, except per share data):
Year
ended June 30,
2003
2004
2005
Net
loss as reported
$
(9,225
)
$
(10,710
)
$
(10,950
)
Add:
stock-based employee compensation expense included in net loss as reported
288
85
2,621
Less:
total stock-based employee compensation determined under the fair-value
method for all awards
(56
)
(56
)
(89
)
Pro
forma net loss
$
(8,993
)
$
(10,681
)
$
(8,418
)
Net
loss per share:
Basic
and diluted as reported
$
(2.62
)
$
(2.75
)
$
(2.60
)
Basic
and diluted pro forma
$
(2.55
)
$
(2.74
)
$
(2.00
)
The
resulting effect on the net loss pursuant to SFAS 123 is not likely to be representative
of the effects on net loss and loss per share pursuant to SFAS 123 in future
years, since future years are likely to include additional grants.
The
fair value of these options was estimated at the date of grant using the
minimum-value method with the following weighted-average assumptions:
Year Ended
June 30,
2003
2004
2005
Risk-free
interest rate
2.96
%
2.86
%
3.51
%
Dividend
yield
0.00
%
0.00
%
0.00
%
Weighted-average
expected life
4 years
4 years
4 years
Recent
Accounting Pronouncements
In
March 2004, the EITF reached a consensus on EITF No. 03-1,
The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments.
EITF No. 03-1 provides
guidance regarding disclosures about unrealized losses on available-for-sale
debt and equity securities accounted for under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities.
The guidance for evaluating whether an investment is
other-than-temporarily impaired should be applied in other-than-temporary
impairment evaluations made in reporting periods beginning after June 15,
2004. In September 2004, the EITF delayed the effective date for the
measurement and recognition guidance. We are in the process of evaluating the
effect of adopting the measurement and recognition provisions of EITF
No. 03-1.
In
December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS No.
123. SFAS 123(R) supersedes APB No. 25, and amends SFAS No. 95, Statement of
Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach
described in SFAS No. 123. However, SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Under SFAS 123(R),
pro forma disclosure is no longer an alternative. The Company is required to
apply the prospective transition method no later than the July 1, 2007 or upon
becoming a public company. The Company must continue to account for any equity
awards outstanding at the required effective date using the accounting
principles originally applied to those awards (e.g., the provisions of Opinion
25 and its related interpretative guidance). As permitted by SFAS 123, the
Company currently accounts for share-based payments to employees using APB 25s
intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of SFAS 123(R)s fair
value method will have a significant impact on the Companys result of operations,
although it will have no impact on its overall financial position. The
F-15
Cardica, Inc.
Notes to Financial Statements(Continued)
impact of
adoption of SFAS 123(R) cannot be predicted at this time because it will depend
on levels of share-based payments granted in the future.
In
November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151,
Inventory Costs, an amendment
of ARB No. 43, Chapter 4.
SFAS No. 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted material. SFAS No. 151 is effective for inventory costs
incurred during fiscal years beginning in the Companys first quarter of fiscal
year 2006. The Company does not believe the adoption of SFAS No. 151 will
have a material effect on its consolidated financial position, results of
operations or cash flows.
Note 2. Short-term investments
Short-term
investments consist of auction rate preferred securities and are summarized as
follows (in thousands):
June 30,
2004
2005
Fair market
value
$
14,999
$
7,000
Cost basis
14,999
7,000
Unrealized
gain (loss)
$
$
Contractual
maturities or settlement dates of securities at June 30, 2004 and 2005 are
within one year.
Note 3. Inventories
Inventories
consisted of the following (in thousands):
June 30,
2004
2005
Raw materials
$
348
$
280
Work in progress
17
194
Finished goods
105
52
$
470
$
526
Note 4.
Property and Equipment
Property and
equipment consisted of the following (in thousands):
June 30,
2004
2005
Computer
hardware and software
$
362
$
375
Office
furniture and equipment
144
154
Machinery
and equipment
1,899
2,832
Leasehold
improvements
461
461
Construction
in process
174
11
3,040
3,833
Less:
accumulated depreciation and amortization
(1,425
)
(2,222
)
$
1,615
$
1,611
Note 5. Leases and
Commitments
The Company entered into an agreement in April 2003 for office space
under a non-cancelable operating lease through July 2008. The operating lease
has a renewal option at the end of the lease for an additional three
F-16
Cardica, Inc.
Notes to Financial Statements(Continued)
years. Pursuant to the terms of
the operating lease agreement, the Company placed funds in the amount of
$500,000 in a certificate of deposit account. The amount is restricted until
the expiration of the lease agreement in July 2008 and is recorded as
non-current restricted cash.
Future
minimum lease payments under the non-cancelable operating leases having initial
terms in excess of one year as of June 30, 2005, are as follows (in thousands):
Operating
Year ending
June 30,
2006
$
429
2007
461
2008
478
2009
40
Total
minimum lease payments
$
1,408
Rent
expense for the years ended June 30, 2003, 2004 and 2005, was $320,000,
$260,000 and $249,000, respectively. Deferred rent under the facility operating
lease amounted to $174,000 and $276,000 at June 30, 2004 and 2005,
respectively.
Sponsored Research
In
August 1999, the Company entered into a Sponsored Research Agreement (Research
Agreement) with an academic institution. The Research Agreement allows the
academic institution to perform research for the Company on a best-efforts
basis leading to the delivery of a final research report to the Company, with
funds not expended under the agreement to be returned to the Company. The
Research Agreement was amended in 2005 to increase the maximum obligation under
the agreement to $1.2 million and extend the expiration date to December 31,
2006. The Company incurred expenses
totaling $96,000, $130,000 and $136,000 in the fiscal years ended June 30,
2003, 2004 and 2005, respectively. The
Company had an accrued liability of $417,000 and $547,000, and a prepaid
expense of $150,000 at June 30, 2003, 2004 and 2005, respectively. The remaining obligation for services to
be
rendered through December 31, 2006, under the Research Agreement, is
approximately $158,000.
Note 6. Related Party Transactions
Financing Activities
In
June 2002, the Company issued to Guidant Investment Corporation (Guidant
Investment) a total of 2,590,673 shares of Series D convertible preferred
stock at $3.86 per share resulting in cash proceeds of approximately $10.0
million to the Company.
In
August 2003, the Company issued to Guidant Investment a total of 851,064 shares
of Series E convertible preferred stock at $4.70 per share resulting in cash
proceeds of approximately $4.0 million to the Company.
Loan and Strategic
Agreements
In
August 2003, the Company entered into a Loan Agreement with Guidant
Investment. This agreement provided
the Company with a five-year loan of $10,250,000. The Company borrowed
$5,000,000 in August 2003, and borrowed an additional $5,250,000 in February
2004. As the note holder, Guidant Investment has a first priority security
interest in all personal property and assets of the Company, including
intellectual property. The Loan Agreement provides for principal and accrued
interest payment at a loan maturity date of August 2008. The interest rate on
the notes is 8.75% per annum, calculated on actual principal outstanding based
on actual days elapsed. As of June 30, 2004 and 2005, the Company had accrued
interest payable to related party of $539,000 and $1.4 million, respectively,
on the accompanying balance sheet for this obligation.
In
August 2003, in connection with this loan, Guidant Investment was granted a
right to negotiate exclusively for the acquisition of the Company, and the
Company also agreed not to enter into any change of control
F-17
Cardica, Inc.
Notes to Financial Statements(Continued)
transaction
during the period between the signing of the strategic agreement and November
2004. The Company received a strategic agreement fee of $250,000 and recorded
the amount in the accompanying balance sheet as of June 30, 2004 as deferred
other income from a related party. The Company recorded the $250,000 as other
income in the statement of operations in the year ended June 30, 2005 upon
expiration of the strategic agreement in October 2004.
Development and
Supply Agreement
In December
2003, the Company entered into a Development and Supply Agreement with Guidant
Corporation (Guidant) for the development and commercialization of an aortic
cutter for Guidant, the Heartstring product. The agreement called for the
Company to develop and manufacture aortic cutters. Future production of the
aortic cutter has been outsourced by Guidant to a third-party manufacturer, and
the Company will receive royalties quarterly for each unit sold in the future. As
of June 30, 2005, no royalties have been received under this agreement. In
addition, the Company was entitled to receive payments of $488,000 for
development activities pertaining to the development of the product. In June 2004, the agreement was
amended to
include further development efforts for incremental consideration of $45,000.
The Company recognized development revenue of $223,000 and $310,000, for the
fiscal years ended June 30, 2004 and 2005, respectively. The Company also recognized product revenue
from the sale of aortic cutters to Guidant of $396,000 in the fiscal year ended
June 30, 2005. No product revenue was recognized in fiscal 2004 for the aortic
cutter.
Distribution
Agreement Termination
In
September 2004, Guidant terminated its distribution agreement with the Company
for product sales in Europe of the PAS-Port and C-Port systems. The agreement
called for minimum purchases by Guidant and upon termination the Company
recorded $510,000 in net product revenue in the year ended June 30, 2005 as the
difference between the minimum contractual purchases due from Guidant and
actual purchases through the termination date. Guidant paid the Company the
$510,000 in October 2004. There are no additional payments due the Company
related to the termination of the distribution agreement.
Note 7. Subordinated
Convertible Note
In June
2003, the Company entered into a distribution agreement with Century Medical,
Inc. (CMI). CMI issued a subordinated convertible note to the Company in the
amount of $3,000,000. The subordinated convertible notes are
convertible at the option of the holder into common stock at the price of the
Companys initial public offering at any time within 180 days after the initial
public offering. The holder of the subordinated convertible notes has a
continuing security interest in all of the Companys personal property and
assets, including intellectual property. Interest is compounded annually at 5% and is payable quarterly in arrears
on January 31, April 30, July 31, and October 31 of each year. The principal of
the note is due in June 2008. The Company made interest payments of $131,000
and $150,000 in the fiscal years ended June 30, 2004 and 2005,
respectively. The interest payable at
June 30, 2004 and June 30, 2005 is $25,000 at both dates.
Note 8.
Stockholders (Deficit)
Convertible
Preferred Stock
The
Company initially recorded the Series A, B, C, D, and E convertible
preferred stock (preferred stock) at their fair values on the date of
issuances. A redemption event will only occur upon the liquidation, winding up,
change in control or sale of substantially all of the assets of the Company. As
the redemption event is outside of the control of the Company, all shares of
preferred stock have been presented outside of permanent equity in accordance
with EITF topic D-98,
Classification and
Measurement of Redeemable Securities
. Further, the Company has also
elected not to adjust the carrying values of the preferred stock to the
redemption value of such shares, since it is uncertain whether or when a
redemption event will occur. Subsequent adjustments to increase the carrying
values to the redemption values will be made if it becomes probable that such
redemption will occur.
Each
share of Series A, B, C, D and E convertible preferred stock (collectively, the
preferred stock) is convertible, at the option of the holder, into shares of
common stock. Conversion of the Preferred Stock is subject to a conversion rate
determined by dividing the original issue price of the Preferred Stock by the
conversion price in
F-18
Cardica, Inc.
Notes to Financial Statements(Continued)
effect at the
time of conversion. The initial conversion prices are equal to the original
issue prices and are subject to adjustment as specified in the Articles of
Incorporation. Conversion is automatic upon the closing of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 which results in a price per share of not less than
$9.40 and for gross offering proceeds of not less than $25,000,000, or upon the
approval of the holders of at least 50% of the outstanding shares of the
Preferred Stock. The Preferred Stock has voting rights on an
as-if-converted-to-common-stock basis. Series A, B, C, D and E preferred
stockholders are entitled to noncumulative dividends if declared by the Board
of Directors and in preference to common stock dividends. No dividends have been declared or paid by
the Company through June 30, 2005.
In
the event of the liquidation, dissolution or sale of the Company, the Series A,
B, C, D and E preferred stock are subject to liquidation preferences of $1.00,
$1.63, $2.80, $3.86 and $4.70, respectively, per share plus all declared but
unpaid dividends. After liquidation preference distributions to Series A, B, C,
D and E preferred stockholders have been paid, the remaining assets of the
Company available for distribution to stockholders shall be distributed among
the holders of common stock.
For
as long as at least 1,500,000 shares of the Preferred Stock remain outstanding
(subject to adjustment for any stock split, reverse stock split or similar
transaction), the holders of the Preferred Stock, voting as a separate class,
shall be entitled to elect two members of the Companys Board of Directors. The
holders of the Companys common stock, voting as a separate class, shall be
entitled to elect two members of the Companys Board of Directors. The holders
of common stock and Preferred Stock, voting together as a single class on an
as-if-converted basis, shall be entitled to elect all remaining members of the
Board of Directors.
Notes Receivable from
Stockholders
From
inception October 17, 1997, to June 30, 2002, the Company issued six promissory
notes to three officers allowing them to exercise their stock options. These full-recourse notes, with aggregate
principal of $444,000,
had annual rates of interest between 6.6% and 8.15% and were repayable
commencing August 2003. In August 2002, one of the notes was paid in cash to
the Company by an officer and in April 2003, the note was reissued to the
officer. In January 2003, the Company modified the terms of the remaining five
notes by reducing the interest rate of each note to 1.58% and extending the
repayment date to January 2006. Accrued interest of $40,000, as of the date of
modification, was added into the new principal of the notes. The modification
of the notes triggered variable accounting of the options exercised with the
notes and resulted in stock-based compensation expense of $288,000, $85,000 and
$2.0 million, which the Company has charged to general and administrative and
research and development expense in the accompanying statements of operations
for fiscal years ended June 30, 2003, 2004 and 2005, respectively. As of June
30, 2005, $449,000 of notes receivable from stockholders remained outstanding.
Interest receivable on all promissory notes of $12,000 and $21,000,
respectively, was recorded in the accompanying balance sheets as of June 30,
2004 and 2005. An additional
stockholder note receivable of $73,000
is classified on the balance sheet as a current asset.
In
May 2003 and April 2004, the Company issued promissory notes to an officer
allowing him to early exercise options to purchase a total of 100,000 shares of
the Companys common stock. These recourse notes, with principal of $37,000 and
$47,000, bear interest at an annual rate of 1.58% and are repayable commencing
May 2006 and April 2007, respectively. In accordance with the provision of EITF
No. 00-23,
Issues Related to the
Accounting for Stock Compensation Under APB Opinion No. 25
and FASB Interpretation No. 44
, the early
exercises of these options are not treated as a substantive exercise for
financial reporting purposes.
The
loans were made pursuant to recourse promissory notes that were secured by the
underlying shares of common stock purchased with the proceeds of the loans.
Because the Company has modified the loans or provided below-market interest
rates on the loans and extended the repayment period, for accounting purposes
the issuances of the shares that were purchased with the proceeds of the loans
were deemed to be compensatory. Accordingly, the Company is required to record
a non-cash compensation charge equal to the difference between the purchase
price of the stock and the fair value of the stock securing all such notes in each
reporting period the notes remain outstanding.
Shares
Reserved
Shares of
common stock reserved as of June 30, 2005, for future issuance are as follows:
F-19
Cardica, Inc.
Notes to Financial Statements(Continued)
Stock
options outstanding
2,298,753
Shares
available for grant under stock option plan
734,311
Warrants for
Series B preferred stock
36,810
Warrants for
Series C preferred stock
156,250
Warrants for
Series D preferred stock
180,052
Warrants for
common stock
96,439
Conversion
of convertible preferred stock
12,778,126
16,280,741
Stock
Options
The
1997 Equity Incentive Plan (the Plan) was adopted in November 1997 and
provides for the issuance of stock options. As of June 30, 2005, the Company
had reserved an aggregate of 5,745,000 shares of common stock for issuance
under the Plan.
Stock
options granted under the Plan may either be incentive stock options,
nonstatutory stock options, stock bonuses or rights to acquire restricted
stock. Incentive stock options may be granted to employees with exercise prices
of no less than the fair value, and nonstatutory options may be granted to
employees, directors or consultants at exercise prices of no less than 85% of
the fair value of the common stock on the date of grant, as determined by the
Board of Directors. If, at the time the Company grants an option, the optionee
directly or by attribution owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the option price
shall be at least 110% of the fair value and shall not be exercisable more than
five years after the date of grant. Options may be granted with vesting terms
as determined by the Board of Directors. Except as noted above, options expire
no more than 10 years after the date of grant, or earlier if employment is
terminated.
Common
stock options may include a provision whereby the holder, while an employee,
director or consultant, may elect at any time to exercise the option as to any
part or all of the shares subject to the option prior to the full vesting of
the option. Any unvested shares so purchased are subject to repurchase by the
Company at a price generally equal to the original purchase price of the stock.
This right of repurchase will lapse with respect to the unvested shares, and
each optionee shall vest in his or her option shares, as follows: a minimum of
25% of the option shares upon completion of one year of service measured from
the vesting commencement date, and the balance of the option shares in a series
of successive equal monthly installments upon the optionees completion of each
of the next 36 months of service thereafter. At June 30, 2004 and 2005,
respectively, 342,866 and 138,429 shares of common stock were acquired through
the early exercise of options, of which 178,418 and 98,085 shares of common
stock as of June 30, 2004 and 2005, respectively, are subject to the Companys
right of repurchase and are excluded from shareholders equity in accordance
with the provisions of EITF No. 00-23 since these shares have not vested.
Option
activity under this Plan is as follows:
Outstanding
Options
Shares
Number
Weighted-
Balance at July 1, 2002
67,262
1,456,741
$
0.41
Shares reserved
1,500,000
Options granted
(1,120,852
)
1,120,852
$
0.75
Options exercised
(414,510
)
$
0.49
Options canceled
93,254
(93,254
)
$
0.48
Balance at June 30, 2003
539,664
2,069,829
$
0.56
Options granted
(655,401
)
655,401
$
0.95
Options exercised
(557,325
)
$
0.59
Options canceled
203,141
(203,141
)
$
0.64
Unvested stock options
cancelled
7,813
$
0.45
Balance at June 30, 2004
95,217
1,964,764
$
0.67
Shares reserved
1,000,000
Options granted
(444,792
)
444,792
$
0.95
Options exercised
(26,917
)
$
0.54
Options canceled
83,886
(83,886
)
$
0.73
Balance at June 30, 2005
734,311
2,298,753
$
0.72
F-20
Cardica, Inc.
Notes to Financial Statements(Continued)
The
following table summarizes information about options outstanding, vested and
exercisable at June 30, 2005:
Exercise
Number
Weighted-
Number
$0.10
75,000
2.68
75,000
$0.25
21,000
3.79
21,000
$0.40
30,000
4.81
30,000
$0.45
618,043
6.10
584,395
$0.75
584,462
7.74
315,413
$0.95
970,248
9.11
240,793
2,298,753
1,266,601
The
weighted-average estimated fair value of options granted to employees at fair
value during the years ended June 30, 2003, 2004 and 2005 was $0.08, $0.10 and $0.11,
respectively. The weighted-average
estimated fair value of options granted to employees at below fair value during
the years ended June 30, 2003, 2004 and 2005 was none, none and $0.84,
respectively.
For
all options granted in fiscal years 2003, 2004 and 2005 to consultants, the
Black-Scholes option pricing method was applied using the following
weighted-average assumptions for 2003, 2004 and 2005: volatility of 100%; a
risk-free interest rate of 2.19%, 4.28% and 4.23%, respectively; a contractual
option life of 8-10 years, 7-10 years and 6-10 years, respectively,; and no
dividend yield. The Company determined compensation expense related to these
options for the fiscal years ended June 30, 2003, 2004 and 2005, to be $67,000,
$127,000 and $25,000, respectively, which has been reflected in the statements
of operations. In accordance with SFAS 123 and EITF 96-18, options granted to
consultants are periodically revalued as such stock options vest.
Deferred stock-based compensation
The
fair value of the common stock for options granted through June 30, 2005, was
originally estimated by Companys board of directors, with input from
management. The Company did not obtain contemporaneous valuations by an
unrelated valuation specialist. Subsequently, the Company reassessed the
valuations of common stock relating to grants of options during the fiscal year
ended June 30, 2005. The Company granted stock options with an exercise price
of $0.95 during the fiscal year ended June 30, 2005. Subsequently, the Company
determined that the fair value of our common stock increased from $0.95 to
$2.50 per share during that period.
During
the year ended June 30, 2005, the Company issued options to certain employees
under the 1997 Plan with exercise prices below the estimated fair value of the
Companys common stock at the date of grant, determined with hindsight. In
accordance with the requirements of APB No. 25, the Company has recorded
deferred stock-based compensation for the difference between the exercise price
of the stock option and the estimated fair value of the Companys stock at the
date of grant. This deferred stock-based compensation is amortized to expense
on a straight-line basis over the period during which the Companys right to repurchase
the stock lapses or the options vest, generally four years. During the fiscal
year ended June 30, 2005, the Company has recorded deferred stock-based
compensation related to these options of approximately $287,000. Additionally,
the Company has recorded deferred stock-based compensation of $166,000 for
stockholder notes, which are subject to variable accounting. The deferred stock
compensation will be amortized over the related vesting terms of the options.
The Company recorded deferred stock-based compensation expense of $22,000 for
the fiscal year ended June 30, 2005.
F-21
Cardica, Inc.
Notes to Financial Statements(Continued)
Common Stock subject to repurchase
In
connection with the issuance of common stock to employees and the exercise of
options pursuant to the Companys 1997 Stock Option/Stock Issuance Plan,
employees entered into restricted stock purchase agreements with the Company.
Under the terms of these agreements, the Company has a right to repurchase any
unvested shares at the original exercise price of the shares. With continuous
employment with the company, the repurchase rights generally lapse at a rate of
25% at the end of the first year and at a rate of 1/36th of the remaining
purchased shares for each continuous month of service thereafter. As of June
30, 2005, a total of 138,429 shares were subject to repurchase by the Company.
Warrants
The following table summarizes all outstanding stock warrants as of
June 30, 2005:
Warrant to
purchase:
Date
Shares
Exercise
Expiration
Preferred Series B
March 2000
36,810
$
1.63
March 2010
Preferred Series C
July 2001
156,250
2.80
July 2008
Common
June 2002
96,439
3.86
June 2009
Preferred Series D
December 2002
180,052
3.86
October 2010
Total
469,551
Note 9. Income Taxes
There
is no provision for income taxes because the Company has incurred operating
losses. Deferred income taxes reflect the net tax effects of net operating loss
and tax credit carryovers and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Companys
deferred tax assets are as follows (in thousands):
June 30,
2004
2005
Net
operating loss carry-forwards
$
14,253
$
17,149
Research
credits
650
1,203
Capitalized
research and development expenses
548
Other
791
559
Total
deferred tax assets
15,694
19,459
Valuation
allowance
(15,694
)
(19,459
)
Net deferred
tax assets
$
$
As
of June 30, 2005, the Company had federal net operating loss carry-forwards of
approximately $44.3 million. The Company also had federal and state
research and development tax credit carry-forwards of approximately
$0.7 million and $0.5 million respectively. The net operating loss and tax
credit carry-forwards will expire at various dates beginning in 2013, if not
utilized. As of June 30, 2005, the Company had a state net operating loss
carry-forward of approximately $35.1 million, which expires beginning in
2008.
Utilization
of the net operating loss and tax credit carry-forwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, that are applicable if the
Company experiences an ownership change, which may occur, for example, as a
result of the Companys initial public offering and other sales of the
Companys stock and similar state provisions. The annual limitation may result
in the expiration of net operating losses and credits before utilization.
As
of June 30, 2004 and 2005, the Company had deferred tax assets of approximately
$15.7 million and $19.5 million, respectively. Realization of the deferred tax
assets is dependent upon future taxable income, if any,
F-22
Cardica,
Inc.
Notes to Financial
Statements(Continued)
the amount and
timing of which are uncertain. Accordingly, the net deferred tax assets have
been fully offset by a valuation allowance. The net valuation allowance
increased by approximately $4.6 million and $3.8 million during the years ended
June 30, 2004 and 2005, respectively.
Note 10.
Employee Benefit Plan
In
January 2001, the Company adopted a 401(k) Profit Sharing Plan that allows
voluntary contributions by eligible employees. Employees may elect to
contribute up to the maximum allowed under the Internal Revenue Service
regulations. The Company may make discretionary contributions as determined by
the Board of Directors. No amount was contributed by the Company to the plan
during the fiscal years ended June 30, 2003, 2004 and 2005.
Note 11.
Indemnification
From
time to time, the Company enters into contracts that require the Company, upon
the occurrence of certain contingencies, to indemnify parties against
third-party claims. These contingent obligations primarily relate to (i) claims
against the Companys customers for violation of third-party intellectual
property rights caused by the Companys products; (ii) claims resulting from
personal injury or property damage resulting from the Companys activities or
products; (iii) claims by the Companys office lessor arising out of the
Companys use of the premises; and (iv) agreements with the Companys officers
and directors under which the Company may be required to indemnify such persons
for liabilities arising out of their activities on behalf of the Company.
Because the obligated amounts for these types of agreements usually are not
explicitly stated, the overall maximum amount of these obligations cannot be
reasonably estimated. No liabilities have been recorded for these obligations
on the Companys balance sheets as of June 30, 2004 or 2005.
Note 12.
Subsequent Events
Initial Public
Offering
On
September 20, 2005, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the redeemable convertible preferred stock outstanding will automatically
convert into shares of common stock.
2005 Equity Incentive
Plan
On
October 13, 2005, the Board of Directors adopted the 2005 Equity Incentive Plan
(the 2005 Plan), subject to stockholder approval. The 2005 Plan will become
effective upon the completion of the Companys initial public offering and
provides for the granting of incentive stock options, nonstatutory stock
options, stock appreciation rights, stock awards and cash awards to employees
and consultants.
A
total of 1,200,000 shares of common stock have been authorized for issuance
pursuant to the 2005 Plan, plus any shares which have been reserved but not
issued under the 1997 Plan or issued and forfeited after the date of the
initial public offering, plus any shares repurchased at or below the original
purchase price and any options which expire or become unexercisable after the
initial public offering, thereafter plus all shares of common stock restored by
the Board of Directors pursuant to the provision of the 2005 Plan that permits
options to be settled on a net appreciation basis. On January 1, 2006, and
annually thereafter through January 1, 2015, the authorized shares will
automatically be increased by a number of shares equal to the lesser of : (i)
1% of the number of the Companys shares issued and outstanding prior to the
preceding December 31; or (ii) an amount determined by the Board of Directors.
F-23
Cardica,
Inc.
Notes to Financial
Statements(Continued)
Settlement of Stockholder
Notes
In
October 2005, the Company entered into agreements with three of its directors,
including its chief executive officer and the chairman of the board, pursuant
to which these directors agreed to tender to the Company shares of common stock
owned by the directors, valued at $3.00 per share, in full payment of the
principal and interest due under the six promissory notes described in footnote
8.
Notice of Potential Patent Interference
On October 28, 2005, the Company received a letter from Integrated Vascular Interventional Technologies, Inc. (IVIT) advising the Company of IVITs effort to provoke an interference in the U.S. Patent and Trademark Office between one of IVITs patent applications (serial no. 10/243,543) and a patent currently held by the Company (U.S. patent no. 6,391,038) relating to the Companys C-Port® distal anastomosis system. The Company also learned that IVIT is attempting to provoke another interference in the U.S. Patent and Trademark Office between another of its U.S. patent applications (serial no. 10/706,245) and another of the Companys issued patents (U.S. Patent No. 6,478,804). IVIT makes no specific demands in the letter, but alleges that it has an indication of an allowed claim and that it expects to receive a declaration of interference regarding that
claim. An interference is a proceeding within the U.S. Patent and Trademark Office to determine priority of invention of the subject matter of patent claims. The decision to declare an interference is solely within the power of the Board of Patent Appeals and Interferences of the U.S. Patent and Trademark Office, and can be made only after claims in a patent application are allowed by the examiner and a determination is made that interfering subject matter exists. As of this date, no claims have been allowed in either of IVITs patent applications.
The Company believes that IVITs attempts to provoke an interference are unlikely to succeed and will vigorously defend its patents against such claims of interference, although there can be no assurance that the Company will succeed in doing so. The Company further believes that if IVITs patent claims are allowed in their present form, the Companys products would not infringe such claims. There can be no assurance that IVITs patent claims, if allowed, will be in their present form, or that the Companys products would not be found to infringe such claims or any other claims that are issued.
F-24
Shares
Cardica,
Inc.
Common
Stock
A.G. EDWARDS
ALLEN
& COMPANY LLC
The date of
this prospectus is
, 2005
Until ,
2005, all dealers that buy, sell or trade the common stock may be required to
deliver a prospectus, regardless of whether they are participating in the
offering. 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 underwriting discounts and
commissions, payable by Cardica in connection with the sale of the common stock
being registered hereby. All amounts are estimates except the SEC Registration
Fee and the NASD filing fee.
Amount to be Paid
SEC
registration fee
$
4,708
NASD
filing fee
4,500
Nasdaq
National Market listing fee
*
Blue
Sky fees and expenses
*
Printing
and Engraving expenses
*
Legal
fees and expenses
*
Accounting
fees and expenses
*
Transfer
Agent and Registrar fees
*
Miscellaneous
*
Total
* To be completed by amendment
ITEM 14.
Indemnification of Directors and Officers.
As permitted
by Section 145 of the Delaware General Corporation Law, the registrants bylaws
provide that (a) the registrant (i) is required to indemnify its directors and
executive officers to the fullest extent not prohibited by the Delaware General
Corporation Law, (ii) may, in its discretion, indemnify other officers,
employees and agents as set forth in the Delaware General Corporation Law,
(iii) is required to advance all expenses incurred by its directors and
executive officers in connection with certain legal proceedings (subject to
certain exceptions), (iv) the registrant is authorized to enter into
indemnification agreements with its directors, officers, employees and agents
and (v) may not retroactively amend the amended and restated bylaws provisions
relating to indemnity and (b) the rights conferred in the amended and restated
bylaws are not exclusive.
The registrant
has entered into agreements with its directors and executive officers that
require the registrant to indemnify such persons against expenses, judgments,
fines, settlements and other amounts that such person becomes legally obligated
to pay (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such party may be made a
party by reason of the fact that such person is or was a director or officer of
the registrant or any of its affiliated enterprises, provided such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the registrant. The indemnification agreements
also set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
The
Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement also
provides for indemnification by the underwriters of the registrant and its
officers and directors for certain liabilities arising under the Securities Act
of 1933, as amended (the Securities Act), or otherwise.
See also the
undertakings set out in response to Item 17 herein.
II-1
ITEM 15.
Sales of Unregistered Securities.
Since
September 1, 2002, the registrant has issued and sold the unregistered
securities described below. All shares of preferred stock referenced below will
convert into 1,204,066 shares of common stock upon the completion of the
offering described in this registration statement.
(1) The
registrant has issued an aggregate of 2,390,480 shares of its common stock to
employees, directors and consultants for cash consideration in the aggregate
amount of $1,112,238 upon the exercise of stock options granted under its 1997
Equity Incentive Plan, 22,293 shares of which have been repurchased.
(2) The
registrant has granted stock options to employees, directors and consultants
under its 1997 Equity Incentive Plan exercisable for an aggregate of 6,107,304
shares of common stock, of which options covering an aggregate of 1,016,057
shares terminated or expired, and an aggregate of 2,390,480 shares were issued
upon the exercise of stock options, as set forth in (1) above.
(3) In
December 2002, the registrant issued a warrant to purchase 180,052 shares of
Series D Preferred Stock to Venture Lending & Leasing II, Inc. at $3.86 per
share in connection with credit facility arrangements. As of the date hereof,
the warrant has not been exercised.
(4) In June
2003, the registrant issued a warrant to purchase 35,714 shares of Series C
Preferred Stock to Venture Lending & Leasing II, Inc. at $2.80 per share in
connection with credit facility arrangements. As of the date hereof, the
warrant has not been exercised.
(5) In
September 2003, the registrant issued an aggregate of 12,214 shares of its
common stock to consultants on consideration of services rendered for an
aggregate amount of $11,603.30 under its 1997 Equity Incentive Plan.
(6) In August
2003, the registrant sold an aggregate of 988,300 shares of our Series E
Preferred Stock, to three accredited investors at $4.70 per share, for an
aggregate purchase price of $4,645,010 consisting of cash consideration of
$4,000,001 and the $645,009 for the forgiveness of debt.
(7) In
December 2003, the registrant issued an aggregate of 12,214 shares of its
common stock to consultants on consideration of services rendered for an
aggregate amount of $11,603 under its 1997 Equity Incentive Plan.
The registrant
claimed exemption from registration under the Securities Act for the sales and
issuances in the transactions described in paragraphs (1), (2), (5) and (7)
above under Rule 701 promulgated under the Securities Act on the basis that
these issuances were made pursuant to a written compensatory benefits plan, as
provided by Rule 701.
With respect
to the grant of stock options described in paragraph (2) above, exemption from registration
under the Securities Act was also claimed by the registrant to be unnecessary
on the basis that none of such transactions involved a sale of a security as
such term is used in Section 2(3) of the Securities Act.
The sales and issuances of securities
in the remaining transactions described in paragraphs (3), (4) and (6) of this
Item 15 were deemed exempt from registration under the Securities Act in
reliance on Rule 506 of Regulation D promulgated thereunder as transactions
not involving any public offering. All of the purchasers of securities in these
transactions represented to the registrant that they were accredited investors
as defined under the Securities Act, that they acquired the securities for
investment purposes only and not with a view to the distribution thereof and as
to its experience in business matters. Appropriate legends were affixed to the
stock certificates issued in such transactions. The recipient acknowledged
either that the recipient received adequate information about the registrant or
had access, through business relationships, to such information.
II-2
ITEM 16. Exhibits and Financial Statement
Schedules.
(a) Exhibits.
*
To be filed
by amendment.
Portions of
this exhibit (indicated by asterisks) have been omitted pursuant to a request
for confidential treatment and this exhibit has been filed separately with
the SEC.
+
Indicates
management contract or compensatory plan.
(b) Financial
Statement Schedules
None.
ITEM 17. Undertakings.
II-3
The
undersigned Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Purchase Agreement certificates in such denominations
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 14 or otherwise, the Registrant
has been advised that in the opinion of the SEC 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, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the 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, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
SIGNATURES
Pursuant to
the requirements of the Securities Act of 1933, the registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Redwood City, State of California, on the 4th day of November, 2005.
Cardica,
Inc.
By:
Bernard
A. Hausen, M.D., Ph.D.
POWER OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Bernard Hausen, Ph.D., and Robert Newell, and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, with full power of each to act alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement filed herewith and any and all
amendments to said Registration Statement (including post-effective amendments
and any related registration statements thereto filed pursuant to Rule 462 and otherwise),
and file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, with full power of each to act alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitutes, may
lawfully do or cause to be done by virtue hereof.
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:
Name
and Signature
Title
Date
President,
Chief Executive Officer and
Bernard
A. Hausen, M.D., Ph.D.
(Principal
Executive Officer)
Robert
Y. Newell
Officer)
Director
J.
Michael Egan
Director
Richard
P. Powers
Director
Robert
C. Robbins, M.D.
Director
John
Simon
Director
Stephen
A. Yencho, Ph.D.
Director
William
H. Younger, Jr.
II-5
EXHIBIT INDEX
Exhibit
Description
1.1
Form of
Underwriting Agreement.*
3.1
Amended and
Restated Certificate of Incorporation of the Registrant as currently in
effect.
3.2
Amended and
Restated Certificate of Incorporation of the Registrant to be effective upon
closing of the offering.*
3.3
Bylaws of
the Registrant as currently in effect.
3.4
Bylaws of
the Registrant to be effective upon closing of the offering.
3.5
Specimen
Common Stock certificate of the Registrant.*
4.1
Warrant
dated March 17, 2000 exercisable for 36,810 shares of common stock.
4.2
Warrant
dated July 5, 2001 exercisable for 124,999 shares of common stock.
4.3
Warrant
dated July 5, 2001 exercisable for 31,251 shares of common stock.
4.4
Warrant
dated June 13, 2002 exercisable for 96,439 shares of common stock.
4.5
Warrant
dated October 31, 2002 exercisable for 180,052 shares of common stock.
5.1
Opinion of
Cooley Godward LLP regarding legality.*
10.1
1997 Equity
Incentive Plan and forms of related agreements and documents.
10.2
2005 Equity
Incentive Plan and forms of related agreements and documents.*
10.3
Amended and
Restated Investor Rights Agreement, dated August 19, 2003, by and among the
Registrant and certain stockholders.
10.4
Employment
Agreement with Bernard Hausen, M.D., Ph. D.+*
10.5
Office Lease
Agreement dated April 25, 2003, and First Amendment to Office Lease Agreement
dated January 21, 2004.
10.6
Distribution
Agreement by and between Cardica, Inc. and Century Medical, Inc. dated June
16, 2003.*
10.7
Subordinated
Convertible Note Agreement with Century Medical, Inc. dated June 16, 2003,
and Amendment No. 1 thereto, dated August 6, 2003.*
10.8
Note issued
pursuant to Subordinated Convertible Note Agreement with Century Medical,
Inc.
10.9
Agreement by and between
the Company and the Guidant Investment Corporation,
dated August 19, 2003.*
10.10
Intellectual
Property Security Agreement by the Company in favor of Guidant, dated August
19, 2003.*
10.11
Notes issued
pursuant to Omnibus Agreement.
10.12
Allen &
Co. letter of intent dated September 12, 2005.
21.1
Subsidiaries
of Registrant
23.1
Consent of
Independent Registered Public Accounting Firm.
23.2
Consent of
Cooley Godward LLP (See Exhibit 5.1).*
24.1
Power of
Attorney (see page II-5).
*
To be filed
by amendment.
Portions of
this exhibit (indicated by asterisks) have been omitted pursuant to a request
for confidential treatment and this exhibit has been filed separately with
the SEC.
+
Indicates
management contract or compensatory plan.
Cardica, Inc.
September 8, 2005
except for Note 12, as to which the date is
October 28, 2005
Balance Sheets
(in thousands, except share and per share data)
Stockholders
Equity at June
30,
Statements of Operations
(in thousands, except per share data)
Statements of Convertible Preferred Stock and Stockholders Deficit
(in thousands, except share and per
share data)
Stock
Paid-in
Capital
Stock-Based
Compensation
Receivable
from
Stockholders
Deficit
Stockholders
Deficit
Stock
Paid-in
Capital
Stock-Based
Compensation
Receivable
from
Stockholders
Deficit
Stockholders
Deficit
Statements of Cash Flows
(in thousands)
June 30, 2005
Leases
Available for
Grant
of Shares
Average
Exercise Price
Per Share
Price
Outstanding
Average
Remaining
Contractual
Life
Vested and
Exercisable
Issued
Price per
Share
/s/
Bernard A. Hausen
President and Chief Executive Officer
/s/
Bernard A. Hausen
Director
November 4, 2005
/s/
Robert Y. Newell
Chief Financial Officer
(Principal Financial and Accounting
November 4, 2005
/s/
J. Michael Egan
November 4, 2005
/s/
Richard P. Powers
November 4, 2005
/s/
Robert C. Robbins
November 4, 2005
/s/
John
Simon
November 4, 2005
/s/
Stephen
A. Yencho
November 4, 2005
/s/
William H. Younger, Jr.
November 4, 2005
Number
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CARDICA, INC.
Bernard Hausen hereby certifies that:
ONE: He is the duly elected and acting President of Cardica, Inc., a Delaware corporation.
TWO: The name of this corporation is Cardica, Inc. The corporation was originally incorporated under the name Vascular Innovations, Inc., and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is October 15, 1997.
THREE: The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows:
I.
The name of the corporation is CARDICA, INC. (the Corporation or the Company).
II.
The address of the registered office of the Corporation in the State of Delaware is 19 East Lookeraun Street, City of Dover, County of Kent, Delaware, 19901; and, the name of the Corporations registered agent at said address is National Registered Agents, Inc .
III.
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Corporation is authorized to issue is thirty-nine million four hundred forty-nine thousand (39,449,000) shares, twenty-four million sixty thousand (24,060,000) shares of which shall be Common Stock (the Common Stock) and fifteen million three hundred eighty-nine thousand (15,389,000) shares of which shall be Preferred Stock (the Preferred Stock). The Preferred Stock shall have a par value of one-tenth of one cent ($.001) per share and the Common Stock shall have a par value of one-tenth of one cent ($.001) per share.
B. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the
|
1. |
affirmative vote of the holders of a majority of the stock of the Corporation (voting together on an as-if-converted basis).
C. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Restated Certificate of Incorporation, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
D. Six hundred eighty-three thousand (683,000) of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred). One million seven hundred thousand (1,700,000) of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred). Five million five hundred thousand (5,500,000) of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock (the Series C Preferred). Six million five hundred thousand (6,500,000) of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred). One million six thousand (1,006,000) of the authorized shares of Preferred Stock are hereby designated Series E Preferred Stock (the Series E Preferred, and, together with the Series A Preferred, Series B Preferred, Series C Preferred, and the Series D Preferred, the Series Preferred).
E. The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are as follows:
|
1. |
DIVIDEND RIGHTS. |
(a) Holders of Series Preferred, in preference to the holders of any other stock of the Company (Junior Stock), shall be entitled to receive, upon a Liquidation (as defined in Article IV.E.3), cumulative cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) but only to the extent funds are legally available therefor. The Original Issue Price of the Series A Preferred shall be one dollar ($1.00). The Original Issue Price of the Series B Preferred shall be one dollar and sixty-three cents ($1.63). The Original Issue Price of the Series C Preferred shall be two dollars and eighty cents ($2.80). The Original Issue Price of the Series D Preferred shall be three dollars and eighty-six cents ($3.86). The Original Issue Price of the Series E Preferred shall be four dollars and seventy cents ($4.70).
|
2. |
(b) So long as any shares of Series Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock, nor shall any shares of any Junior Stock of the Company be purchased, redeemed, or otherwise acquired for value by the Company (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Companys right of first refusal upon a proposed transfer) until all dividends (set forth in Section 1(a) above) on the Series Preferred shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Series Preferred in an amount equal per share (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock. The provisions of this Section 1(b) shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Junior Stock in exchange for shares of any other Junior Stock, or (iii) any repurchase of any outstanding securities of the Company that is approved by the Companys Board of Directors or by the holders of at least a majority of the Series Preferred. The holders of the Series Preferred expressly waive their rights, if any, as described in California Code Sections 502, 503 and 506 as they relate to repurchases of shares upon termination of employment or service as a consultant or director.
|
2. |
VOTING RIGHTS. |
(a) General Rights. Except as otherwise provided herein or as required by law, the Series Preferred shall be voted equally with the shares of the Common Stock of the Company and not as a separate class, at any annual or special meeting of stockholders of the Company, and may act by written consent in the same manner as the Common Stock, in either case upon the following basis: each holder of shares of Series Preferred shall be entitled to such number of votes as shall be equal to the whole number of shares of Common Stock into which such holders aggregate number of shares of Series Preferred are convertible (pursuant to Section 4 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent.
(b) Separate Vote of Series Preferred. For so long as at least 1,500,000 shares of Series Preferred (subject to adjustment for any stock split, reverse stock split or other similar event affecting the Series Preferred) remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the outstanding Series Preferred shall be necessary for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of the Certificate of Incorporation or the Bylaws of the Company (including any filing of a Certificate of Designation), that affects adversely the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Series Preferred;
(ii) Any authorization or any designation, whether by reclassification or otherwise, of any new class or series of stock or any other securities convertible into equity securities of the Company ranking senior to the Series Preferred in right
|
3. |
of redemption, liquidation preference, voting or dividends or any increase in the authorized or designated number of any such new class or series;
(iii) Any redemption, repurchase, payment of dividends or other distributions with respect to Junior Stock (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Companys right of first refusal upon a proposed transfer);
(iv) Any action that results in the payment or declaration of a dividend on any shares of Common Stock or Preferred Stock;
(v) Any Asset Transfer or Acquisition (each as defined in Section 3(c)); or
|
(vi) |
Any voluntary dissolution or liquidation of the Company. |
(c) Election of Board of Directors. (i) For so long as at least 1,500,000 shares of Series Preferred remain outstanding (subject to adjustment for any stock split, reverse stock split or similar event affecting the Series Preferred), the holders of Series Preferred, voting as a separate class, shall be entitled to elect two (2) members of the Companys Board of Directors at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors; (ii) the holders of Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors; and (iii) the holders of Common Stock and Series Preferred, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board of Directors at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115 of the California General Corporation Law (CGCL). During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder desires. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in
|
4. |
nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
|
(d) |
Removal |
(i) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however , that unless the entire Board is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected.
(ii) At any time or times that the corporation is not subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section (d)(i) above shall not apply and the Board of Directors or any director may be removed from office at any time (a) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors or (b) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors.
|
3. |
LIQUIDATION RIGHTS. |
(a) Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, Acquisition, as defined below, or Asset Transfer, as defined below (each a Liquidation), before any distribution or payment shall be made to the holders of any Junior Stock, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company an amount per share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, and Series E Preferred equal to the applicable Original Issue Price plus all accumulated and unpaid dividends on the Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series Preferred held by them. If, upon any such Liquidation, the assets of the Company shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in this Section 3(a), then such assets shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
(b) After the payment of the full liquidation preference of the Series Preferred as set forth in Section 3(a) above, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock.
|
5. |
(c) The following terms shall have the following meanings under this Section:
(i) Acquisition shall mean any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Companys voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Companys voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company; and
(ii) Asset Transfer shall mean a sale, lease or other disposition of all or substantially all of the assets of the Company.
(b) In the event of an Acquisition or Asset Transfer, if the consideration received by this corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below:
(A) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Board of Directors and the holders of at least a majority of the voting power of all then outstanding shares of Series Preferred.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholders status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as mutually determined by the Board of Directors and the holders of at least a majority of the voting power of all then outstanding shares of such Series Preferred.
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6. |
|
4. |
CONVERSION RIGHTS. |
The holders of the Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Common Stock (the Conversion Rights):
(a) Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series Preferred shall be entitled upon conversion shall be the product obtained by multiplying the applicable Series Preferred Conversion Rate then in effect (determined as provided in Section 4(b)) by the number of shares of Series Preferred, as applicable, being converted.
(b) Series Preferred Conversion Rate. The conversion rate in effect at any time for conversion of each series of Series Preferred (the Series Preferred Conversion Rate) shall be the quotient obtained by dividing the Original Issue Price of such series of Series Preferred by the applicable Series Preferred Conversion Price, calculated as provided in Section 4(c).
(c) Series Preferred Conversion Price. The conversion price for the Series A Preferred (the Series A Preferred Conversion Price) shall initially be the Original Issue Price of the Series A Preferred. The conversion price for the Series B Preferred (the Series B Preferred Conversion Price) shall initially be the Original Issue Price of the Series B Preferred. The conversion price for the Series C Preferred (the Series C Preferred Conversion Price) shall initially be the Original Issue Price of the Series C Preferred. The conversion price for the Series D Preferred (the Series D Preferred Conversion Price) shall initially be the Original Issue Price of the Series D Preferred. The conversion price of the Series E Preferred (the Series E Preferred Conversion Price) shall initially be the Original Issue Price of the Series E Preferred. The Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, the Series D Preferred Conversion Price and the Series E Preferred Conversion Price shall be collectively referred to as the Series Preferred Conversion Price. Such initial Series Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series Preferred Conversion Price herein shall mean the Series Preferred Conversion Price as so adjusted.
(d) Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stocks fair market value determined by the Board of Directors as of the date of such conversion), any
|
7. |
declared and unpaid dividends on the shares of Series Preferred being converted and (ii) in cash (at the Common Stocks fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series Preferred to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date that the first share of Series E Preferred is first issued (the Original Issue Date) effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the applicable Series Preferred Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however , that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Series Preferred Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution.
(g) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3(c) or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Series Preferred shall have the right
|
8. |
thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.
(h) Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Company with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section 3(c) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 4 (including adjustment of the applicable Series Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable.
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(i) |
Sale of Shares Below Series D Preferred Conversion Price. |
(i) If at any time or from time to time after the Original Issue Date, the Company issues or sells, or is deemed by the express provisions of this Section 4(i) to have issued or sold, Additional Shares of Common Stock (as defined below), other than as provided in Section 4(f), 4(g) or 4(h) above, for an Effective Price (as defined below) less than the then effective Series D Preferred Conversion Price (a Qualifying Series D Dilutive Issuance), then and in each such case, the then-existing Series D Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Series D Preferred Conversion Price in effect immediately prior to such issuance or sale by a fraction equal to:
(A) the numerator of which shall be (x) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (y) the number of shares of Common Stock which the Aggregate Consideration (as defined below) received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such then-existing Series D Preferred Conversion Price, and
(B) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued.
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9. |
For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (x) the number of shares of Common Stock outstanding, (y) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could be converted if fully converted on the day immediately preceding the given date, and (z) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date.
(ii) No adjustment shall be made to the Series D Preferred Conversion Price in an amount less than one cent per share. Any adjustment otherwise required by this Section 4(i) that is not required to be made due to the preceding sentence shall be included in any subsequent adjustment to the Series D Preferred Conversion Price.
(iii) For the purpose of making any adjustment required under this Section 4(i), the aggregate consideration received by the Company for any issue or sale of securities (the Aggregate Consideration) shall be defined as: (A) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board, and (C) if Additional Shares of Common Stock, Convertible Securities (as defined below) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options.
(iv) For the purpose of the adjustment required under this Section 4(i), if the Company issues or sells (x) Preferred Stock or other stock, options, warrants, purchase rights or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as Convertible Securities) or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Series D Preferred Conversion Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus:
(A) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and
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10. |
(B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.
(C) If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. In no event shall any recalculation of the Effective Price pursuant to this Section 4(i)(C) have the effect of increasing the Series D Preferred Conversion Price by more than it may have originally reduced.
(D) No further adjustment of the Series D Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Series D Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series D Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series Preferred.
(v) For the purpose of making any adjustment to the Conversion Price of the Series D Preferred required under this Section 4(i), Additional Shares of Common Stock shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(i) (including shares of Common Stock subsequently reacquired or retired by the Company), other than:
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11. |
(A) shares of Common Stock issued upon conversion of the Series Preferred;
(B) Common Stock or Convertible Securities issued after the Original Issue Date to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board;
(C) shares of Common Stock issued pursuant to the exercise of Convertible Securities outstanding as of the Original Issue Date;
(D) shares of Common Stock and Convertible Securities and the Common Stock issued pursuant to such Convertible Securities for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by the Board;
(E) shares of Common Stock or Convertible Securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by the Board; and
(F) any Common Stock or Convertible Securities issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided that the issuance of shares therein has been approved by one of the Board representatives designated by the holders of the Series Preferred.
References to Common Stock in the subsections of this clause (v) above shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(i). The Effective Price of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 4(i) or under Section 4(j), into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under this Section 4(i) or under Section 4(j), for such Additional Shares of Common Stock.
(vi) In the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Series D Dilutive Issuance (the First Series D Dilutive Issuance), then in the event that the Company issues or sells, or is deemed to have issues or sold, Additional Shares of Common Stock in a Qualifying Series D Dilutive Issuance other than the First Series D Dilutive Issuance (a Subsequent Series D Dilutive Issuance) pursuant to the same instruments and on the same terms as the First Series D Dilutive Issuance, then and in each such case upon a Subsequent Series D Dilutive Issuance the Series D Preferred Conversion Price shall be reduced to the Series D Preferred Conversion Price that would have been in effect had the First Series D Dilutive Issuance and each Subsequent Series D Dilutive Issuance all occurred on the closing date of the First Series D Dilutive Issuance.
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12. |
(vii) Upon the occurrence of each adjustment or readjustment of the Series D Preferred Conversion Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series D Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Series D Preferred, furnish or cause to be furnished to such holder a similar certificate setting forth (a) such adjustments and readjustments, (b) the Series D Preferred Conversion Price then in effect, and (c) the number of shares of Common Stock and the amount, if any, of other property which would be issuable upon conversion of such holders shares of Series D Preferred as of such date.
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(j) |
Sale of Shares Below Series E Preferred Conversion Price. |
(i) If at any time or from time to time after the Original Issue Date, the Company issues or sells, or is deemed by the express provisions of this Section 4(j) to have issued or sold, Additional Shares of Common Stock (as defined below), other than as provided in Section 4(f), 4(g) or 4(h) above, for an Effective Price (as defined in Section 4(i)) less than the then effective Series E Preferred Conversion Price (a Qualifying Series E Dilutive Issuance), then and in each such case, the then-existing Series E Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Series E Preferred Conversion Price in effect immediately prior to such issuance or sale by a fraction equal to:
(A) the numerator of which shall be (x) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (y) the number of shares of Common Stock which the Aggregate Consideration (as defined below) received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such then-existing Series E Preferred Conversion Price, and
(B) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued.
For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (x) the number of shares of Common Stock outstanding, (y) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could be converted if fully converted on the day immediately preceding the given date, and (z) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date.
(ii) No adjustment shall be made to the Series E Preferred Conversion Price in an amount less than one cent per share. Any adjustment otherwise required by this Section 4(j) that is not required to be made due to the preceding sentence shall be included in any subsequent adjustment to the Series E Preferred Conversion Price.
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13. |
(iii) For the purpose of making any adjustment required under this Section 4(j), the aggregate consideration received by the Company for any issue or sale of securities (the Aggregate Consideration) shall have the same meaning as set forth in Section 4(i)(iii) above.
(iv) For the purpose of the adjustment required under this Section 4(j), if the Company issues or sells (x) Preferred Stock or other stock, options, warrants, purchase rights or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as Convertible Securities) or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Series E Preferred Conversion Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus:
(A) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and
(B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.
(C) If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. In no event shall any recalculation of the Effective Price pursuant to this Section 4(j)(iv)(C) have the effect of increasing the Series E Preferred Conversion Price by more than it may have originally reduced.
(D) No further adjustment of the Series E Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible
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14. |
Securities shall expire without having been exercised, the Series E Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series E Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series Preferred.
(v) For the purpose of making any adjustment to the Conversion Price of the Series E Preferred required under this Section 4(j), Additional Shares of Common Stock shall have the same meaning as set forth under Section 4(i)(v) above.
(vi) In the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Series E Dilutive Issuance (the First Series E Dilutive Issuance), then in the event that the Company issues or sells, or is deemed to have issues or sold, Additional Shares of Common Stock in a Qualifying Series E Dilutive Issuance other than the First Series E Dilutive Issuance (a Subsequent Series E Dilutive Issuance) pursuant to the same instruments and on the same terms as the First Series E Dilutive Issuance, then and in each such case upon a Subsequent Series E Dilutive Issuance the Series E Preferred Conversion Price shall be reduced to the Series E Preferred Conversion Price that would have been in effect had the First Series E Dilutive Issuance and each Subsequent Series E Dilutive Issuance all occurred on the closing date of the First Series E Dilutive Issuance.
(vii) Upon the occurrence of each adjustment or readjustment of the Series E Preferred Conversion Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series E Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Series E Preferred, furnish or cause to be furnished to such holder a similar certificate setting forth (a) such adjustments and readjustments, (b) the Series E Preferred Conversion Price then in effect, and (c) the number of shares of Common Stock and the amount, if any, of other property which would be issuable upon conversion of such holders shares of Series E Preferred as of such date.
(k) Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company
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15. |
with or into any other corporation, or any Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Series Preferred at least ten (10) days prior to the record date specified therein (or such shorter period approved by a majority of the outstanding Series Preferred) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up.
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(l) |
Automatic Conversion. |
(i) Each share of Series Preferred shall automatically be converted into shares of Common Stock, based on the then-effective applicable Series Preferred Conversion Price, (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Series Preferred, or (B) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price is at least two (2) times the Original Purchase Price for the Series E Preferred (as adjusted for stock splits, dividends, recapitalizations and the like), and (ii) the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $25,000,000. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of either of the events specified in Section 4(l)(i) above, the outstanding shares of Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however , that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d).
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16. |
(m) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stocks fair market value (as determined by the Board of Directors) on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
(p) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered.
(q) No Dilution or Impairment. Without the consent of the holders of then outstanding Series Preferred as required under Section 2(b), the Company shall not amend its Amended and Restated Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impairment.
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17. |
5. REDEMPTION. The Series Preferred shall not be redeemable by the Company.
V.
A. A director of the corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times that the corporation is subject to Section 2115(b) of the CGCL, to the limits on such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article V shall only be prospective and shall not effect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.
VI.
For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by the Board of Directors in the manner provided in the Bylaws.
B. Subject to the indemnification provisions in the Bylaws, The Board of Directors may from time to time make, amend, supplement or repeal the Bylaws; provided, however , that the stockholders may change or repeal any Bylaw adopted by the Board of Directors by the affirmative vote of the percentage of holders of capital stock as provided therein; and, provided further , that no amendment or supplement to the Bylaws adopted by the Board of Directors shall vary or conflict with any amendment or supplement thus adopted by the stockholders.
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18. |
C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of this Corporation.
FIVE: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors and the stockholders of the Company. A majority of the outstanding shares of Common Stock and the Series Preferred, voting together on an as-converted basis, approved this Amended and Restated Certificate of Incorporation by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware, and written notice of such was given by the Company in accordance with said Section 228.
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19. |
IN WITNESS WHEREOF , CARDICA, INC. has caused this Amended and Restated Certificate of Incorporation to be signed by its President this 11 th day of August, 2003.
CARDICA, INC.
By: /s/Bernard Hausen
Bernard Hausen
President
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20. |
Exhibit 3.3
BYLAWS
OF
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CARDICA, INC. |
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
Page | |||
---|---|---|---|
Article I | 1 | ||
Section 1. Registered Office | 1 | ||
Section 2. Other Offices | 1 | ||
Article II | 1 | ||
Section 3. Corporate Seal | 1 | ||
Article III | 1 | ||
Section 4. Place of Meetings | 1 | ||
Section 5. Annual Meeting | 1 | ||
Section 6. Special Meetings | 2 | ||
Section 7. Notice of Meetings | 3 | ||
Section 8. Quorum | 3 | ||
Section 9. Adjournment and Notice of Adjourned Meetings | 4 | ||
Section 10. Voting Rights | 4 | ||
Section 11. Joint Owners of Stock | 4 | ||
Section 12. List of Stockholders | 5 | ||
Section 13. Action Without Meeting | 5 | ||
Section 14. Organization | 5 | ||
Article IV | 6 | ||
Section 15. Number and Term of Office | 6 | ||
Section 16. Powers | 6 | ||
Section 17. Term of Directors | 6 | ||
Section 18. Vacancies | 7 | ||
Section 19. Resignation | 7 | ||
Section 20. Removal | 7 | ||
Section 21. Meetings | 7 | ||
(a) Annual Meetings | 7 | ||
(b) Regular Meetings | 7 | ||
(c) Special Meetings | 8 | ||
(d) Telephone Meetings | 8 | ||
(e) Notice of Meetings | 8 | ||
(f) Waiver of Notice | 8 | ||
1
Section 22. Quorum and Voting | 8 | ||
Section 23. Action Without Meeting | 8 | ||
Section 24. Fees and Compensation | 9 | ||
Section 25. Committees | 9 | ||
(a) Executive Committee | 9 | ||
(b) Other Committees | 9 | ||
(c) Term | 9 | ||
(d) Meetings | 10 | ||
Section 26. Organization | 10 | ||
Article V | 10 | ||
Section 27. Officers Designated | 10 | ||
Section 28. Tenure and Duties of Officers | 11 | ||
(a) General | 11 | ||
(b) Duties of Chairman of the Board of Directors | 11 | ||
(c) Duties of President | 11 | ||
(d) Duties of Vice Presidents | 11 | ||
(e) Duties of Secretary | 11 | ||
(f) Duties of Chief Financial Officer | 12 | ||
Section 29. Delegation of Authority | 12 | ||
Section 30. Resignations | 12 | ||
Section 31. Removal | 12 | ||
Article VI | 12 | ||
Section 32. Execution of Corporate Instruments | 12 | ||
Section 33. Voting of Securities Owned by the Corporation | 13 | ||
Article VII | 13 | ||
Section 34. Form and Execution of Certificates | 13 | ||
Section 35. Lost Certificates | 14 | ||
Section 36. Transfers | 14 | ||
Section 37. Fixing Record Dates | 14 | ||
Section 38. Registered Stockholders | 15 | ||
Article VIII | 15 | ||
Section 39. Execution of Other Securities | 16 | ||
Article IX | 16 |
2
Section 40. Declaration of Dividends | 16 | ||
Section 41. Dividend Reserve | 16 | ||
Article X | 16 | ||
Section 42. Fiscal Year | 17 | ||
Article XI | 17 | ||
Section 43.
Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents |
17 | ||
(a) Directors | 17 | ||
(b) Employees and Other Agents | 17 | ||
(c) Expenses | 17 | ||
(d) Enforcement | 18 | ||
(e) Non-Exclusivity of Rights | 18 | ||
(f) Survival of Rights | 18 | ||
(g) Insurance | 18 | ||
(h) Amendments | 19 | ||
(i) Saving Clause | 19 | ||
(j) Certain Definitions | 19 | ||
Article XII | 20 | ||
Section 44. Notices | 20 | ||
(a) Notice to Stockholders | 20 | ||
(b) Notice to Directors | 20 | ||
(c) Affidavit of Mailing | 20 | ||
(d) Time Notices Deemed Given | 20 | ||
(e) Methods of Notice | 20 | ||
(f) Failure to Receive Notice | 20 | ||
(g) Notice to Person with Whom Communication Is Unlawful | 21 | ||
(h) Notice to Person with Undeliverable Address | 21 | ||
Article XIII | 21 | ||
Section 45. Amendments | 21 | ||
Article XIV | 22 | ||
Section 46. Right of First Refusal | 22 | ||
Article XV | 24 | ||
Section 47. Loans to Officers | 24 |
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BYLAWS
OF
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CARDICA, INC. |
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, Corporate Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the principal office of the corporation required to be maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought
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before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholders notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous years proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholders notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporations books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the 1934 Act), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.
(c) For purposes of this Section 5, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
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Section 6. |
Special Meetings. |
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total
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number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, including abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided,
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however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to
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vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present.
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Section 13. |
Action Without Meeting. |
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
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Section 14. |
Organization. |
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary,
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appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office.
The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time.
Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Term of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or
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occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series of Preferred Stock, the Board of Directors or any individual director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the Voting Stock) or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-outstanding shares of the Voting Stock.
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
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(e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
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Section 22. |
Quorum and Voting. |
(a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
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Section 25. |
Committees. |
(a) Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporations property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation.
(b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such members term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
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(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
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Section 28. |
Tenure and Duties of Officers. |
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any
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time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and
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perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock of the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
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All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
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Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
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Section 36. |
Transfers. |
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
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Section 37. |
Fixing Record Dates. |
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by
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applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer
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who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors and Officers. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof)
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initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing
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evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(i) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense,
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settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(ii) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(iv) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(v) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Bylaw.
ARTICLE XII
NOTICES
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Section 44. |
Notices. |
(a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and
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duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission.
(e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice.
(g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such
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person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. (Del. Code Ann, tit. 8, § 230)
ARTICLE XIII
AMENDMENTS
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Section 45. |
Amendments. |
Subject to paragraph (h) of Section 43 of the Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the stockholders entitled to vote. The Board of Directors shall also have the power, if such power is conferred upon the Board of Directors by the Certificate of Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors). (Del. Code Ann., tit. 8, §§ 109(a), 122(6)).
ARTICLE XIV
RIGHT OF FIRST REFUSAL
Section 46. Right of First Refusal. No common stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any of his shares of stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price
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for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholders notice.
(e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholders notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring stockholders notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholders transfer of any or all shares held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.
(2) A stockholders bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw.
(3) A stockholders transfer of any or all of such stockholders shares to the corporation or to any other stockholder of the corporation.
(4) A stockholders transfer of any or all of such stockholders shares to a person who, at the time of such transfer, is an officer or director of the corporation.
(5) A corporate stockholders transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of
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shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder.
(6) A corporate stockholders transfer of any or all of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur:
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(1) |
On November 1, 2007, or |
(2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
ARTICLE XV
LOANS TO OFFICERS
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Section 47. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
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Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
CARDICA, INC.
(A DELAWARE CORPORATION)
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TABLE OF CONTENTS |
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PAGE |
ARTICLE I |
OFFICES |
1 |
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Section 1. |
Registered Office |
1 |
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Section 2. |
Other Offices |
1 |
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ARTICLE II |
CORPORATE SEAL |
1 |
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Section 3. |
Corporate Seal |
1 |
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ARTICLE III |
STOCKHOLDERS MEETINGS |
1 |
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Section 4. |
Place Of Meetings |
1 |
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Section 5. |
Annual Meetings |
1 |
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Section 6. |
Special Meetings |
4 |
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Section 7. |
Notice Of Meetings |
5 |
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Section 8. |
Quorum |
5 |
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Section 9. |
Adjournment And Notice Of Adjourned Meetings |
6 |
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Section 10. |
Voting Rights |
6 |
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Section 11. |
Joint Owners Of Stock |
6 |
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Section 12. |
List Of Stockholders |
6 |
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Section 13. |
Action Without Meeting |
7 |
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Section 14. |
Organization |
7 |
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ARTICLE IV |
DIRECTORS |
7 |
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Section 15. |
Number And Term Of Office |
7 |
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Section 16. |
Powers |
8 |
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Section 17. |
Board of Directors |
8 |
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Section 18. |
Vacancies |
8 |
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Section 19. |
Resignation |
9 |
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Section 20. |
Removal |
9 |
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Section 21. |
Meetings |
9 |
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Section 22. |
Quorum And Voting |
10 |
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Section 23. |
Action Without Meeting |
11 |
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Section 24. |
Fees And Compensation |
11 |
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Section 25. |
Committees |
11 |
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Section 26. |
Organization |
12 |
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i. |
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TABLE OF CONTENTS |
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(CONTINUED) |
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ARTICLE V |
OFFICERS |
12 |
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Section 27. |
Officers Designated |
12 |
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Section 28. |
Tenure And Duties Of Officers |
13 |
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Section 29. |
Delegation Of Authority |
14 |
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Section 30. |
Resignations |
14 |
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Section 31. |
Removal |
14 |
ARTICLE VI |
EXECUTION
OF CORPORATE INSTRUMENTS AND
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14 |
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Section 32. |
Execution Of Corporate Instruments |
14 |
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Section 33. |
Voting Of Securities Owned By The Corporation |
15 |
ARTICLE VII |
SHARES OF STOCK |
15 |
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Section 34. |
Form And Execution Of Certificates |
15 |
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Section 35. |
Lost Certificates |
16 |
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Section 36. |
Transfers |
16 |
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Section 37. |
Fixing Record Dates |
16 |
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Section 38. |
Registered Stockholders |
17 |
ARTICLE VIII |
OTHER SECURITIES OF THE CORPORATION |
17 |
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Section 39. |
Execution Of Other Securities |
17 |
ARTICLE IX |
DIVIDENDS |
17 |
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Section 40. |
Declaration Of Dividends |
17 |
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Section 41. |
Dividend Reserve |
18 |
ARTICLE X |
FISCAL YEAR |
18 |
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Section 42. |
Fiscal Year |
18 |
ARTICLE XI |
INDEMNIFICATION |
18 |
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Section 43. |
Indemnification
Of Directors, Executive Officers, Other Officers,
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18 |
ARTICLE XII |
NOTICES |
21 |
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Section 44. |
Notices |
21 |
ARTICLE XIII |
AMENDMENTS |
23 |
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Section 45. |
Subject to the limitations |
23 |
ARTICLE XIV |
LOANS TO OFFICERS |
23 |
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ii. |
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TABLE OF CONTENTS |
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(CONTINUED) |
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PAGE |
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Section 46. |
Loans To Officers |
23 |
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iii. |
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AMENDED AND RESTATED BYLAWS
OF
CARDICA, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, Corporate Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place Of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (DGCL).
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Section 5. |
Annual Meetings. |
(a) An annual meeting of the stockholders, for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held in such manner, at such place, on such date, and at such time as the Board of Directors shall designate each year.
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(b) Nominations of persons for election to the Board of Directors and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporations notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of record of the corporation who was a stockholder of record at the time of the giving of such stockholders notice set forth in subsection 5(c) below, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in subsection 5(c) below.
(c) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of subsection 5(b) above, (1) the stockholder must have given timely written notice thereof (as set forth in this subsection 5(c)) to the Secretary of the corporation, (2) such business must be a proper matter for stockholder action under the DGLC, and (3) the stockholder must have complied with the Solicitation Notice requirements set forth in subsection 5(d) below. A stockholders notice shall be deemed timely if such notice is delivered to the Secretary at the principal executive offices of the corporation not less than forty-five (45) days nor more than seventy-five (75) days prior to the first anniversary of the preceding years annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, notice by the stockholder will be deemed timely only if such notice is so delivered not later than the close of business on the later of (i) the ninetieth (90 th ) day prior to such annual meeting or (ii) the tenth (10 th ) day following the day on which public announcement of the date of such meeting is first made. In no event shall any adjournment of an annual meeting commence a new time period for the timely delivery of a stockholders notice as described in the preceding sentence. Such stockholders notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person as would be required to be disclosed in solicitations for proxies for the election of such nominees as directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the Exchange Act), including such persons written consent to be named in a proxy statement as a nominee and to serve as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a description in reasonable detail of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporations books, and of such beneficial owner, and (ii) the class and number of shares of the corporation that are owned beneficially and of record by such stockholder and such beneficial owner.
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(d) Any stockholder who proposes the nomination of persons for the election of directors or the transaction of business at an annual meeting must deliver to the Secretary of the Corporation a timely written notice that either (1) the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, intends to solicit proxies from stockholders with respect to any such proposal or nomination and that such stockholder or beneficial owner (i) has, in the case of proposal, delivered a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry such proposal, or, in the case of a nomination or nominations, has delivered a proxy statement and form of proxy to holders of a percentage of the corporations voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect such nominee or nominees, and (ii), in either case, has included in such material their express intention to make such solicitations, or (2) the stockholder or beneficial owner proposing such business or nomination has not, and has no intention to, solicit a number of proxies sufficient to adopt such proposal or elect any such nominee (the Solicitation Notice). A Solicitation Notice shall be deemed timely if delivered in accordance with the requirements of the stockholders notice set forth in subsection 5(c) above.
(e) Notwithstanding anything in the second sentence of subsection 5(c) to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 55 days prior to the anniversary of the preceding years annual meeting, a stockholders notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10 th ) day following the day on which such public announcement is first made by the corporation.
(f) Only persons nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the provision of this Section 5. The chairman of the meeting shall determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the provisions set forth in these By-Laws and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defectively proposed business or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(g) For purposes of these By-laws, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(h) Notwithstanding the foregoing provisions of this Section 5, a stockholder must also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 5. Nothing in this Section 5 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act.
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Section 6. |
Special Meetings. |
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer or President, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).
At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (CGCL), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders only as set forth in Section 18(b) herein . If a special meeting is properly called by such stockholders, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, to the Secretary of the corporation.
(b) The Board of Directors shall determine the time and place of such special meeting. Upon determination of the time and place of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. No business may be transacted at such special meeting otherwise than specified in the notice of meeting. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporations notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 5 of these Bylaws. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporations notice of meeting, if the stockholders notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120 th ) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to such meeting or the tenth (10 th ) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholders notice as described above.
(d) Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be
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deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act.
Section 7. Notice Of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange or Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.
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Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners Of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
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Section 13. |
Action Without Meeting. |
(a) No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission.
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Section 14. |
Organization. |
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number And Term Of Office. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
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Section 17. |
Board of Directors. |
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(a) Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until such directors earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(b) No stockholder entitled to vote for directors may cumulate votes to which such stockholder is entitled, unless, at the time of such election, the corporation is subject to §2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
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Section 18. |
Vacancies. |
(a) Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, provided, however , that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
(b) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then
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(1) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor.
Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. R emoval. The Board of Directors or any individual director may be removed from office at any time with or without cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the corporation, entitled to vote generally at an election of directors.
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Section 21. |
Meetings. |
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.
(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer or President or a majority of the authorized number of directors.
(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice
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messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
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Section 22. |
Quorum And Voting. |
(a) Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 43 for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 24. Fees And Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any
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meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
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Section 25. |
Committees. |
(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by the Chairman of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner
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provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer or director directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
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Section 28. |
Tenure And Duties Of Officers. |
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of
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Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief
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Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
Section 29. Delegation Of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution Of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting Of Securities Owned By The Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person
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authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form And Execution Of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
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Section 36. |
Transfers. |
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
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Section 37. |
Fixing Record Dates. |
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution Of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may
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be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration Of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents.
(a) Directors and Executive Officers . The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executive officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding,
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whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officer under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Section 43 to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or
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agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43.
(h) Amendments. Any repeal or modification of this Section 43 only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
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(4) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Section 43.
ARTICLE XII
NOTICES
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Section 44. |
Notices. |
(a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) Notice To Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may
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be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice To Person With Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.
ARTICLE XIII
AMENDMENTS
Section 45. Subject to the limitations set forth in Section 43(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.
ARTICLE XIV
LOANS TO OFFICERS
Section 46. Loans To Officers. Except as otherwise prohibited by applicable law, including the Sarbanes-Oxley Act of 2002, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its
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subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
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23. |
Exhibit 4.1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
36,810 SHARES OF SERIES B PREFERRED STOCK OF
VASCULAR INNOVATIONS, INC.
(Void after March 17, 2010)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation. or assigns (the Holder), for value received, is entitled to purchase from VASCULAR INNOVATIONS, INC., a Delaware corporation (the Company), 36,810 fully paid and nonassessable shares of the Companys Series B Preferred Stock (Preferred Stock) for cash at a price of $1.63 per share (the Stock Purchase Price) at any time or from time to time up to and including the earlier of (i) 5:00 p.m. (Pacific time) on March 17, 2010 (the Expiration Date), or (ii) the date of a Qualified Corporate Event as described in Section 4.3, upon surrender to the Company at its principal office at 171 Jefferson Drive, Menlo Park, California 94025, (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares .
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Companys Certificate of Incorporation, as amended, an event causing automatic conversion of the Companys Preferred Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon an): prior exercise of the Warrant would have been so converted (and, where the context requires. reference to Preferred Stock shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Companys expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. Notwithstanding anything contained herein to the contrary, this Warrant may not be exercised during the twenty
(20) day period immediately prior to the closing of the Companys Initial Public Offering of the Companys Common Stock.
(b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as. hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect. multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. Election to exercise under this section (b) may be made by delivering a signed form of subscription to the Company via facsimile, to be followed by delivery of the warrant.
(c) For purposes of clause (b) of this Section 1, Per Share Price means the product of: (i) the greater of (A) the closing price of the Companys Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the trading day immediately prior to the date of the Holders election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Companys Common Stock pursuant to a registered public offering or that amount which shareholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the Companys Common Stock is not quoted by NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be set by the Board of Directors that in its reasonable good faith judgement has determined to be the fair market value of the Preferred Stock.
2. Limitation on Transfer .
(a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to insure compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder will cause any proposed transferee of the Warrant or Preferred Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Companys Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect to the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act
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relating to the disposition of securities), or (iii) an opinion of counsel. reasonably satisfactory to counsel for the Company, that an exemption from such registration is available.
3. Shares to be Fully Paid; Reservation of Shares . The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of ail outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Companys Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Companys Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares . The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification . If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor.
(a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
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Then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale . If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock (Corporate Event), then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, provided, however, in the event that 1) the effective price of such Corporate Event is in excess of the exercise price hereof effective at the time of the Corporate Event, 2) the consideration received in such Corporate Event is cash or shares that are of a publicly traded company listed on a national market or exchange, without restrictions within 90 days of the close of such Corporate Event, except for those of Rule 144 or 145, and 3) the Companys shareholders own less than 50% of the voting securities of the surviving entity (collectively, a Qualified Corporate Event), then this Warrant shall be deemed exercised in accordance with the provisions of Section l(b) upon the closing of the Qualified Corporate Event. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.
4.4 Sale or Issuance Below Purchase Price . The shares of Preferred Stock issuable under this Warrant shall be subject to the antidilution provisions as described in the Companys Certificate of incorporation as currently in effect.
4.5 Notice of Adjustment . Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by the Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.6 Other Notices . If at any time:
(a) the Company shall declare any cash dividend upon its Preferred Stock:
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(b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights;
(d) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation, including, without limitation, any Corporate Event;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the company, (i) at least 20 days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 20 days written notice of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
4.7 Certain Events . If any change in the outstanding Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment.
5. Issue Tax . The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof: provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
6. Closing of Books . The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or
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the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors.
8. Registration Rights . The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be, to the piggyback registration rights set forth in Section 2.2 of the Restated Investor Rights Agreement dated as of December 31, 1998, and to be made a party to that agreement. The company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Companys charter documents or rights of prior Grantees of registration rights.
9. Rights and Obligations Survive Exercise of Warrant . The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 8 shall survive the exercise of this Warrant.
10. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
11. Notices . Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, to each such holder at its address as shown an the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.
12. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Companys assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof.
13. Descriptive Headings and Governing Law . The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.
14. Lost Warrants or Stock Certificates . The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
15. Fractional Shares . No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
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16. Representations of Holder . With respect to this Warrant, Holder represents and warrants to the Company as follows:
16.1 Experience . It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel: the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company: and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment.
16.2 Investment . It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws.
16.3 Rule 144 . It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
16.4 Access to Data . It has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management and has had the opportunity to inspect the Companys facilities.
16.5 Accredited Investor . Holder represents that it is an accredited investor within the meaning of Rule 501, Regulation D of the Securities Act of 1933, as amended.
16.6 Market Standoff Agreement. It agrees that in connection with the initial registration of the Companys securities that, upon the request of the Company or the underwriters managing any new written public offering of the Companys securities, not to sell, make any short sale of, loan, grant an option for the purchase of, or otherwise dispose of any Registerable Securities (as defined in the Restated Investors Rights Agreement) other than those included in the registration without the prior written consent of the Company or such underwriters. as the case may be, for such period of time as may be requested by the Company or such managing underwriters (not to exceed 180 days) from the effective date of such registration, provided that the Companys officers, directors, and its shareholders who own at least five percent (5%) of the Companys voting equity are subject to the same restrictions.
17. Additional Representations and Covenants of the Company . The Company hereby represents, warrants and agrees as follows:
17.1 Corporate Power . The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
17.2 Authorization . All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms.
17.3 Offering . Subject in part to the truth and accuracy of Holders representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act and are exempt from the qualification requirements of any
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applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
17.4 Stock Issuance . Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate.
17.5 Certificate and By-Laws . The Company has provided Holder with true and complete copies of the Companys Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
17.6 Conversion of Preferred Stock . As of the date hereof, each share of the Preferred Stock is convertible into one share of the Common Stock.
17.7 Financial and Other Reports . From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 90 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements. and financial statements that the Company sends or makes available to its shareholders and all registration statements and reports that the Company files with the SEC or any other governmental or regulatory authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 17th day of March, 2000.
VASCULAR INNOVATIONS, INC.
By:
/s/ Bernard Hausen
Title:
President & CEO
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: __________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1) See Below ___________ (________) shares (the Shares) of Stock of _________ and herewith makes payment of __________ Dollars ($________) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, _________, whose address is __________. |
The undersigned hereby elects to convert _______ percent (__%) of the value of the Warrant pursuant to the provisions of Section l(b) of the Warrant. |
The undersigned represents that it is acquiring such Common Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof (subject. however, to any requirement of law that the disposition thereof shall at all times be within its control.
Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ (Address) _______________________ _______________________ |
(1) | Insert here the number of shares called for on the face of the Warrant (or. in the case of a partial exercise. the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. |
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EXHIBIT A
[ On letterhead of the Company ]
Reference is hereby made to that certain Warrant dated ______________, 199_, issued by ___________________, a ____________ corporation (the Company), to VENTURE LENDING & LEASING II, INC., a Maryland corporation (the Holder).
[IF APPLICABLE] The Warrant provides that the actual number of shares of the Companys capital stock issuable upon exercise of the Warrant and the initial exercise price per share are to be determined by reference to one or more events or conditions subsequent to the issuance of the Warrant. Such events or conditions have now occurred or lapsed, and the Company wishes to confirm the actual number of shares issuable and the initial exercise price. The provisions of this Supplement to Warrant are incorporated into the Warrant by this reference, and shall control the interpretation and exercise of the Warrant.
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based].
This certifies that the Holder is entitled to purchase from the Company _________________________ (_________) fully paid and nonassessable shares of the Companys ________ Stock at a price of ______________________ Dollars ($_________) per share (the Stock Purchase Price). The Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this ____ day of _____________, 199_.
[COMPANY]
By: __________________________ Name: __________________________ Title: __________________________ |
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Preferred Stock covered thereby set forth hereinbelow, unto:
Name of Assignee | Address | No. of Shares |
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Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ |
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Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
A NUMBER OF SHARES
OF SERIES C PREFERRED STOCK OF
VASCULAR
INNOVATIONS, INC.
(Void after July
5, 2008)
This certifies that VENTURE LENDING & LEASING III, INC., a Maryland corporation, or its assignee(s) as set forth herein (the Holder), for value received, is entitled to purchase from Vascular Innovations, Inc., a Delaware corporation (the Company), Eighty Five Thousand Seven Hundred Fourteen (85,714) fully paid and nonassessable shares (Warrant Shares) of the Companys Series C Preferred Stock (Preferred Stock) for cash at a price of $2.80 per share (the Stock Purchase Price). In the event that the aggregate, original principal amount of Term Loans advanced by Holder to Company under that certain Loan and Security Agreement (Loan Agreement), dated of even date herewith, between the Company and the Holder, exceeds $2,400,000 (such amount being hereafter referred to as the Excess Amount) then, in such event, the Warrant Shares shall increase automatically from time to time by such number of shares as shall be equal to (x) the product of 10% multiplied by the Excess Amount, divided by (ii) the Stock Purchase Price. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement.
This warrant may be exercised at any time or from time to time up to and including the earlier of (i) 5:00 p.m. (Pacific time) on July 5, 2008 (the Expiration Date), or (ii) the date of a Qualified Corporate Event as described in Section 4.3, upon surrender to the Company at its principal office at 171 Jefferson Drive, Menlo Park, California 94025, (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant.
As soon as reasonably practicable after the occurrence or non-occurrence of the latest event or condition necessary to determine the actual number of shares of the Companys stock issuable upon exercise of this Warrant, the Company shall execute and deliver a supplement to this Warrant in substantially the form of Exhibit A attached hereto, completed with such quantity and price terms and other information as have been determined as a result of the occurrence or non-occurrence of such events or conditions. The provisions of such supplement, once completed and executed, shall control the interpretation and exercise of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder
for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Companys Certificate of Incorporation, as amended, an event causing automatic conversion of the Companys Preferred Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference to Preferred Stock shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Companys expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. Notwithstanding anything contained herein to the contrary, this Warrant may not be exercised during the twenty (20) day period immediately prior to the closing of the Companys initial public offering of its Common Stock.
(b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. Election to exercise under this section (b) may be made by delivering a signed form of subscription to the Company via facsimile, to be followed by delivery of the warrant.
(c) For purposes of clause (b) of this Section 1, Per Share Price means the product of: (i) the greater of (A) the closing price of the Companys Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the trading day immediately prior to the date of the Holders election hereunder or, (B) if applicable at the time of or in connection with this exercise under clause (b) of this Section 1, the gross sales price of one share of the Companys Common Stock pursuant to a registered public offering or that amount which stockholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets (Merger Payment) and in the event that such Merger Payment includes any earn-outs, deferred payments or similar future contingent payments (Future Payments), the value of such Future Payments for the purpose of calculating the Merger Payment shall be determined in good faith by the Companys Board of Directors; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the Companys Common Stock is not quoted by NASDAQ or listed on an exchange and none of the above clauses apply, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be determined in good faith by the Companys Board of Directors.
2. Limitation on Transfer.
(a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to insure compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder will cause any proposed transferee of the Warrant or Preferred Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
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(b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Companys Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect to the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. Notwithstanding the foregoing provisions of this paragraph, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to any person and or entity deemed an affiliate of Holder within the meaning of Rule 144 promulgated under the Securities Act, provided that such affiliate is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
3. Shares to be Fully Paid; Reservation of Shares . The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Companys Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Companys Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares . The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to
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such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification . If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
Then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale . If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock (such capital reorganization, merger, consolidation, or sale being a Corporate Event), then, as a condition of such Corporate Event, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however , in the event that 1) the consideration to be received pursuant to such Corporate Event for each share of Preferred Stock is in excess of the Stock Purchase Price effective at the time of the Corporate Event, 2) the consideration to be received in such Corporate Event is cash or shares that are of a publicly traded company listed on a national market or exchange, which, after the ninetieth (90) day following the close of such Corporate Event, may be sold freely without any restrictions other than those of Rule 144 or 145, and 3) the Companys shareholders own less than 50% of the voting securities of the surviving entity (collectively, a Qualified Corporate Event), then this Warrant shall be deemed exercised in accordance with the provisions of section 1(b) upon the closing of the Qualified Corporate Event. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets
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thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.
4.4 Sale or Issuance Below Purchase Price . The shares of Preferred Stock issuable under this Warrant shall be subject to the antidilution provisions as described in the Companys Certificate of incorporation as currently in effect.
4.5 Notice of Adjustment . Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by the Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.6 Other Notices . If at any time:
(a) the Company shall declare any cash dividend upon its Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights;
(d) there shall be any reclassification of the capital stock of the Company, or any Corporate Event;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 20 days prior written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 20 days written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
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4.7 Certain Events . If any change in the outstanding Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment.
5. Issue Tax . The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
6. Closing of Books . The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.
8. Intentionally Omitted .
9. Registration Rights . The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be, to all of the piggyback registration rights set forth in Section 2.3 of the Restated Investor Rights Agreement dated as of August 9, 2000 (Investor Rights Agreement) and to be made a party to that agreement. The company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Companys charter documents or rights of prior Grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant . The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
12. Notices . Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with
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postage prepaid and certified or registered, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.
13. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Companys assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof.
14. Descriptive Headings and Governing Law . The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.
15. Lost Warrants or Stock Certificates . The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. Fractional Shares . No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant, Holder represents and warrants to the Company as follows:
17.1 Experience. It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment.
17.2 Investment. It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws.
17.3 Rule 144. It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
17.4 Access to Data. It has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management and has had the opportunity to inspect the Companys facilities.
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17.5 Accredited Investor . Holder represents that it is an accredited investor within the meaning of Rule 501, Regulation D of the Securities Act of 1933, as amended.
17.6 Market Standoff Agreement. It agrees that in connection with the initial registration of the Companys securities that, upon the request of the Company or the underwriters managing any new written public offering of the Companys securities, not to sell, make any short sale of, loan, grant an option for the purchase of, or otherwise dispose of any Registerable Securities (as defined in the Investor Rights Agreement) other than those included in the registration without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as may be requested by the Company or such managing underwriters (not to exceed 180 days) from the effective date of such registration, provided that the Companys officers, directors, and its shareholders who own at least five percent (5%) of the Companys voting equity are subject to the same restrictions.
18. Additional Representations and Covenants of the Company. The Company hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
18.2 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms.
18.3 Offering. Subject in part to the truth and accuracy of Holders representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate.
18.5 Certificate and By-Laws. The Company has provided Holder with true and complete copies of the Companys Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
18.6 Conversion of Preferred Stock. As of the date hereof, each share of the Preferred Stock is convertible into one share of the Common Stock.
18.7 Financial and Other Reports. From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 90 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter, and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders and all registration statements and reports that the Company files with the SEC or any other governmental or regulatory authority.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 5th day of July, 2001.
VASCULAR INNOVATIONS, INC.
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/s/ Bernard Hausen |
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Title: |
President & CEO |
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Tel (650) 326-5600 Fax (650) 326-5655 |
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EXHIBIT D
Reference is hereby made to that certain Warrant dated July 5, 2001 issued by CARDICA, INC., formerly VASCULAR INNOVATIONS, INC., a Delaware corporation (the Company), to VENTURE LENDING & LEASING III, LLC, a Delaware limited liability company (the Holder).
Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based.
This certifies that the Holder is entitled to purchase from the Company the following:
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85,714 shares at $2.80 per share |
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2) |
28,571 shares at $2.80 per share |
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10,714 shares at $2.80 per share |
The Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment its provided in Section 4 of the Warrant.
Executed
this 27th day of June, 2003
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CARDICA, INC. formerly
VASCULAR INNOVATIONS, INC.
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By: |
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Name: |
BERNARD HAUSEN |
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Title: |
PRESIDENT & CEO |
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Exhibit 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
A NUMBER OF SHARES OF SERIES C PREFERRED STOCK OF
VASCULAR INNOVATIONS, INC.
(Void after July 5, 2008)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation, or its assignee(s) as set forth herein (the Holder), for value received, is entitled to purchase from Vascular Innovations, Inc., a Delaware corporation (the Company), Twenty One Thousand Four Hundred Twenty-Nine (21,429) fully paid and nonassessable shares (Warrant Shares) of the Companys Series C Preferred Stock (Preferred Stock) for cash at a price of $2.80 per share (the Stock Purchase Price). In the event that the aggregate, original principal amount of Term Loans advanced by Holder to Company under that certain Loan and Security Agreement (Loan Agreement), dated of even date herewith, between the Company and the Holder, exceeds $600,000 (such amount being hereafter referred to as the Excess Amount) then, in such event, the Warrant Shares shall increase automatically from time to time by such number of shares as shall be equal to (x) the product of 10% multiplied by the Excess Amount, divided by (ii) the Stock Purchase Price. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement.
This warrant may be exercised at any time or from time to time up to and including the earlier of (i) 5:00 p.m. (Pacific time) on July 5, 2008 (the Expiration Date), or (ii) the date of a Qualified Corporate Event as described in Section 4.3, upon surrender to the Company at its principal office at 171 Jefferson Drive, Menlo Park, California 94025, (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant.
As soon as reasonably practicable after the occurrence or non-occurrence of the latest event or condition necessary to determine the actual number of shares of the Companys stock issuable upon exercise of this Warrant, the Company shall execute and deliver a supplement to this Warrant in substantially the form of Exhibit A attached hereto, completed with such quantity and price terms and other information as have been determined as a result of the occurrence or non-occurrence of such events or conditions. The provisions of such supplement, once completed and executed, shall control the interpretation and exercise of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares .
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder
for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Companys Certificate of Incorporation, as amended, an event causing automatic conversion of the Companys Preferred Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference to Preferred Stock shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Companys expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. Notwithstanding anything contained herein to the contrary, this Warrant may not be exercised during the twenty (20) day period immediately prior to the closing of the Companys initial public offering of its Common Stock.
(b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. Election to exercise under this section (b) may be made by delivering a signed form of subscription to the Company via facsimile, to be followed by delivery of the warrant.
(c) For purposes of clause (b) of this Section 1, Per Share Price means the product of: (i) the greater of (A) the closing price of the Companys Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the trading day immediately prior to the date of the Holders election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Companys Common Stock pursuant to a registered public offering or that amount which stockholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets (Merger Payment) and in the event that such Merger Payment includes any earn-outs, deferred payments or similar future contingent payments (Future Payments), the value of such Future Payments for the purpose of calculating the Merger Payment shall be determined in good faith by the Companys Board of Directors; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the Companys Common Stock is not quoted by NASDAQ or listed on an exchange and none of the above clauses apply, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be determined in good faith by the Companys Board of Directors.
2. Limitation on Transfer.
(a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to insure compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder will cause any proposed transferee of the Warrant or Preferred Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
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(b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Companys Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect to the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities); or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. Notwithstanding the foregoing provisions of this paragraph, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to any person and or entity deemed an affiliate of Holder within the meaning of Rule 144 promulgated under the Securities Act, provided that such affiliate is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Companys Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Companys Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to
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such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification. If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
Then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock (such capital reorganization, merger, consolidation, or sale being a Corporate Event), then, as a condition of such Corporate Event, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, in the event that 1) the consideration to be received pursuant to such Corporate Event for each share of Preferred Stock is in excess of the Stock Purchase Price effective at the time of the Corporate Event, 2) the consideration to be received in such Corporate Event is cash or shares that are of a publicly traded company listed on a national market or exchange, which, after the ninetieth (90) day following the close of such Corporate Event, may be sold freely without any restrictions other than those of Rule 144 or 145, and 3) the Companys shareholders own less than 50% of the voting securities of the surviving entity (collectively, a Qualified Corporate Event), then this Warrant shall be deemed exercised in accordance with the provisions of section l (b) upon the closing of the Qualified Corporate Event. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets
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thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.
4.4 Sale or Issuance Below Purchase Price. The shares of Preferred Stock issuable under this Warrant shall be subject to the antidilution provisions as described in the Companys Certificate of incorporation as currently in effect.
4.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by the Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.6 Other Notices . If at any time:
(a) the Company shall declare any cash dividend upon its Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights;
(d) there shall be any reclassification of the capital stock of the Company, or any Corporate Event;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 20 days prior written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 20 days written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
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4.7 Certain Events . If any change in the outstanding Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment.
5. Issue Tax . The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof, provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
6. Closing of Books . The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, In the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.
8. Intentionally Omitted .
9. Registration Rights . The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be, to all of the piggyback registration rights set forth in Section 2.3 of the Restated Investor Rights Agreement dated as of August 9, 2000 (Investor Rights Agreement) and to be made a party to that agreement. The company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Companys charter documents or rights of prior Grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant . The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
12. Notices . Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with
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postage prepaid and certified or registered, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.
13. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Companys assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof.
14. Descriptive Headings and Governing Law . The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.
15. Lost Warrants or Stock Certificates . The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stack certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. Fractional Shares . No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
17. Representations of Holder . With respect to this Warrant, Holder represents and warrants to the Company as follows:
17.1 Experience . It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment.
17.2 Investment . It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws.
17.3 Rule 144 . It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
17.4 Access to Data . It has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management and has had the opportunity to inspect the Companys facilities.
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17.5 Accredited Investor . Holder represents that it is an accredited investor within the meaning of Rule 501, Regulation D of the Securities Act of 1933, as amended.
17.6 Market Standoff Agreement . It agrees that in connection with the initial registration of the Companys securities that, upon the request of the Company or the underwriters managing any new written public offering of the Companys securities, not to sell, make any short sale of, loan, grant an option for the purchase of, or otherwise dispose of any Registerable Securities (as defined in the Investor Rights Agreement) other than those included in the registration without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as may be requested by the Company or such managing underwriters (not to exceed 180 days) from the effective date of such registration, provided that the Companys officers, directors, and its shareholders who own at least five percent (5%) of the Companys voting equity are subject to the same restrictions.
18. Additional Representations and Covenants of the Company . The Company hereby represents, warrants and agrees as follows:
18.1 Corporate Power . The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
18.2 Authorization . All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms.
18.3 Offering . Subject in part to the truth and accuracy of Holders representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance . Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate.
18.5 Certificate and By-Laws . The Company has provided Holder with true and complete copies of the Companys Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
18.6 Conversion of Preferred Stock . As of the date hereof, each share of the Preferred Stock is convertible into one share of the Common Stock.
18.7 Financial and Other Reports . From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 90 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders and all registration statements and reports that the Company files with the SEC or any other governmental or regulatory authority.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 5th day of July, 2001.
VASCULAR INNOVATIONS, INC.
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President & CEO |
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Tel
(650) 326-5600 Fax (650) 326-5655
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EXHIBIT D
Reference is hereby made to that certain Warrant dated July 5, 2001 issued by CARDICA, INC., formerly VASCULAR INNOVATIONS. INC., a Delaware corporation (the Company), to VENTURE LENDING & LEASING II, INC., a Maryland corporation (the Holder).
Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based.
This certifies that the Holder is entitled to purchase from the Company the following:
1) 21,429
shares at $2.80 per share
2) 7,143
shares at $2.80 per share
3) 2,679
shares at $2.80 per share
The Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this 27th day of June, 2003
CARDICA, INC.
formerly VASCULAR INNOVATIONS, INC.
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By: |
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Name: |
BERNARD HAUSEN |
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PRESIDENT AND CEO |
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Exhibit 4.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
96,439 SHARES OF COMMON STOCK OF
CARDICA, INC.
(Void after June 13, 2009)
This certifies that ALLEN & COMPANY INCORPORATED, a New York corporation, or its assignee(s) as set forth herein (the Holder), for value received, is entitled to purchase from Cardica, Inc., a Delaware corporation (the Company), Ninety Six Thousand Four Hundred Thirty Nine (96,439) fully paid and nonassessable shares of the Companys Common Stock (Common Stock) for cash at a price of $3.86 per share (the Stock Purchase Price). This warrant may be exercised at any time or from time to time up to and including the earlier of (i) 5:00 p.m. (Pacific time) on June 13, 2009 (the Expiration Date), or (ii) the date of a Qualified Corporate Event as described in Section 4.3, upon surrender to the Company at its principal office at 171 Jefferson Drive, Menlo Park, California 94025, (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares .
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Companys expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. Notwithstanding anything contained herein to the contrary, this Warrant may not be exercised during the twenty (20) day period immediately prior to the closing of the Companys initial public offering of its Common Stock.
(b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Common Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as hereinafter defined) of the Common Stock, less (B) the Stock Purchase Price then in effect, multiplied by the
number of shares of Common Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. Election to exercise under this section (b) may be made by delivering a signed form of subscription to the Company via facsimile, to be followed by delivery of the Warrant.
(c) For purposes of clause (b) of this Section 1, Per Share Price means the product of: (i) the greater of (A) the closing price of the Companys Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the trading day immediately prior to the date of the Holders election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Companys Common Stock pursuant to a registered public offering or that amount which stockholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets (Merger Payment) and in the event that such Merger Payment includes any earn-outs, deferred payments or similar future contingent payments (Future Payments), the value of such Future Payments for the purpose of calculating the Merger Payment shall be determined in good faith by the Companys Board of Directors; and (ii) that number of shares of Common Stock for which this Warrant is exercisable. If the Companys Common Stock is not quoted by NASDAQ or listed on an exchange and none of the above clauses apply, the Per Share Price of the Common Stock shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be determined in good faith by the Companys Board of Directors.
2. Limitation on Transfer .
(a) The Warrant and the Common Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to insure compliance with the provisions of the Securities Act. Each holder of this Warrant or the Common Stock issuable hereunder will cause any proposed transferee of the Warrant or Common Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Common Stock and (iii) any other securities issued in respect of the Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. Notwithstanding the foregoing provisions of this paragraph, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to any person and or entity deemed an affiliate of Holder with the meaning of Rule 144 promulgated under the Securities Act, provided that such affiliate is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
3. Shares to be Fully Paid; Reservation of Shares . The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon such
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issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as described in Section 4 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Companys Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Companys Certificate of Incorporation, as amended from time to time.
4. Adjustment of Stock Purchase Price Number of Shares . The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends in Common Stock, Other Stock, Property, Reclassification . If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(a) Common Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Common Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
Then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
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4.3 Reorganization, Reclassification, Consolidation, Merger or Sale . If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock (such capital reorganization, merger, consolidation, or sale being a Corporate Event), then, as a condition of such Corporate Event, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however , in the event that 1) the consideration to be received pursuant to such Corporate Event for each share of Common Stock is in excess of the Stock Purchase Price effective at the time of the Corporate Event, 2) the consideration to be received in such Corporate Event is cash or shares that are of a publicly traded company listed on a national market or exchange, which, after the ninetieth (90) day following the close of such Corporate Event, may be sold freely without any restrictions other than those of Rule 144 or 145, and 3) the Companys shareholders own less than 50% of the voting securities of the surviving entity (collectively, a Qualified Corporate Event), then this Warrant shall be deemed exercised in accordance with the provisions of section 1(b) upon the closing of the Qualified Corporate Event. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.
4.4 Notice of Adjustment . Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by the Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.5 Other Notices . If at any time:
(a) the Company shall declare any cash dividend upon its Common Stock;
(b) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights;
(d) there shall be any reclassification of the capital stock of the Company, or any corporate Event;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
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(f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Common Stock;
then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 20 days prior written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 20 days written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
4.6 Certain Events . If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment.
5. Issue Tax . The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
6. Closing of Books . The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.
8. Registration Rights . The Holder hereof shall be entitled, with respect to the shares of Common Stock issued upon exercise hereof, to all of the piggyback registration rights set forth in Section 2.3 of the Restated Investor Rights Agreement dated as of June 13, 2002 (Investor Rights Agreement) and to be made a party to that agreement. The Company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Companys charter documents or rights of prior Grantees of registration rights.
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9. Rights and Obligations Survive Exercise of Warrant . The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, contained in Sections 6 and 8 shall survive the exercise of this Warrant.
10. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
11. Notices . Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, or (iv) one business day after receipt by a nationally recognized overnight carrier addressed, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.
12. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Companys assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof.
13. Descriptive Headings and Governing Law . The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.
14. Lost Warrants or Stock Certificates . The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
15. Fractional Shares . No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
16. Representations of Holder . With respect to this Warrant, Holder represents and warrants to the Company as follows:
16.1 Experience . It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment.
16.2 Investment . It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant and the shares of
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Common Stock issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended. nor qualified under applicable state securities laws.
16.3 Rule 144 . It acknowledges that the Warrant and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
16.4 Access to Data . It has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management and has had the opportunity to inspect the Companys facilities.
16.5 Accredited Investor . Holder represents that it is an accredited investorwithin the meaning of Rule 501, Regulation D of the Securities Act of 1933, as amended.
16.6 Market Standoff Agreement . It agrees that in connection with the initial registration of the Companys securities that, upon the request of the Company or the underwriters managing any new written public offering of the Companys securities, not to sell, make any short sale of, loan, grant an option for the purchase of, or otherwise dispose of any Registrable Securities (as defined in the Investor Rights Agreement) other than those included in the registration without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as may be requested by the Company or such managing underwriters (not to exceed 180 days) from the effective date of such registration, provided that the Companys officers, directors, and its shareholders who own at least five percent (5%) of the Companys voting equity are subject to the same restrictions.
17. Additional Representations and Covenants of the Company . The Company hereby represents, warrants and agrees as follows:
17.1 Corporate Power . The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
17.2 Authorization . All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms.
17.3 Offering . Subject in part to the truth and accuracy of Holders representations set forth in Section 16 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Common Stock upon exercise of the Warrant will be, exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
17.4 Stock Issuance . Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Common Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise.
17.5 Certificate and By-Laws . The Company has provided Holder with true and complete copies of the Companys Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
17.6 Financial and Other Reports . From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 90 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders and all registration statements and reports that the Company files with the SEC or any other governmental or regulatory authority.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 13th day of June, 2002.
CARDICA, INC.
By: /s/
Bernard Hausen
Title: President & CEO
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ___________________________________
|_| | The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1) See Below ________________ (_______) shares (the Shares) of Stock of _______________ and herewith makes payment of __________________ Dollars ($________) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, _____________, whose address is _______________. |
|_| | The undersigned hereby elects to convert _________ percent (__%) of the value of the Warrant pursuant to the provisions of Section 1(b) of the Warrant. |
The undersigned represents that it is acquiring such Common Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within its control.
Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ (Address) _______________________ _______________________ |
(1) | Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. |
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth herein below, unto:
Name of Assignee | Address | No. of Shares |
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||
Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ |
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EXHIBIT A
[ On letterhead of the Company ]
Reference is hereby made to that certain Warrant dated June 13, 2002, issued by CARDICA, INC., a Delaware corporation (the Company), to ALLEN & COMPANY INCORPORATED, a New York corporation (the Holder).
[IF APPLICABLE] The Warrant provides that the actual number of shares of the Companys capital stock issuable upon exercise of the Warrant and the initial exercise price per share are to be determined by reference to one or more events or conditions subsequent to the issuance of the Warrant. Such events or conditions have now occurred or lapsed, and the Company wishes to confirm the actual number of shares issuable and the initial exercise price. The provisions of this Supplement to Warrant are incorporated into the Warrant by this reference, and shall control the interpretation and exercise of the Warrant.
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.4 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based].
This certifies that the Holder is entitled to purchase from the Company ____________________ (_________) fully paid and nonassessable shares of the Companys ____________ Stock at a price of _________________________ Dollars ($_________) per share (the Stock Purchase Price). The Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this ____ day of ________________, 200__.
CARDICA,
INC.
By: __________________________ Name: __________________________ Title: __________________________ |
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Exhibit 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURUITIES LAWS.
WARRANT TO PURCHASE
180,052 SHARES OF SERIES D PREFERRED STOCK OF
CARDICA, INC.
(Void after October 31, 2010)
This certifies that VENTURE LENDING & LEASING III, LLC, a Delaware limited liability company, or its assignee(s) as set forth herein (the Holder), for value received, is entitled to purchase from Cardica, Inc., a Delaware corporation (the Company), One Hundred Eighty Thousand Fifty Two (180,052) fully paid and nonassessable shares (Warrant Shares) of the Companys series D Preferred Stock (Preferred Stock) for cash at a price of $3.86 per share (the Stock Purchase Price). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement.
This warrant may be exercised at any time or from time to time up to and including 5:00 p.m. (Pacific time) on October 31,2010 (the Expiration Date), upon surrender to the Company at its principal office at 171 Jefferson Drive, Menlo Park, California 94025, (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant.
As soon as reasonably practicable after the occurrence or non-occurrence of the latest event or condition necessary to determine the actual number of shares of the Companys stock issuable upon exercise of this Warrant, the Company shall execute and deliver a supplement to this Warrant in substantially the form of Exhibit A attached hereto, completed with such quantity and price terms and other information as have been determined as a result of the occurrence or non-occurrence of such events or conditions. The provisions of such supplement, once completed and executed, shall control the interpretation and exercise of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares .
(a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Companys Certificate of Incorporation, as amended, an event causing automatic conversion of the Companys Preferred Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference to Preferred Stock shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which the form of subscription shall have been delivered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Companys
expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share mice (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. Election to exercise under this section (b) may be made by delivering a signed form of subscription to the Company via facsimile, to be followed by delivery of the warrant.
(c) For purposes of clause (b) of this Section 1, Per Share Price means the product of: (i) the greater of (A) the closing price of the securities issuable upon conversion of the Preferred Stock, as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the trading day immediately prior to the date of the Holders election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Companys Common Stock pursuant to a registered public offering or that amount which stockholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets (Merger Payment) and in the event that such Merger Payment includes any earn-outs, deferred payments or similar future contingent payments (Future Payments), the value of such Future Payments for the purpose of calculating the Merger Payment shall be determined in good faith by the Companys Board of Directors; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the securities issuable upon conversion of the Preferred Stock are not quoted by NASDAQ or listed on an exchange and none of the above clauses apply, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be determined in good faith by the Companys Board of Directors.
2. Limitation on Transfer .
(a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2, which conditions are intended to insure compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder will cause any proposed transferee of the Warrant or Preferred Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Companys Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect to the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
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(c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. Notwithstanding the foregoing provisions of this paragraph, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to any person and or entity deemed an affiliate of Holder within the meaning of Rule 144 promulgated under the Securities Act, provided that such affiliate is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.
3. Shares to be Fully Paid; Reservation of Shares . The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Companys Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Companys Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares . The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification . If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or
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options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above),
Then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale . If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock (such capital reorganization, merger, consolidation, or sale being a Corporate Event), then, as a condition of such Corporate Event, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.
4.4 Sale or Issuance Below Purchase Price . The other antidilution rights applicable to the shares of series Preferred Stock purchasable hereunder are set forth in the Companys Certificate of Incorporation, as amended through the date hereof (the Charter). Such antidilution rights shall not be restated, amended, modified or waived in any manner without the Holders prior written consent if, and only if, the effect of such restatement, amendment, modification or waiver on the Holder hereof would be more adverse to the Holder hereof than, and substantially dissimilar to, its effect on the other holders of the same series of the Companys Preferred Stock. The Company shall promptly provide the Holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made. If in connection with any non-public offering of equity securities of the Company after the original date of issuance of this Warrant at a price per share lower than the Stock Purchase Price then in effect (such offering being referred to herein as a Down Round), the holders of a requisite percentage of shares of Preferred Stock waive any anti-dilution protections that would otherwise have been available to such stockholders under the Charter on account of the issuance of securities in the Down Round, the Company shall afford the Holder the opportunity to purchase up to that number of shares of equity securities of the Company to be sold through the Down Round as will enable the Holder to own or acquire immediately after completion of the Down Round the same percentage of the equity securities of the Company (on a fully diluted basis) as the Holder owned and/or had the right to purchase under this Warrant immediately prior to
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commencement of the Down Round offering. In this regard, the Company shall provide written notice to the Holder reasonably in advance of a proposed Down Round, which notice shall state, to the extent then known by the Company, the number and type of shares of equity securities proposed to be sold through the Down Round and the per share price, and shall establish a deadline, not less than 20 days after the giving of such notice, by which the Holder must deliver its written election to purchase shares in the Down Round. The per share price payable by the Holder in the Down Round shall be the same per share price payable by the lead investor in the Down Round. If the Company fails timely to afford the Holder the opportunity to participate in the Down Round in the foregoing manner, then the Holder shall be entitled, upon conversion of the Preferred Stock issuable under this Warrant, to the full benefit of any and all antidilution protections that were waived by the holders of Preferred Stock in connection with the Down Round.
4.5 Notice of Adjustment . Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice, which may be substantially in the form of Exhibit A attached hereto, shall be signed by the Companys chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4.6 Other Notices . If at any time:
(a) the Company shall declare any cash dividend upon its Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock in connection with a Down Round or additional shares of stock of any class or other rights;
(d) there shall be any reclassification of the capital stock of the Company, or any Corporate Event;
(e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 20 days prior written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding- up, or other action and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action, at least 20 days written notice or, if less, the actual number of days prior written notice of such event given to the Companys stockholders, but in no event less than 10 days of the date when the same shall take place. Any notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, or other action as the case may be.
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4.7 Certain Events . If any change in the outstanding Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment.
5. Issue Tax . The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
6. Closing of Books . The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.
8. Intentionally Omitted .
9. Registration Rights . The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be, to all of the piggyback and S-3 registration rights set forth in Sections 2.3 and 2.4 of the Restated Investor Rights Agreement dated as of June 13, 2002 (Investor Rights Agreement) and to be made a party to that agreement. The company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Companys charter documents or rights of prior Grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant . The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.
12. Notices . Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with
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postage prepaid and certified or registered, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.
13. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Companys assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof.
14. Descriptive Headings and Governing Law . The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.
15. Lost Warrants or Stock Certificates . The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. Fractional Shares . No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.
17. Representations of Holder . With respect to this Warrant, Holder represents and warrants to the Company as follows:
17.1 Experience . It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holders satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment.
17.2 Investment . It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws.
17.3 Rule 144 . It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act.
17.4 Access to Data . It has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management and has had the opportunity to inspect the Companys facilities.
17.5 Accredited Investor . Holder represents that it is an accredited investor within the meaning of Rule 501, Regulation D of the Securities Act of 1933, as amended.
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17.6 Market Standoff Agreement . It agrees that in connection with the initial registration of the Companys securities that, upon the request of the Company or the underwriters managing any new written public offering of the Companys securities, not to sell, make any short sale of, loan, grant an option for the purchase of, or otherwise dispose of any Registerable Securities (as defined in the Investor Rights Agreement) other than those included in the registration without the prior written consent of the Company or such underwriters, as the case may be, for such period of time as may be requested by the Company or such managing underwriters (not to exceed 180 days) from the effective date of such registration, provided that the Companys officers, directors, and its shareholders who own at least five percent (5%) of the Companys voting equity are subject to the same restrictions.
18. Additional Representations and Covenants of the Company . The Company hereby represents, warrants and agrees as follows:
18.1 Corporate Power . The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder.
18.2 Authorization . All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms.
18.3 Offering . Subject in part to the truth and accuracy of Holders representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance . Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate.
18.5 Certificate and By-Laws . The Company has provided Holder with true and complete copies of the Companys Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Companys capital stock, each as amended and in effect on the date of issuance of this Warrant.
18.6 Conversion of Preferred Stock . As of the date hereof, each share of the Preferred Stock is convertible into one share of the Common Stock.
18.7 Financial and Other Reports . From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 90 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders and all registration statements and reports that the Company files with the SEC or any other governmental or regulatory authority.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 31st day of October, 2002.
CARDICA, INC.
By: /s/ Bernard A. Hausen
Title: President & CEO
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: _______________________________The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1) See Below ________________ (_______) shares (the Shares) of Stock of _______________ and herewith makes payment of __________________ Dollars ($________) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, _____________, whose address is _______________. |
The undersigned hereby elects to convert _________ percent (__%) of the value of the Warrant pursuant to the provisions of Section 1(b) of the Warrant. |
The undersigned represents that it is acquiring such Common Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within its control.
Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ (Address) _______________________ _______________________ |
(1) | Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. |
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Preferred Stock covered thereby set forth hereinbelow, unto:
Name of Assignee | Address | No. of Shares |
|
||
Dated ___________________
Holder: ___________________ By: ___________________ Its: ___________________ |
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EXHIBIT A
[ On letterhead of the Company ]
Reference is hereby made to that certain Warrant dated November __, 2002, issued by _______________, a ______________ corporation (the Company), to VENTURE LENDING & LEASING III, LLC, a Delaware limited liability company (the Holder).
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the Warrant that the following adjustment(s) have been made to the Warrant: [describe adjustments, setting forth details regarding method of calculation and facts upon which calculation is based].
This certifies that the Holder is entitled to purchase from the Company ____________________ (_________) fully paid and nonassessable shares of the Companys ____________ Stock at a price of _________________________ Dollars ($_________) per share (the Stock Purchase Price). The Stock Purchase Price and the number of shares purchasable under the Warrant remain subject to adjustment as provided in Section 4 of the Warrant.
Executed this ____ day of ________________, 200__.
CARDICA,
INC.
By: __________________________ Name: __________________________ Title: __________________________ |
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Exhibit 10.1
CARDICA, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED NOVEMBER 7 , 1997
APPROVED BY STOCKHOLDERS ON NOVEMBER 7 , 1997
AMENDED DECEMBER 17 , 1998
APPROVED BY STOCKHOLDERS ON DECEMBER 23 , 1998
AMENDED JULY 21 , 2000
APPROVED BY STOCKHOLDERS ON AUGUST 1 , 2000
AMENDED MAY 29 , 2001
APPROVED BY STOCKHOLDERS ON JUNE 14 , 2001
AMENDED JANUARY 31 , 2002
APPROVED BY STOCKHOLDERS ON FEBRUARY 28 , 2002
AMENDED SEPTEMBER 5 , 2002
AMENDED MAY 28 , 2003
APPROVED BY STOCKHOLDERS ON JULY 31 , 2003
AMENDED FEBRUARY 2 , 2005
APPROVED BY STOCKHOLDERS ON OCTOBER 26, 2005
1. |
PURPOSES. |
(a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option.
2. |
DEFINITIONS. |
(a) Affiliate means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code.
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(b) |
Board means the Board of Directors of the Company. |
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(c) |
Code means the Internal Revenue Code of 1986, as amended. |
(d) Committee means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan.
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(e) |
Company means Cardica, Inc., a Delaware corporation. |
(f) Consultant means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term Consultant shall not include Directors who are paid only a directors fee by the Company or who are not compensated by the Company for their services as Directors.
(g) Continuous Status as an Employee, Director or Consultant means that the service of an individual to the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board or the chief executive officer of the Company may determine, in that partys sole discretion, whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors.
(h) Covered Employee means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
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(i) |
Director means a member of the Board. |
(j) Employee means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a directors fee by the Company shall be sufficient to constitute employment by the Company.
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(k) |
Exchange Act means the Securities Exchange Act of 1934, as amended. |
(l) Fair Market Value means the value of the common stock as determined in good faith by the Board and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations.
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(m) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(n) Listing Date means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange, or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968.
(o) Non-Employee Director means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (Regulation S-K)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
(p) Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option.
(q) Officer means (i) prior to the Listing Date, any person designated by the Company as an officer and (ii) from and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
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(r) |
Option means a stock option granted pursuant to the Plan. |
(s) Option Agreement means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) Optionee means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(u) Outside Director means a Director who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an affiliated corporation at any time, and is not currently receiving direct or indirect remuneration from the Company or an affiliated corporation for services in any capacity other than as a Director, or (ii) is otherwise considered an outside director for purposes of Section 162(m) of the Code.
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(v) |
Plan means this 1997 Equity Incentive Plan. |
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(w) Rule 16b-3 means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company at the time discretion is being exercised regarding the Plan.
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(x) |
Securities Act means the Securities Act of 1933, as amended. |
(y) Stock Award means any right granted under the Plan, including any Option, any stock bonus, and any right to purchase restricted stock.
(z) Stock Award Agreement means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
3. |
ADMINISTRATION. |
(a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
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(3) |
To amend the Plan or a Stock Award as provided in Section 13. |
(c) The Board may delegate administration of the Plan to a committee of the Board composed of not fewer than two (2) members (the Committee), all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the Listing Date, and notwithstanding
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anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term Committee shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code.
4. |
SHARES SUBJECT TO THE PLAN. |
(a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Five Million Seven Hundred Forty Five Thousand (5,745,000) shares of the Companys common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued pursuant to a Stock Award are forfeited back to the Company because of the failure to meet a contingency or condition required to vest such shares in the Stock Award holder, the shares of Common Stock not acquired or forfeited under such Stock Award shall revert to and again become available for issuance under the Plan; provided, however, that the aggregate maximum number of shares of Common Stock that may be issued in connection with Incentive Stock Options shall be Eleven Million Four Hundred Ninety Thousand (11,490,000) shares of Common Stock.
(b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
5. |
ELIGIBILITY. |
(a) Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options and may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option or an award to purchase restricted stock if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant, or in the case of a restricted stock purchase award, the purchase price is at least one hundred percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than One Hundred Fifty Thousand (150,000) shares of the Companys common stock in any twelve (12)-month period. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with
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Section 4); (B) the issuance of all of the shares of common stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (D) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.
6 . |
OPTION PROVISIONS. |
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. In addition, to the extent required by applicable law, the par value of the stock will not be subject to any deferred payment arrangement and will be paid in cash at the time the Option is exercised.
(d) Transferability. Prior to the Listing Date, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. From and after the Listing Date, a Nonstatutory Stock Option may be transferable to the extent provided in the Option Agreement; provided, however,
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that if the Option Agreement does not specifically provide for transferability, then such Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable (vest) with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary, provided, however that prior to the Listing Date, each Option will provide for vesting of at least twenty percent (20%) per year of the total number of shares subject to the Option. Notwithstanding the foregoing, an Option granted to an Officer, Director or Consultant may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company or of any of its Affiliates. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Director or Consultant. In the event an Optionees Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionees death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionees Continuous Status as an Employee, Director or Consultant (or such longer or shorter period, which shall not be less than thirty (30) days, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement; provided however, if the Optionee is terminated for cause, then the Option shall terminate on the date Optionees Continuous Service ceases. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
An Optionees Option Agreement may also provide that if the exercise of the Option following the termination of the Optionees Continuous Status as an Employee, Director, or Consultant (other than upon the Optionees death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionees Option Agreement may also provide that if the exercise of
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the Option following the termination of the Optionees Continuous Status as an Employee, Director or Consultant (other than upon the Optionees death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionees Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements.
(g) Disability of Optionee. In the event an Optionees Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionees disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option Agreement after the termination of, the Optionees Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option as of the date of death) by the Optionees estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionees death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
(i) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate. Prior to the Listing Date, however, any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate; provided, however, that (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%)
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per year over five (5) years from the date the Option was granted, and (ii) such right shall be exercisable only within (A) the ninety (90)-day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding qualified small business stock)), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Notwithstanding the foregoing, shares received on exercise of an Option by an Officer, Director or Consultant may be subject to additional or greater restrictions.
(j) Right of Repurchase. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90)-day period following such post-termination exercise), or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding qualified small business stock)), (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionees consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the greater of (A) the stocks Fair Market Value at the time of such termination Notwithstanding the foregoing, shares received on exercise of an Option by an Officer, Director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.
(k) Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option.
7. |
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. |
Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such Stock Award Agreement, but in no event shall the purchase price be less than eighty-five percent (85%) of the stocks Fair Market Value on the date such award is made. In addition, any Stock Award made to a 10% stockholder (as defined in Section 5(b)) shall have a purchase price not less than one hundred and ten percent (110%) of the stocks Fair Market Value on the date such award is made. Notwithstanding the foregoing, the Board or the Committee may
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determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit.
(b) Transferability. Rights under a stock bonus or restricted stock purchase agreement shall be transferable by the grantee only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Board or the Committee shall determine in its discretion, so long as stock awarded under such Stock Award Agreement remains subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. The applicable agreement shall provide (i) that the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Stock Award was granted, and (ii) such right shall be exercisable only (A) within the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the holder of the Stock Award (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding qualified small business stock)), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stocks Fair Market Value if the original purchase price is less than the stocks Fair Market Value.
(e) Termination of Employment or Relationship as a Director or Consultant. In the event a Participants Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire, subject to the limitations described in subsection 7(d), any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person.
8. |
CANCELLATION AND RE-GRANT OF OPTIONS. |
(a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-
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five percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option) or, in the case of a 10% stockholder (as described in subsection 5(b)), not less than one hundred ten percent (110%) of the Fair Market Value) per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this Section 8, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b) shall be applicable only to the extent required by Section 162(m) of the Code.
9. |
COVENANTS OF THE COMPANY. |
(a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained.
10. |
USE OF PROCEEDS FROM STOCK. |
Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.
11. |
MISCELLANEOUS. |
(a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms.
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(c) Throughout the term of any Stock Award, the Company shall deliver to the holder of such Stock Award, not later than one hundred twenty (120) days after the close of each of the Companys fiscal years during the term of such Stock Award, a balance sheet and an income statement. This subsection shall not apply (i) after the Listing Date, or (ii) when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause the right of the Companys Board of Directors and/or the Companys stockholders to remove any Director as provided in the Companys By-Laws and the provisions of the California Corporations Code, or the right to terminate the relationship of any Consultant subject to the terms of such Consultants agreement with the Company or Affiliate.
(e) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
(f) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such persons knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such persons own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.
(g) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following
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12 |
means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company.
12. |
ADJUSTMENTS UPON CHANGES IN STOCK. |
(a) If any change is made in the stock subject to the Plan, or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person during any twelve (12) month period pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction not involving the receipt of consideration by the Company.)
(b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation; or (2) a reverse merger in which the Company is the surviving corporation but the shares of the Companys common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; then: (i) any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 12(b)) for those outstanding under the Plan, or (ii) in the event any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, (A) with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated prior to such event and the Stock Awards terminated if not exercised after such acceleration and at or prior to such event, and (B) with respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall be terminated if not exercised prior to such event. In the event of: (x) a dissolution or liquidation, or (y) a sale of all or substantially all of the assets of the Company, the outstanding Options shall terminate if not exercised prior to such event; unless, in the event of such a sale of all or substantially all of the assets of the Company, the acquiring person or entity agrees to assume the Options outstanding under the Plan.
13. |
AMENDMENT OF THE PLAN AND STOCK AWARDS. |
(a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder
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13 |
approval is necessary for the Plan to satisfy the requirements of Section 422 of the code, Rule 16b-3 under the Exchange Act or any Nasdaq or securities exchange listing requirements.§
(b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.
14. |
TERMINATION OR SUSPENSION OF THE PLAN. |
(a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on November 7, 2007, which date shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the person to whom the Stock Award was granted.
15. |
EFFECTIVE DATE OF PLAN. |
The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California.
[END OF DOCUMENT]
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CARDICA, INC.
1997 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice (Grant Notice) and this Stock Option Agreement, Cardica, Inc. (the Company) has granted you an option under its 1997 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.
3. EXERCISE PRIOR TO VESTING (EARLY EXERCISE). If permitted in your Grant Notice (i.e., the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Companys form of Early Exercise Stock Purchase Agreement; and
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(c) |
you shall enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred. |
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4. |
ISO EXERCISE LIMITATION. |
(a) The aggregate Fair Market Value of the shares of Common Stock with respect to which you may exercise your option for the first time during any calendar year, when added to the aggregate Fair Market Value of the shares of Common Stock subject to any other
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1. |
options designated as Incentive Stock Options and granted to you under any stock option plan of the Company or an Affiliate prior to the Date of Grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed $100,000 (the ISO Exercise Limitation) unless applicable law requires that your option be exercisable sooner. For purposes of this Section 4, your options designated as Incentive Stock Options shall be taken into account in the order in which they were granted to you, and the Fair Market Value of shares of Common Stock shall be determined as of the time the option with respect to such shares of Common Stock is granted. If Section 422 of the Code is amended to provide for a different limitation from that set forth in this provision, the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code.
5. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:
(a) In the Companys sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Companys reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock.
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(c) |
Pursuant to the following deferred payment alternative: |
(i) Not less than one hundred percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Companys election, upon termination of your Continuous Service.
(ii) Interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes.
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2. |
(iii) At any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you must tender to the Company a promissory note and a pledge agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request.
6. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
8. TERM. You may not exercise your option before the commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in Section 6, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous Service due to your Disability;
(c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;
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(d) |
the Expiration Date indicated in your Grant Notice; or |
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(e) |
the day before the tenth (10th) anniversary of the Date of Grant. |
If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the
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3. |
date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.
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9. |
EXERCISE. |
(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that your shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of a registration statement of the Company filed under the Securities Act (the Lock Up Period); provided, however , that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
10. TRANSFERABILITY. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the
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4. |
foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.
11. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Companys bylaws in effect at such time the Company elects to exercise its right; provided, however, that if your option is an Incentive Stock Option and the right of first refusal described in the Companys bylaws in effect at the time the Company elects to exercise its right is more beneficial to you than the right of first refusal described in the Companys bylaws on the Date of Grant, then the right of first refusal described in the Companys bylaws on the Date of Grant shall apply. The Companys right of first refusal shall expire on the Listing Date. For purposes of this Agreement, Listing Date shall mean the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or on the National Market System of the Nasdaq Stock Market (or any successor to that entity).
12. RIGHT OF REPURCHASE. To the extent provided in the Companys bylaws in effect at such time the Company elects to exercise its right, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option.
13. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
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14. |
WITHHOLDING OBLIGATIONS. |
(a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.
(b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). If the date of determination of any tax withholding obligation is deferred to a
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date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.
15. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
16. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
* * [NOTE: THIS IS THE END OF THE DOCUMENT] * *
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6. |
INCENTIVE STOCK OPTION
«Name», Optionee:
CARDICA, INC. (the Company), pursuant to its 1997 Equity Incentive Plan (the Plan), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company (Common Stock). This option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code).
The grant hereunder is in connection with and in furtherance of the Companys compensatory benefit plan for participation of the Companys employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Act). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan.
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The details of your option are as follows: |
1. Total Number Of Shares Subject To This Option. The total number of shares of Common Stock subject to this option is «WrittenOut" («Shares").
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2. |
Vesting. |
(a) Generally. Subject to the limitations contained herein, «FirstVestShares» of the shares will vest (become exercisable) on «FirstVestDate», and «MonthlyShares" of the shares will then vest each month thereafter until either (i) you cease to provide services to the Company for any reason, or (ii) this option becomes fully vested.
(b) Vesting on Certain Terminations Following A Change of Control. If termination of your status as an Employee is a Constructive Termination (as defined below) or is by your employer (other than for Cause (as defined below)) and such termination occurs at any time during the period one month prior to or thirteen months subsequent to a Change of Control (as defined below), then, in addition to the shares that are vested on the date of such Constructive Termination, there shall vest on such date a number of shares under this option equal to the lesser of (a) 25% of the total number of shares (vested and unvested) subject to this option or (b) 50% of the total number of the then unvested shares subject to this option.
(c) Definition of Terms. The following terms referred to above shall have the following meanings:
(i) Change of Control shall mean any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Companys voting power
immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions in which in excess of fifty percent (50%) of the Companys voting power is transferred.
(ii) Cause shall mean (A) a felony or any crime involving moral turpitude or dishonesty; (B) participation in a fraud, misappropriation, or embezzlement of funds or property or act of dishonesty against the Company and/or your employer; (C) material breach of your employers policies, provided your employer has given you written notification of the breach and has provided you with fifteen (15) days opportunity to cure the breach; (D) willful conduct or gross negligence which is materially injurious to the reputation, business or business relationships of the Company and/or your employer or results in material damage to the Companys and/or your employers property; (E) your breach of the Employee Proprietary Information and Inventions Agreement; or (F) conduct which in the good faith and reasonable determination of the Company and/or your employer demonstrates gross unfitness to serve.
(iii) Constructive Termination shall include any termination of status as an Employee by your employer other than for Cause or voluntary termination, upon 30 days prior written notice to your employer of (A) any change in your duties or responsibilities which result in a material diminution or material adverse change of your position, status or responsibilities of employment, but shall not include a mere change in title or reporting relationship; (B) reduction by your employer in your base salary by greater than ten percent (10%); (C) a relocation of your place of employment with your employer, to a location more than two hundred (200) miles from the location at which you performed duties as an Employee immediately prior to the Change of Control; (D) any material breach by your employer of any agreement between you and your employer concerning your employment; or (E) any failure by your employer to obtain the assumption of any material agreement, including the material provisions of any option grant, between you and your employer concerning your employment by any successor or assign of the Company (or related employer of same).
(d) If the acceleration of vesting of this stock option constitutes a parachute payment within the meaning of Section 280G (as it may be amended or replaced) of the Code and but for this provision, would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the Excise Tax), then your benefits payable in connection therewith shall be either:
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(i) |
delivered in full, or |
(ii) delivered to such lesser extent as results in none of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by you on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless you and the Company otherwise agree in writing, any determination required under this provision shall be made in writing in good faith by the outside accounting firm responsible for auditing the Companys financial records (the Accountants). For purposes of making the calculations required by this provision, the Accountants may make
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reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. You and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this provision. Any benefit that is payable in cash will be reduced first and the order in reduction of other benefits will be determined so as to provide the greatest reduction in the amount subject to the Excise Tax with the least reduction in the aggregate amount of the benefits. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this provision. You shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this provision, and the Company will not reimburse you for any such payments. The Accountants determination shall be final and binding upon the Company and you. Notwithstanding the foregoing, if as a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accountants, it is possible that benefits will be provided by the Company that should not have been made (Overpayment) or that an additional benefit will not have been provided by the Company that could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. If the Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against you or the Company, determine that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of you shall be treated for all purposes as a loan ab initio to you that you shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided however, that no such loan shall be deemed to have been made and no amount shall be payable by you to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which you are subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. If the Accountants, based upon controlling precedent or other substantial authority, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of you together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
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Exercise Price And Method Of Payment. |
(a) Exercise Price. The exercise price of this option is forty cents ($0.40) per share, being not less than the fair market value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including check) at the time of exercise;
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(ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Companys Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Companys reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
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Exercise Prior To Vesting Permitted. |
(a) Conditions of Early Exercise. Subject to the provisions of this option you may elect at any time during your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company, to exercise the option as to any part or all of the shares subject to this option at any time during the term hereof, including without limitation, a time prior to the date of earliest exercise (vesting) stated in paragraph 2 hereof; provided, however, that:
(i) a partial exercise of this option shall be deemed to cover first vested shares and then the earliest vesting installment of unvested shares;
(ii) any shares so purchased from installments which have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Early Exercise Stock Purchase Agreement attached hereto;
(iii) you shall enter into an Early Exercise Stock Purchase Agreement in the form attached hereto with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
(iv) the date of exercisability of any share(s) subject to this option under this paragraph 4 shall be delayed, if necessary ( i.e., because the aggregate fair market value of any shares subject to incentive stock options granted you by the Company or any Affiliate of the Company (valued as of their grant date) would otherwise become exercisable for the first time during any calendar year in an amount exceeding $100,000), until the earliest date permissible in order to preserve treatment under Section 421 of the Code of each share subject to this option.
(b) Expiration of Early Exercise Election. The election provided in this paragraph 4 to purchase shares upon the exercise of this option prior to the vesting dates shall cease upon termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company and may not be exercised after the date thereof.
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4 |
5. Whole Shares. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.
6. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.
7. Term. The term of this option commences on «GrantDate», the date of grant, and expires on «ExpirationDate» (the Expiration Date, which date shall be no more than ten (10) years from date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or Consultant is due to your disability. This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Status as an Employee, Director or Consultant. You should be aware that if your disability is not considered a permanent and total disability within the meaning of Section 422(c)(6) of the Code, and you exercise this option more than three (3) months following the date of your termination of employment, your exercise will be treated for tax purposes as the exercise of a nonstatutory stock option instead of an incentive stock option.
(b) Your termination of Continuous Status as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination of Continuous Status as an Employee, Director or Consultant for any other reason. This option will then expire on the earlier of the Expiration Date set forth above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you may not exercise your option solely because of the condition set forth in paragraph 6 above, then your option will not expire until the earlier of the Expiration Date set forth above or until this option shall have been exercisable for an aggregate period of three (3) months after your termination of Continuous Status as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3) months after termination of your Continuous Status as an Employee, Director or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934, then your option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company.
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5 |
However, this option may be exercised following termination of Continuous Status as an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an incentive stock option, the Code requires that at all times beginning on the date of grant of the option and ending on the day three (3) months before the date of the options exercise, you must be an employee of the Company or an Affiliate of the Company, except in the event of your death or permanent and total disability. The Company has provided for continued vesting or extended exercisability of your option under certain circumstances for your benefit, but cannot guarantee that your option will necessarily be treated as an incentive stock option if you provide services to the Company or an Affiliate of the Company as a consultant or exercise your option more than three (3) months after the date your employment with the Company and all Affiliates of the Company terminates.
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8. |
Exercise. |
(a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 11(f) of the Plan.
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(b) |
By exercising this option you agree that: |
(i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are
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6 |
consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period.
9. Transferability. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option.
10. Option Not a Service Contract. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this option shall obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company.
11. Notices. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.
12. Governing Plan Document. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control.
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Dated the «Day» day of «Month», «Year». |
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Very truly yours, |
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CARDICA,
INC.
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ATTACHMENTS:
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1997 Equity Incentive Plan |
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Notice of Exercise |
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7 |
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only:
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NONE |
________________ |
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(Initial) |
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OTHER |
______________________________ |
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______________________________ |
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______________________________ |
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_________________________________
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8 |
NONSTATUTORY STOCK OPTION
«Optionholder», Optionee:
CARDICA, INC. (the Company), pursuant to its 1997 Equity Incentive Plan (the Plan), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company (Common Stock). This option is not intended to qualify as and will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code).
The grant hereunder is in connection with and in furtherance of the Companys compensatory benefit plan for participation of the Companys employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Act). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan.
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The details of your option are as follows: |
1. Total Number of Shares Subject to this Option. The total number of shares of Common Stock subject to this option is «Written" («Shares").
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2. |
Vesting. |
(a) Generally. Subject to the limitations contained herein, «FirstVestShares" of the shares will vest (become exercisable) on «FirstVestDate», and «MonthlyShares" of the shares will then vest each month thereafter until either (i) you cease to provide services to the Company for any reason, or (ii) this option becomes fully vested.
(b) Vesting on Certain Terminations Following A Change of Control. If termination of your status as an Employee is a Constructive Termination (as defined below) or is by your employer (other than for Cause (as defined below)) and such termination occurs at any time during the period one month prior to or thirteen months subsequent to a Change of Control (as defined below), then, in addition to the shares that are vested on the date of such Constructive Termination, there shall vest on such date a number of shares under this option equal to the lesser of (a) 25% of the total number of shares (vested and unvested) subject to this option or (b) 50% of the total number of the then unvested shares subject to this option.
(c) Definition of Terms. The following terms referred to above shall have the following meanings:
(i) Change of Control shall mean any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Companys voting power
1
immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions in which in excess of fifty percent (50%) of the Companys voting power is transferred.
(ii) Cause shall mean (A) a felony or any crime involving moral turpitude or dishonesty; (B) participation in a fraud, misappropriation, or embezzlement of funds or property or act of dishonesty against the Company and/or your employer; (C) material breach of your employers policies, provided your employer has given you written notification of the breach and has provided you with fifteen (15) days opportunity to cure the breach; (D) willful conduct or gross negligence which is materially injurious to the reputation, business or business relationships of the Company and/or your employer or results in material damage to the Companys and/or your employers property; (E) your breach of the Employee Proprietary Information and Inventions Agreement; or (F) conduct which in the good faith and reasonable determination of the Company and/or your employer demonstrates gross unfitness to serve.
(iii) Constructive Termination shall include any termination of status as an Employee by your employer other than for Cause or voluntary termination, upon 30 days prior written notice to your employer of (A) any change in your duties or responsibilities which result in a material diminution or material adverse change of your position, status or responsibilities of employment, but shall not include a mere change in title or reporting relationship; (B) reduction by your employer in your base salary by greater than ten percent (10%); (C) a relocation of your place of employment with your employer, to a location more than two hundred (200) miles from the location at which you performed duties as an Employee immediately prior to the Change of Control; (D) any material breach by your employer of any agreement between you and your employer concerning your employment; or (E) any failure by your employer to obtain the assumption of any material agreement, including the material provisions of any option grant, between you and your employer concerning your employment by any successor or assign of the Company (or related employer of same).
(d) If the acceleration of vesting of this stock option constitutes a parachute payment within the meaning of Section 280G (as it may be amended or replaced) of the Code and but for this provision, would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the Excise Tax), then your benefits payable in connection therewith shall be either:
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(i) |
delivered in full, or |
(ii) delivered to such lesser extent as results in none of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by you on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless you and the Company otherwise agree in writing, any determination required under this provision shall be made in writing in good faith by the outside accounting firm responsible for auditing the Companys financial records (the Accountants). For purposes of making the calculations required by this provision, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on
2
reasonable, good faith interpretations concerning the application of the Code. You and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this provision. Any benefit that is payable in cash will be reduced first and the order in reduction of other benefits will be determined so as to provide the greatest reduction in the amount subject to the Excise Tax with the least reduction in the aggregate amount of the benefits. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this provision. You shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this provision, and the Company will not reimburse you for any such payments. The Accountants determination shall be final and binding upon the Company and you. Notwithstanding the foregoing, if as a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accountants, it is possible that benefits will be provided by the Company that should not have been made (Overpayment) or that an additional benefit will not have been provided by the Company that could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. If the Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against you or the Company, determine that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of you shall be treated for all purposes as a loan ab initio to you that you shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided however, that no such loan shall be deemed to have been made and no amount shall be payable by you to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which you are subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. If the Accountants, based upon controlling precedent or other substantial authority, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of you together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
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3. |
Exercise Price and Method of Payment. |
(a) Exercise Price. The exercise price of this option is forty cents ($0.40) per share, being not less than 85% of the fair market value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including check) at the time of exercise;
3
(ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Companys Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Companys reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
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4. |
Exercise Prior to Vesting Permitted. |
(a) Conditions of Early Exercise. Subject to the provisions of this option you may elect at any time during your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company, to exercise the option as to any part or all of the shares subject to this option at any time during the term hereof, including without limitation, a time prior to the date of earliest exercise (vesting) stated in paragraph 2 hereof; provided, however, that:
(i) a partial exercise of this option shall be deemed to cover first vested shares and then the earliest vesting installment of unvested shares;
(ii) any shares so purchased from installments which have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Early Exercise Stock Purchase Agreement to be provided; and
(iii) you shall enter into an Early Exercise Stock Purchase Agreement in the form to be provided with a vesting schedule that will result in the same vesting as if no early exercise had occurred.
(b) Expiration of Early Exercise Election. The election provided in this paragraph 4 to purchase shares upon the exercise of this option prior to the vesting dates shall cease upon termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company and may not be exercised after the date thereof.
5. Whole Shares. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.
4
6. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.
7. Term. The term of this option commences on «Grant», the date of grant and expires on «Expiry» (the Expiration Date, which date shall be no more than ten (10) years from the date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company for any reason or for no reason unless:
(a) such termination of Continuous Status as an Employee, Director or Consultant is due to your disability, in which event the option shall expire on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Status as an Employee, Director or Consultant; or
(b) such termination of Continuous Status as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination for any other reason, in which event the option shall expire on the earlier of the Expiration Date set forth above or eighteen (18) months after your death; or
(c) during any part of such three (3) month period the option is not exercisable solely because of the condition set forth in paragraph 6 above, in which event the option shall not expire until the earlier of the Expiration Date set forth above or until it shall have been exercisable for an aggregate period of three (3) months after the termination of Continuous Status as an Employee, Director or Consultant; or
(d) exercise of the option within three (3) months after termination of your Continuous Status as an Employee, Director or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934 (the Exchange Act), in which case the option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous Status as an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of paragraph 2 of this option.
5
8. Exercise.
(a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 11(f) of the Plan.
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(b) |
By exercising this option you agree that: |
(i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of: (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise. You also agree that any exercise of this option has not been completed and that the Company is under no obligation to issue any Common Stock to you until such an arrangement is established or the Companys tax withholding obligations are satisfied, as determined by the Company; and
(ii) the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period.
9. Transferability. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option.
10. Option Not a Service Contract. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this option shall obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers, or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company.
6
11. Notices. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.
12. Governing Plan Document. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control.
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Dated the «Day» day of «Month», «Year».
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Very truly yours, |
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CARDICA,
INC.
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ATTACHMENTS:
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1997 Equity Incentive Plan |
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|
Notice of Exercise |
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7
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only:
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NONE |
________________ |
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(Initial) |
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||
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OTHER |
______________________________ |
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______________________________ |
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______________________________ |
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_________________________________
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8
CARDICA, INC.
STOCK OPTION GRANT NOTICE
1997 EQUITY INCENTIVE PLAN
Cardica, Inc. (the Company), pursuant to its 1997 Equity Incentive Plan (the Plan), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.
Optionholder: |
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Date of Grant: |
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Vesting Commencement Date: |
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Number of Shares Subject to Option: |
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Exercise Price (Per Share): |
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Total Exercise Price: |
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Expiration Date: |
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Type of Grant: |
|_| Incentive Stock Option 1 |
|_| Nonstatutory Stock Option |
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Exercise Schedule : |
|_| Same as Vesting Schedule |
|_| Early Exercise Permitted |
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Vesting Schedule : |
1/4 th of the shares vest one year after the Vesting Commencement Date. |
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1/48 th of the shares vest monthly thereafter over the next three years. |
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Payment: |
By one or a combination of the following items (described in the Stock Option Agreement): |
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|_| |
By cash or check |
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Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:
CARDICA, INC. By: _______________________________ Signature Title: __ ____________________________ Date:__________________________________ |
OPTIONHOLDER:
___________________________________________
Date:_______________________________________ Address: _______________________________ ___________________________________________ ____________________________________________
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ATTACHMENTS : Stock Option Agreement, 1997 Equity Incentive Plan and Notice of Exercise
_________________________
1 If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.
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1. |
Attachment I
STOCK OPTION AGREEMENT
2.
Attachment II
Attachment III
NOTICE OF EXERCISE
CARDICA, INC.
STOCK OPTION GRANT NOTICE
1997
EQUITY INCENTIVE PLAN
WITH ACCELERATED VESTING
Cardica, Inc. (the Company), pursuant to its 1997 Equity Incentive Plan (the Plan), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.
Optionholder: |
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Date of Grant: |
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Vesting Commencement Date: |
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Number of Shares Subject to Option: |
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Exercise Price (Per Share): |
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Total Exercise Price: |
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Expiration Date: |
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Type of Grant: |
|_| Incentive Stock Option 1 |
|_| Nonstatutory Stock Option
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Exercise Schedule : |
|_| Same as Vesting Schedule |
|_| Early Exercise Permitted |
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Vesting Schedule : |
1/4 th of the shares vest one year after the Vesting Commencement Date. |
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1/48
th
of the shares vest monthly thereafter over the next three years.
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Payment: |
By one or a combination of the following items (described in the Stock Option Agreement): |
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|_| |
By cash or check |
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Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:
Acceleration of Vesting: |
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If your status as an employee is terminated and such termination is a Constructive Termination (as defined below) or is by your employer (other than for Cause (as defined below)) and provided further, that such termination occurs at any time during the period one month prior to or thirteen months subsequent to a Change of Control (as defined below), then, in addition to the shares that are vested on the date of such Constructive Termination, there shall vest on such date a number of shares under this option equal to the lesser of (a) 25% of the total number of shares (vested and unvested) subject to this option or (b) 50% of the total number of the then unvested shares subject to this option. |
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Definition of Terms. The following terms referred to above shall have the following meanings: |
_________________________
1 If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.
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1. |
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Change of Control shall mean any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Companys voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions in which in excess of fifty percent (50%) of the Companys voting power is transferred. |
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Cause shall mean (i) a felony or any crime involving moral turpitude or dishonesty; (ii) participation in a fraud, misappropriation, or embezzlement of funds or property or act of dishonesty against the Company; (iii) material breach of Companys policies, provided Company has given Optionholder written notification of the breach and has provided Optionholder with fifteen (15) days opportunity to cure the breach; (iv) willful conduct or gross negligence which is materially injurious to the reputation, business or business relationships of the Company or results in material damage to the Companys property; (v) Optionholders breach of the Employee Proprietary Information and Inventions Agreement; or (vi) conduct which in the good faith and reasonable determination of the Company demonstrates gross unfitness to serve. |
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Constructive Termination shall include any termination of status as an employee by Company other than for Cause or voluntary termination, upon 30 days prior written notice to Company of (a) any change in Optionholders duties or responsibilities which result in a material diminution or material adverse change of Optionholders position, status or responsibilities of employment, but shall not include a mere change in title or reporting relationship; (b) reduction by Company in Optionholders base salary by greater than ten percent (10%); (c) a relocation of Optionholders place of employment with Company, to a location more than two hundred (200) miles from the location at which Optionholder performed duties as an employee immediately prior to the Change of Control; (d) any material breach by Company of any agreement between Optionholder and Company concerning Optionholders employment; or (e) any failure by Company to obtain the assumption of any material agreement, including the material provisions of any option grant, between Optionholder and Company concerning Optionholders employment by any successor or assign of the Company (or related employer of same). |
Parachute Payments: If the acceleration of vesting of this stock option constitutes a parachute payment within the meaning of Section 280G (as it may be amended or replaced) of the Code and but for this provision, would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the Excise Tax), then Optionholders benefits payable in connection therewith shall be either:
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(a) |
delivered in full, or |
|
(b) |
delivered to such lesser extent as results in none of such benefits being subject to the Excise Tax, |
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Optionholder on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless Optionholder and the Company otherwise agree in writing, any determination required under this provision shall be made in writing in good faith by the outside accounting firm responsible for auditing the Companys financial records (the Accountants). For purposes of making the calculations required by this provision, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. Optionholder and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this provision. Any benefit that is payable in cash will be reduced first and the order in reduction of other benefits will be determined so as to provide the greatest reduction in the amount subject to the Excise Tax with the least reduction in the aggregate amount of the benefits. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this provision. Optionholder shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this provision, and the Company will not reimburse Optionholder for any such payments. The Accountants determination shall be final and binding upon the Company and Optionholder. Notwithstanding the foregoing, if as a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accountants, it is possible that benefits will be provided by the Company that should not have
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2. |
been made (Overpayment) or that an additional benefit will not have been provided by the Company that could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. If the Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against Optionholder or the Company, determine that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of Optionholder shall be treated for all purposes as a loan ab initio to Optionholder that Optionholder shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided however, that no such loan shall be deemed to have been made and no amount shall be payable by Optionholder to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which Optionholder is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. If the Accountants, based upon controlling precedent or other substantial authority, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of Optionholder together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
CARDICA, INC. By: _______________________________ Signature Title: __ ____________________________ Date:__________________________________ |
OPTIONHOLDER:
___________________________________________
Date:_______________________________________ Address: _______________________________ ___________________________________________ ____________________________________________
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ATTACHMENTS : Stock Option Agreement, 1997 Equity Incentive Plan and Notice of Exercise
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3. |
Attachment I
STOCK OPTION AGREEMENT
Attachment II
1997 EQUITY INCENTIVE PLAN
Attachment III
NOTICE OF EXERCISE
NOTICE OF EXERCISE
Cardica, Inc.
171 Jefferson Drive
Menlo Park, CA 94025
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Date of Exercise: _______________ |
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): |
Incentive o |
Nonstatutory o |
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o |
o |
Stock option dated: |
_______________ |
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o |
o |
Number of shares as
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_______________ |
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Certificates to be
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_______________ |
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|
o |
o |
Total exercise price: |
$______________ |
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o |
o |
Cash payment delivered
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$______________ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 1997 Equity Incentive Plan , (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the Shares), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act), and are deemed to constitute restricted securities under Rule 701 and control securities under Rule 144 promulgated under the Securities Act. I
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1. |
warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded ( i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Articles of Incorporation, Bylaws and/or applicable securities laws.
I further acknowledge that if the acceleration of vesting of this stock option constitutes a parachute payment within the meaning of Section 280G (as it may be amended or replaced) of the Code and but for this provision, would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the Excise Tax), then my benefits payable in connection therewith shall be either:
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(a) |
delivered in full, or |
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(b) |
delivered to such lesser extent as results in none of such benefits being subject to the Excise Tax, |
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by me on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless I and the Company otherwise agree in writing, any determination required under this provision shall be made in writing in good faith by the outside accounting firm responsible for auditing the Companys financial records (the Accountants). For purposes of making the calculations required by this provision, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. I and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this provision. Any benefit that is payable in cash will be reduced first and the order in reduction of other benefits will be determined so as to provide the greatest reduction in the amount subject to the Excise Tax with the least reduction in the aggregate amount of the benefits. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this provision. I shall be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under this provision, and the Company will not reimburse me for any such payments. The Accountants determination shall be final and binding upon the Company and me. Notwithstanding the foregoing, if as a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accountants, it is possible that benefits will be provided by the Company that should not have been made (Overpayment) or that an additional benefit will not have been provided by the Company that could have been made (Underpayment), in each case, consistent with the
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2. |
calculations required to be made hereunder. If the Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against me or the Company, determine that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of me shall be treated for all purposes as a loan ab initio to me that I shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided however, that no such loan shall be deemed to have been made and no amount shall be payable by me to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which I am subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. If the Accountants, based upon controlling precedent or other substantial authority, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of me together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
I further agree that, if required, the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that I not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by me, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to my shares of Common Stock until the end of such period.
Very truly yours,
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3. |
Exhibit 10.3
CARDICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
August 19, 2003
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TABLE OF CONTENTS |
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PAGE |
SECTION 1. |
GENERAL. |
1 |
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1.1 |
Definitions. |
1 |
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SECTION 2. |
REGISTRATION; RESTRICTIONS ON TRANSFER. |
3 |
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2.1 |
Restrictions on Transfer. |
3 |
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2.2 |
Demand Registration. |
4 |
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2.3 |
Piggyback Registrations. |
5 |
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2.4 |
Form S-3 Registration. |
7 |
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2.5 |
Expenses of Registration. |
8 |
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2.6 |
Obligations of the Company. |
8 |
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2.7 |
Termination of Registration Rights. |
9 |
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2.8 |
Delay of Registration; Furnishing Information. |
9 |
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2.9 |
Indemnification. |
10 |
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2.10 |
Assignment of Registration Rights. |
12 |
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2.11 |
Amendment of Registration Rights. |
12 |
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2.12 |
Limitation on Subsequent Registration Rights. |
12 |
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2.13 |
Market Stand-Off Agreement; Agreement to Furnish Information. |
12 |
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2.14 |
Rule 144 Reporting. |
13 |
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SECTION 3. |
COVENANTS OF THE COMPANY. |
14 |
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3.1 |
Basic Financial Information and Reporting. |
14 |
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3.2 |
Inspection Rights. |
14 |
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3.3 |
Confidentiality of Records. |
14 |
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3.4 |
Reservation of Common Stock. |
15 |
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3.5 |
Proprietary Information and Inventions Agreement. |
15 |
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3.6 |
Approval. |
15 |
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3.7 |
Notification and Negotiation of Material Transaction. |
15 |
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3.8 |
Termination of Covenants. |
16 |
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3.9 |
Visitation Rights. |
16 |
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SECTION 4. |
RIGHTS OF FIRST REFUSAL. |
17 |
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4.1 |
Subsequent Offerings. |
17 |
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4.2 |
Exercise of Rights. |
17 |
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i.
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TABLE OF CONTENTS |
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(CONTINUED) |
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PAGE |
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ii.
CARDICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the Agreement ) is entered into as of the 19 th day of August, 2003, by and among CARDICA, INC . , a Delaware corporation (the Company ) and the investors listed on EXHIBIT A hereto, referred to hereinafter as the Investors and each individually as an Investor .
RECITALS
WHEREAS, Guidant Investment Corporation is purchasing shares of the Companys Series E Preferred Stock (the Series E Stock ), pursuant to that certain Series E Preferred Stock Purchase Agreement (the Purchase Agreement ) of even date herewith (the Financing );
WHEREAS, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement;
WHEREAS, certain of the Investors (the Prior Investors ) are holders of the Companys Series A Preferred Stock (the Series A Stock ), Series B Preferred Stock (the Series B Stock ), Series C Preferred Stock (the Series C Stock ) and Series D Preferred Stock (the Series D Stock , and collectively with the Series A Stock, Series B Stock, Series C Stock, and the Series E Stock the Preferred Stock );
WHEREAS, the Company and the Prior Investors are parties to a Restated Investor Rights Agreement dated June 13, 2002, as amended on June 17, 2003 (the Prior Agreement );
WHEREAS, the parties to the Prior Agreement desire to amend and restate the Prior Agreement in its entirety and to accept the rights and covenants hereof in lieu of their rights and covenants under the Prior Agreement; and
WHEREAS, in connection with the consummation of the Financing, the Company and the Investors have agreed to the registration rights, information rights, and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises, representations, warrants, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings:
Exchange Act means the Securities Exchange Act of 1934, as amended.
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Form S-3 means such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
Holder means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof.
Initial Offering means the Companys first firm commitment underwritten public offering of its Common Stock registered under the Securities Act.
Note shall mean that certain subordinated convertible promissory note dated June 17, 2003, issued by the Company in favor of Century Medical, Inc., a Japan corporation, pursuant to that certain Subordinated Convertible Note Agreement dated June 17, 2003, which is convertible in certain circumstances into shares of the Companys Common Stock.
Register , registered , and registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.
Registrable Securities means (a) Common Stock of the Company issued or issuable upon conversion of the Shares; and (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities (i) sold by a person to the public either pursuant to a registration statement, (ii) sold in a private transaction in which the transferors rights under Section 2 of this Agreement are not assigned or (iii) held by a Holder (together with its affiliates) if, as reflected on the Companys list of stockholders, such Holder (together with its affiliates) holds less than 1% of the Companys outstanding Common Stock (treating all shares of Preferred Stock on an as converted basis), the Company has completed its Initial Offering and all shares of Common Stock of the Company issuable or issued upon conversion of the Shares held by and issuable to such Holder (and its affiliates) may be sold pursuant to Rule 144 during any ninety (90) day period. For the purposes of this Agreement, the term affiliate shall include, in the case of Guidant Investment Corporation ( Guidant ), The Guidant Foundation ( Foundation ) so long as Foundation is an accredited investor within the meaning such term is given in the Securities Act, as hereinafter defined.
Registrable Securities then outstanding shall be the number of shares determined by calculating the total number of shares of the Companys Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities.
Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company,
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2. |
reasonable fees and disbursements not to exceed ten thousand dollars ($10,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).
SEC or Commission means the Securities and Exchange Commission.
Securities Act shall mean the Securities Act of 1933, as amended.
Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale.
Shares shall mean (a) shares of the Companys Preferred Stock held by the Investors and their permitted assigns, and (b) shares of the Companys Common Stock issued or issuable upon conversion of the Note.
Special Registration Statement shall mean a registration statement relating to any employee benefit plan under Form S-8 or similar form or with respect to any corporate reorganization or other transaction under Rule 145 of the Securities Act.
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2.1 |
Restrictions on Transfer. |
(a) Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its shareholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (D) to the Holders family member or trust for the benefit of an individual Holder, or (E) any entity to any of its affiliates; provided that in each
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3. |
case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):
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, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
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(c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal.
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2.2 |
Demand Registration. |
(a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of a majority of the Registrable Securities (the Initiating Holders ) that the Company file a registration statement under the Securities Act covering the registration of at least a majority of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $5,000,000 (a Qualified Public Offering ) , then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable
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4. |
Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration pursuant to this Section 2.2:
(i) prior to the earlier of (A) July 15, 2006 or (B) six (6) months following the effective date of the registration statement pertaining to the Initial Offering;
(ii) after the Company has effected three (3) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective;
(iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective;
(iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Companys intention to make its Initial Offering within ninety (90) days;
(v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than twice in any twelve (12) month period; or
(vi) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below.
2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least twenty (20) days prior to the filing of any registration statement
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5. |
under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding Special Registration Statements) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall (i) reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, or (ii) reduce the amount of securities of the selling Holders included in the registration below twenty percent (20%) of the total amount of securities included in such registration, unless such offering is the Initial Offering, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than a majority of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single Holder, and any pro rata reduction with respect to such Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such Holder, as defined in this sentence.
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6. |
(b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof.
2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4:
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(i) |
if Form S-3 is not available for such offering by the Holders, or |
(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than one million dollars ($1,000,000), or
(iii) if within thirty (30) days of receipt of a written request from any Holder or Holders pursuant to this Section 2.4, the Company gives notice to such Holder or Holders of the Companys intention to make a public offering within ninety (90) days, other than pursuant to a Special Registration Statement;
(iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided , that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or
(v) if the Company has already received three demand registrations on Form S-3, or
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7. |
(vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively.
2.5 Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2 or Section 2.4, as applicable, in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration.
2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to thirty (30) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above.
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(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
(g) Use its reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.
2.7 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect three (3) years after the date of the Companys Initial Offering.
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2.8 |
Delay of Registration; Furnishing Information. |
(a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the
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9. |
Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities.
(c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of subsection 2.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Companys obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable.
2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a Violation ) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however , that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holders partners, directors or officers or any person who controls
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10. |
such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further , that in no event shall any indemnity under this Section 2.9 exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged
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11. |
untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided , that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.
2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or retired member, or an affiliate of a Holder, (b) is a Holders family member or trust for the benefit of an individual Holder, or (c) acquires at least fifty thousand (50,000) shares of Registrable Securities (as adjusted for stock splits and combinations); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement.
2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. Other than as provided in Section 5.11, after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights pari passu or senior to those granted to the Holders hereunder.
2.13 Market Stand-Off Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one
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12. |
hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided that:
(i) such agreement shall apply only to the Companys Initial Offering; and
(ii) all officers and directors of the Company and holders of at least five percent (5%) of the Companys voting securities enter into similar agreements.
Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by Section 2.13. The underwriters of the Companys stock are intended third party beneficiaries of Section 2.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
2.14 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.
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13. |
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3.1 |
Basic Financial Information and Reporting. |
(a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied.
(b) So long as a holder (together with its affiliates) shall own not less than two hundred fifty thousand (250,000) shares of Registrable Securities (as adjusted for stock splits, combinations and like) (a Major Investor ), the Company as soon as practicable after the end of such fiscal year and in any event within one hundred twenty (120) days furnish each Major Investor a balance sheet of the Company, a statement of income and a statement of cash flows of the Company, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Companys Board of Directors.
(c) The Company will furnish each Major Investor, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made.
3.2 Inspection Rights. Each Major Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3.
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14. |
3.4 Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion.
3.5 Proprietary Information and Inventions Agreement. The Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement in the form attached to the Purchase Agreement.
3.6 Approval. The Company shall not without the approval of a majority of the Board of Directors, with all non-interested Directors voting, authorize or enter into any transactions with any director or officer, or such directors or officers immediate family.
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3.7 |
Notification and Negotiation of Material Transaction. |
(a) Notification Obligations . In the event the Company receives from any person or entity (the Third Party ) a written indication (a Notice of Interest ) that such person or entity desires to enter into a transaction whereby (i) all or substantially all of the Companys distal or proximal anastomosis technology, which includes applications of such technology to cardiac bypass surgery, vascular surgery, neurosurgery and reconstructive surgery, is to be sold or any of the intellectual property related to the Companys distal or proximal anastomosis technology is to be sold, licensed or otherwise transferred, (ii) the Company is to be merged with or into another entity or all or substantially all of its assets are to be sold, or (iii) the Company will enter into a distribution agreement for the Companys products for the United States, Japan or any country in Europe (any of i, ii or iii shall hereinafter be referred to as a Material Transaction ), and the Company desires to continue discussions with such Third Party, then the Company shall provide to Guidant, within three (3) business days of receipt of the Notice of Interest or the Companys decision to pursue such Material Transaction, whichever is later, written notice (the Guidant Notification ) of receipt of the Notice of Interest and shall set forth in such Guidant Notification the nature of the Material Transaction set forth in the Notice of Interest. The Guidant Notification need not set forth the terms of such Material Transaction such as the identity of the Third Party, pricing and timing.
(b) Negotiation Right . Within ten (10) business days of the date on which the Guidant Notification was delivered to Guidant, Guidant shall provide the Company with written notice (the Guidant Interest Notice ) of Guidants intention to negotiate a Material Transaction (a Guidant Transaction ). In the event Guidant delivers the Guidant Interest Notice within the ten (10) day period, the Company and Guidant shall use reasonable best efforts to negotiate definitive documentation regarding such Guidant Transaction within twenty (20) business days following the Companys Receipt of the Guidant Interest Notice (the Guidant Negotiation Period ). During the Guidant Negotiation Period, the Company may simultaneously negotiate a Material Transaction with a Third Party. If a Guidant Transaction is not successfully negotiated and documented during the Guidant Negotiation Period, the Company may continue to pursue the Material Transaction with a Third Party.
(c) Time Frame . If the Company has not entered into a Material Transaction within one hundred eighty (180) days of the expiration of the Guidant Negotiation Period (such expiration to be deemed to occur upon the earlier of (x) the lapsing of the requisite number of
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15. |
days, or (y) the date on which Guidant waives such rights in writing), the Company shall not thereafter enter into such Material Transaction without first complying with the notice and negotiation rights provided Guidant in Sections 3.7(a) and 3.7(b) above.
(d) Termination and Waiver of Notification and Negotiation Rights. The rights of notification and negotiation established by this Section 3.7 shall terminate upon the earlier of (i) effective date of the registration statement pertaining to the Companys Initial Offering or (ii) a Material Transaction of the type described in Section 3.7(a)(ii) consummated in compliance with this Section 3.7. The notification and negotiation rights established by this Section 3.7 may be amended, or any provision waived, only with the written consent of the Company and Guidant.
(e) Transfer of Notification and Negotiation Rights. The rights provided Guidant pursuant to this Section 3.7 may not be transferred except that Guidant may assign the negotiation rights contemplated hereunder to an affiliate of Guidant with respect to a Material Transaction; provided, however, that in no event shall more than one (1) entity, whether Guidant or an affiliate of Guidant, be permitted to exercise the negotiation rights provided pursuant to this Section 3.7 with respect to any particular Material Transaction. For purposes of this Section 3.7(e), The Guidant Foundation shall not be deemed an affiliate.
3.8 Termination of Covenants. Except as otherwise set forth in Section 3.7 or 3.9 of this Agreement, all covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Investor upon the earlier of (a) the effective date of the registration statement pertaining to the Initial Offering, which results in the Preferred Stock being converted into Common Stock or (b) upon (i) the sale, lease or other disposition of all or substantially all of the assets of the Company or (ii) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Companys outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction, provided that this Section 3.8(b)(ii) shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company (a Change in Control ).
3.9 Visitation Rights. The Company shall allow one representative designated by the Guidant to attend all meetings of the Companys Board of Directors in a nonvoting capacity, and in connection therewith, the Company shall give such representative copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board of Directors; provided, however , that Guidant agrees to sign a confidentiality agreement in a form acceptable to the Company to maintain the confidentiality of such information, including, but not limited to, the intellectual property of the Company and restrictions on the use of such information, and shall cause the Guidant representative to comply with the terms and conditions thereof; and provided, further , that the Guidant representative shall abide by the Companys policies applicable to the Companys officers and directors; and provided, further , that the Company reserves the right to exclude such representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential information or for other similar reasons. The decision of the Board with respect to the privileged
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16. |
or confidential nature of such information shall be final and binding. These visitation rights shall terminate upon the earlier to occur of (a) a Change in Control, or (b) the Companys election to terminate these visitation rights following the sale or transfer by Guidant of Registrable Securities held by Guidant other than any transfers to any affiliate of Guidant.
4.1 Subsequent Offerings. Each Major Investor shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.6 hereof. Each Investors pro rata share is equal to the ratio of (a) the number of shares of the Companys Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) which such Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Companys outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants or options or other rights to acquire capital stock of the Company) immediately prior to the issuance of the Equity Securities. The term Equity Securities shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right.
4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Major Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Major Investor shall have fifteen (15) days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Major Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale.
4.3 Issuance of Equity Securities to Other Persons. If not all of the Major Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Major Investors who do so elect and shall offer such Major Investors the right to acquire such unsubscribed shares. The Major Investors shall have five (5) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Major Investors fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Major Investors rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Companys notice to the Major Investors pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Major Investors in the manner provided above.
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17. |
4.4 Termination and Waiver of Rights of First Refusal. The rights of first refusal established by this Section 4 shall not apply to the Companys Initial Offering, and shall terminate upon the earlier of (i) effective date of the registration statement pertaining to the Companys Initial Offering or (ii) a Change in Control. The rights of first refusal established by this Section 4 may be amended, or any provision waived with the written consent of Major Investors holding a majority of the Registrable Securities held by all Major Investors, or as permitted by Section 5.6.
4.5 Transfer of Rights of First Refusal. The rights of first refusal of each Major Investor under this Section 4 may be transferred to the same parties, subject to the same restrictions as any transfer of registration rights pursuant to Section 2.10.
4.6 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers, directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors;
(b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement; provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination;
(d) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company;
|
(e) |
shares of Common Stock issued upon conversion of the Shares; |
(f) any Equity Securities issued pursuant to any equipment leasing or loan arrangement, or debt financing from a bank or similar financial or lending institution approved by the Board of Directors;
(g) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act;
(h) any Equity Securities issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided that such strategic transactions and the issuance of shares therein, has been approved by the Companys Board of Directors; and
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18. |
(i) up to an aggregate of 100,000 shares of stock of the Company issued to any charitable organization described in Section 170(c) of the Internal Revenue Code.
5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.
5.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.
5.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however , that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price.
5.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.
5.5 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
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5.6 |
Amendment and Waiver. |
(a) Except as otherwise expressly provided in this Agreement, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided in this Agreement, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least a majority of the Registrable Securities.
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19. |
(c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Series E Stock pursuant to Section 2.3 of the Purchase Agreement as Investors , Holders and parties hereto.
(d) For the purposes of determining the number of Holder or Investors entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company.
5.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holders part of any breach, default or noncompliance under the Agreement or any waiver on such Holders part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative.
5.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto.
5.9 Attorneys Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
5.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
5.11 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue Equity Securities pursuant to and in accordance with Section 4.6(c), (f), or (h) hereof, then any purchaser or transferee of such shares of Preferred Stock or Equity Securities, as the case may be, may upon the approval of the Companys Board of Directors, become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an Investor hereunder.
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20. |
(a) Notwithstanding anything to the contrary contained herein, if the Company shall issue Equity Securities in accordance with Section 4.6 (c), (f) or (h) of this Agreement, upon the approval of the Companys Board of Directors, any purchaser of such Equity Securities may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an Investor hereunder.
5.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
5.13 Amendment of Prior Agreement. The Prior Agreement is hereby amended in its entirety as restated herein. Such amendment and restatement is effective upon the execution of this Agreement by the Company, the holders of a majority in interest of the Preferred Stock held by the Prior Investors outstanding as of the date of this Agreement. Upon such execution, all provisions of, rights granted and covenants made in the Prior Agreement are hereby waived, released and terminated in their entirety and shall have no further force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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21. |
IN WITNESS WHEREOF , the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY:
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INVESTORS:
GUIDANT INVESTMENT CORPORATION By: /s/ Ronald W. Dollens Print Name: Ronald W. Dollens Print Title: President |
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RESTATED INVESTOR RIGHTS AGREEMENT |
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SIGNATURE PAGE |
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IN WITNESS WHEREOF , the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
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INVESTORS: |
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ALLEN AND COMPANY INCORPORATED By: /s/ John Simon Print Name: John Simon Print Title: Manager Director |
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ALAD TECHNOLOGIES, N.V. By: Print Name: Print Title: |
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ROBERT AND RUTH HALPERIN TRUST
By:
/s/ Robert Halperin
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CENTURY MEDICAL, INC. By: Print Name: Print Title: |
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RESTATED INVESTOR RIGHTS AGREEMENT |
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SIGNATURE PAGE |
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IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
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INVESTORS: |
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SUTTER HILL VENTURES, A CALIFORNIA LIMITED PARTNERSHIP By: /s/ William H. Younger, Jr. Print Name: William H. Younger, Jr.
Print
Title:
Managing Director of the General
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SUTTER HILL ENTREPRENEURS FUND (AI), L.P. By: /s/ William H. Younger, Jr. Print Name: William H. Younger, Jr.
Print
Title:
Managing Director of the General
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SUTTER HILL ENTREPRENEURS FUND (QP), L.P. By: /s/ William H. Younger, Jr. Print Name: William H. Younger, Jr.
Print
Title:
Managing Director of the General
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
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IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
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INVESTORS: |
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THE ANDERSON LIVING TRUST, U/A/D 1/22/98 By: /s/ David L. Anderson Print Name: David L. Anderson Print Title: Trustee |
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ANVEST, L.P. By: /s/ David L. Anderson Print Name: David L. Anderson Print Title: General Partner |
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G. LEONARD BAKER, JR.
By:
/s/ David L. Anderson, under power
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JAMES C. GAITHER By: /s/ James C. Gaither |
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LYNNE M. BROWN By: /s/ Lynne M. Brown |
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RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
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IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
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INVESTORS: |
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THE JEFFREY W. BIRD AND CHRISTINA R. BIRD TRUST DATED 10/31/2000 By: /s/ Jeffrey W. Bird Print Name: Jeffrey W. Bird Print Title: Trustee |
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YIN FAMILY TRUST DATED MARCH 1, 1997 By: /s/ Robert Yin Print Name: Robert Yin Print Title: Trustee |
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THE YOUNGER LIVING TRUST, U/A/D 1/20/95 By: /s/ William H. Younger, Jr. Print Name: William H. Younger, Jr. Print Title: Trustee |
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THE COXE/OTUS REVOCABLE TRUST, U/A/D 4/23/98 By: /s/ Tench Coxe Print Name: Tench Coxe Print Title: Trustee |
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THE TAMERLANE CHARITABLE REMAINDER UNITRUST By: /s/ Tench Coxe Print Name: Tench Coxe Print Title: Trustee |
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RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
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IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
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INVESTORS: |
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WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO PATRICIA TOM ROLLOVER By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
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WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO SHERRYL W. HOSSACK By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
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WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO WILLIAM H. YOUNGER, JR. By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
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WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO JAMES N. WHITE (ROLLOVER) By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
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RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
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IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO DAVID S. SWEET (ROLLOVER) By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
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WELLS FARGO BANK, TRUSTEE SHV M/P/T FBO GREGORY P. SANDS By: /s/ Evan Hodgens/Roger Parodi Print Name: Evan Hodgens/Roger Parodi Print Title: Vice Presidents |
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
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IN WITNESS WHEREOF , the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first written above.
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INVESTORS: |
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/s/ Stephen A. Yencho
|
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|
|
SHEEHAN VENTURES
By: Timothy G. Sheehan
Print Title:
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|
SIPPL INVESTMENTS LLC
By: Roger Sippl
Print Title:
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
THE GEOFFREY O. HARTZLER REVOCABLE TRUST, DATED 01/08/97
By: Geoffrey O. Hartzler, Trustee
|
|
LARRY W. CROCKER
MARY K. CROCKER |
|
REDMOND VENTURES, A CALIFORNIA LIMITED PARTNERSHIP
By: Albert F. Knorp, Jr., General Partner
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
PHILIP W. HALPERIN
|
|
PEGGY ANNE HALPERIN DOW
|
|
JEFFREY WALTER
/s/ Jeffrey Walter |
|
ALICE B. JACK
|
|
RICHARD W. JACK
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
CARDIOVASCULAR MEDICINE AND CORONARY INTERVENTIONS 401K SAVINGS PLAN FBO DENNIS J. SHEEHAN, M.D.
By: Gregory C. Robertson
Print Title: |
|
BUNDY ASSOCIATES
By: FRED CARROLL, GENERAL PARTNER |
|
ROMEO A. PAVLIC TTEE INLAND CARDIORAPLOGY ASSOC
By: Romeo A. Pavlic, Trustee |
|
DENNIS J. SHEEHAN, M.D.
|
|
FRANK FISCHER
|
|
JOHN DE BENEDETTI
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
WILLIAM L. CLAUSON
|
|
THE DOW FAMILY TRUST
By: Stephen M. Dow, Trustee |
|
SHARON A. SHEEHAN
|
|
ATKINSON CHARITABLE LEAD TRUST
By: Sharon A. Sheehan, Trustee
|
|
KENNETH W. KIZER, M. D.
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
By:
Print Name:
Print Title:
|
|
KEVIN LARKIN
|
|
DAN R. LIGHTFOOT
|
|
VERNON F. LIGHTFOOT & DAN R. LIGHTFOOT M.DS., INC. MONEY PURCHASE PENSION FUND
By:
Name:
Title:
|
|
THE GLENN C. MYERS FAMILY TRUST DATED JANUARY 20, 1986
By: Glenn C. Myers, Trustee
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
|
|
MICHAEL B. SWEENEY
|
|
MARK MELTZER
|
|
ANNETTE CAMPBELL-WHITE
|
|
ROBERT MOMSEN LIVING TRUST
By: Robert Momsen, Trustee
|
|
GLYNN INVESTMENT CO. LLC
By: John W. Glynn Jr.
Print Title:
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
By: Steven P. Carroll, Co-Trustee
By: Jessica L. Carroll, Co-Trustee
|
|
SECURITY TRUST CO. FBO FRANK R. RUDERMAN IRA
By: Gene Luntz, Vice President
|
|
CHRISTOPHER J. DUNN, M. D.
|
|
GEORGE STEFANIK, M.D.
|
|
GARY BANG
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
ALLAN W. MAY IRREVOCABLE TRUST U/A DTD 05/04/91
By: Allan W. May
|
|
PAUL COGHLAN
|
|
DAVID P. KAUFMAN
|
|
J. MICHAEL EGAN
|
|
COOLEY GODWARD LLP
By: Richard Bradshaw, Executive Director
|
|
MARTIN C. SPAKE
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
|
|
ENCINAL PARTNERS, L.P.
By: Harry G. Whelan, Partner
|
|
KEMAJO FAMILY, L.P.
By: Harry G. Whelan
Print Title:
|
|
GARY GRATNY
|
|
WHELAN & GRATNY PROFIT SHARING PLAN
By: Harry G. Whelan
Print Title
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
By: David Levison, Trustee
|
|
MARIAH SHORES HALPERIN TRUST DATED DECEMBER 19, 1997
By: David Levison, Trustee
|
|
SARAH RUTH HALPERIN TRUST DATED DECEMBER 19, 1997
By: David Levison, Trustee |
|
STEFANOS DEMERTZIS
|
|
ROBERT Y. NEWELL
/s/ Robert Y. Newell |
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
VENTURE LENDING & LEASING II, INC.
By:
Print Name:
Print Title: |
|
By:
Print Name:
Print Title: |
|
By:
Print Name:
Print Title:
|
|
SBV INVESTMENTS, LLC
By: Brian Short, Managing Member
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
|
|
WARREN KOCMOND, JR.
|
|
TOWER SNOW, JR.
|
|
SHAUN DOHERTY
|
|
ROBERT L. LEWIS
|
|
MARK R. HALPERIN
By: /s/ Robert M. Halperin c/o Robert M. Halperin |
|
By: William Clauson, President & Trustee
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
||
|
SIGNATURE PAGE |
|
|
I N WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
|
INVESTORS: |
|
By: William Clauson, Trustee
|
|
|
|
|
|
RESTATED INVESTOR RIGHTS AGREEMENT |
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|
SIGNATURE PAGE |
|
|
EXHIBIT A
SCHEDULE OF INVESTORS
SHAREHOLDER NAME & ADDRESS |
Alad Technologies, N.V. Attn: Allen & Company Incorporated 711 Fifth Avenue New York, NY 10022 |
|
Allen & Company Incorporated 711 Fifth Avenue New York, NY 10022 |
|
Warren A. Ambrose Berkeley HeartLab, Inc 1875 South Grant Street, Suite 700 San Mateo, CA 94402 |
|
David L. Anderson, Trustee, The Anderson Living Trust, U/A/D 1/22/98 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Anvest, L.P. 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Robert Artemenko 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Atkinson Charitable Lead Trust 70 Ridgeview Drive Atherton, CA 94027 Attn: Sharon A. Sheehan |
|
G. Leonard Baker, Jr. 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 |
|
SCHEDULE OF INVESTORS |
|
Gary Bang 875-A Island Drive, #370 Alameda, CA 94502 |
|
The Jeffrey W. Bird and Christina R. Bird Trust Dated 10/31/2000 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: David Sweet |
|
Lynne M. Brown 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Bundy Associates 650 California Street, Suite 2530 San Francisco, CA 94108 Attn: Fred Carroll |
|
Annette Campbell-White 12985 Skyline Boulevard Oakland, CA 94619 |
|
Cardiovascular Medicine and Coronary Interventions 401k Savings Plan FBO Dennis J. Sheehan, M.D. 2900 Whipple Avenue, Suite 230 Redwood City, CA 94062 Attn: Bruce J. McAuley/Gregory C. Robertson |
|
Steven P. Carroll and Jessica L. Carroll, Trustees of the Steven P. Carroll and Jessica L. Carroll 1998 Trust, U/T/A dated June 5, 1998 Hambrecht & Quist, LLC One Bush Street San Francisco, CA 94014 |
|
Century Medical, Inc. 1-6-4, Osaki, Shinagawa-Ku Tokyo 141-8588, Japan |
|
William L. Clauson 47 Manzanita Road Atherton, CA 94027-2214 |
|
SCHEDULE OF INVESTORS |
William Clauson Family Trust 47 Manzanita Road Atherton, CA 94027-2214 Attn: William Clauson, Trustee |
|
Paul Coghlan Linear Technology, Inc. 1630 McCarthy Boulevard Milpitas, CA 95035 |
|
Cooley Godward LLP One Maritime Plaza, 20 th Floor San Francisco, CA 94111 Attn: Jim Kindler |
|
Tench Coxe, Trustee, The Coxe/Otus Revocable Trust, U/A/D 4/23/98 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Larry W. Crocker and Mary K. Crocker 5347 Richland Wood Drive Alton, IL 62002-6971 |
|
John de Benedetti 944 Market Street, Suite 203 San Francisco, CA 94102 |
|
Steven P. Carroll and Jessica L. Carroll 1998 Trust 40 Evergreen Dr. Kentfield, CA 94904 Attention: S.P. Carroll |
|
Steven Chu 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Day, Casebeer, Madrid & Batchelder LLP
20400
Stevens Creek Boulevard
|
|
SCHEDULE OF INVESTORS |
Stefanos Demertzis Via Massagno 9 CH-6900 Lugano SWITZERLAND |
|
Shaun Doherty ShoppingList.com 205 Town & Country Village Sunnyvale, CA 94086 |
|
The Dow Family Trust 80 Valley Court Atherton, CA 94027 Attn: Stephen M. Dow/Peggy Halperin Dow |
|
Peggy Anne Halperin Dow 80 Reservoir Road Atherton, CA 94027 |
|
Christopher J. Dunn, M. D. Pulmonary Medicine 2900 Whipple Avenue, Suite 115 Redwood City, CA 94062 |
|
Lawrence Ebringer 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
J. Michael Egan Bluebird Development 350 Second Street, Suite 8 Los Altos, CA 94022 |
|
Encinal Partners, L.P. Whelan & Gratny Capital Management 611 Santa Cruz Avenue Second Floor, Suite C Menlo Park, CA 94025 |
|
Encinal Crossover Fund 611 Santa Cruz Avenue Suite C Menlo Park, CA 94025 Attention: Gabe Whelan |
|
SCHEDULE OF INVESTORS |
Frank Fischer 86 Faxon Lane Atherton, CA 94027 |
Daniel Freifeld Visicon Inspection Technologies, LLC 870 Napa Valley Corporate Way, Suite H, Napa, CA 94558 |
|
James C. Gaither 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
James C. Gaither, custodian FBO Mark William Younger under CUTMA until age 21 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
James C. Gaither, custodian FBO Julie Ann Younger under CUTMA until age 21 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
James C. Gaither, custodian FBO Kelly Lauren Younger under CUTMA until age 21 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
GC&H Investments One Maritime Plaza, 20 th Floor San Francisco, CA 94111 Attn: Jim Kindler |
|
Glynn Investment Co., LLC Glynn Capital Management 3000 Sand Hill Road Building 4, Suite 235 Menlo Park, CA 94025 |
|
SCHEDULE OF INVESTORS |
Gary Gratny 611 Santa Cruz Avenue Second Floor, Suite C Menlo Park, CA 94025 |
|
Guidant Investment Corporation 3200 Lakeside Drive Santa Clara, CA 95054 |
|
Mariah Shores Halperin Trust dated December 19, 1997 c/o Philip W. Halperin 3653 Jackson St. Atherton, CA 94027 Attn: David L. Levison, Trustee |
|
Mark R. Halperin c/o Robert M. Halperin 80 Reservoir Road Atherton, CA 94027 |
|
Philip W. Halperin 80 Reservoir Road Atherton, CA 94027 |
|
Robert Joshua Halperin Trust dated December 19, 1997 c/o Philip W. Halperin 3653 Jackson St. Atherton, CA 94027 Attn: David L. Levison, Trustee |
|
Robert M. Halperin 80 Reservoir Road Atherton, CA 94027 |
|
The
Robert and Ruth Halperin Trust
Attn: Robert M. Halperin, Trustee |
|
Sarah Ruth
Halperin Trust dated December 19, 1997
c/o Philip W. Halperin 3653 Jackson St. Atherton, CA 94027 Attn: David L. Levison, Trustee |
|
SCHEDULE OF INVESTORS |
Geoffrey O. Hartzler, Trustee of the Geoffrey O. Hartzler Revocable Trust, dated 01/08/97 2600 Verona Road Mission Hills, KS 66208 |
|
Alice B. Jack and Richard W. Jack 1049 San Raymundo Hillsborough, CA 94010 |
|
David P. Kaufman Berkeley HeartLab, Inc. 1875 South Grant Street, Suite 700 San Mateo, CA 94402 |
|
Kemajo Family, L.P. Whelan & Gratny Capital Management 611 Santa Cruz Avenue Second Floor, Suite C Menlo Park, CA 94025 |
|
Kenneth W. Kizer, M. D. 207 C Street, SE Washington, D.C. 2003 |
|
Warren Kocmond, Jr. 1545 Arbor Avenue Los Altos, CA 94024 |
|
James LaPlante 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Michele Y. Phua |
|
Kevin Larkin 9 Shasta Lane Menlo Park, CA 94025 |
|
Robert L. Lewis 1553 Arbor Avenue Los Altos, CA 94024 |
Dan
R. Lightfoot
5421 Wilshire Drive Santa Rosa, CA 95404 |
|
SCHEDULE OF INVESTORS |
|
Vernon F. Lightfoot & Dan R. Lightfoot M.D.s., Inc. Money Purchase Pensinon Fund 5421 Wilshire Drive Santa Rosa, CA 95404 |
|
Allan W. May Irrevocable Trust U/A DTD 05/04/91 Intella Interventional, Inc. 870 Hermosa Drive Sunnyvale, CA 94086 |
|
Mark Meltzer 228 Byron Palo Alto, CA 94301 |
|
Robert Momsen Living Trust 3000 Sand Hill Road Building 3, Suite 225 Menlo Park, CA 94025 |
|
The Glenn C. Myers Family Trust dated January 20, 1986 1422 El Camino Real Menlo Park, CA 94025 |
|
Robert Y. Newell 950 La Mesa Drive Portola Valley, CA 94028 |
|
Philip E. Oyer, M.D. 15975 Skyline Boulevard Woodside, CA 94062 |
|
Romeo A. Pavlic, TTEE INLAND CARDIOLOGY ASSOC. 3839 South Trainor Road Spokane WA 99224 |
|
Redmond Ventures, a California limited partnership 499 Seaport Court, Suite 302 Redwood City, CA 94063 Attn: Albert F. Knorp, Jr. |
Gregory
P. and Sarah J.D. Sands, Trustees, The Gregory P. and Sarah J.D. Sands Trust
Agreement dated 2/24/99
755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 |
|
SCHEDULE OF INVESTORS |
|
Donald J. Santel 345 Sheridan Avenue, #212 Palo Alto, CA 94306 |
|
Saunders Holdings, L.P. 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 |
|
SBV Investments, LLC 1612 Duvall Dr. San Jose, CA 95130 Attn: Brian Short, Managing Member |
|
Security Trust Co. FBO Frank R. Ruderman IRA 1875 South Grant Street, Suite 700 San Mateo, CA 94402 |
|
Dennis J. Sheehan, M.D. 70 Ridgeview Drive Atherton, CA 94027 |
|
Sharon A. Sheehan 70 Ridgeview Drive Atherton, CA 94027 |
|
Sheehan Ventures 10 Deep Well Lane Los Altos, CA Attn: Timothy G. Sheehan |
|
Sippl Investments LLC 1422 El Camino Real Menlo Park, CA 94025 Attn: Glenn C. Myers |
|
Tower
Snow, Jr.
Brobeck Phleger & Harrison, LLP Spear Street Tower One Market San Francisco, CA 94105 |
Martin
C. Spake
23 E. Green Gables Circle The Woodlands, TX 77382 |
|
SCHEDULE OF INVESTORS |
|
Leland Stanford Junior University Stanford Management Co. 2770 Sand Hill Road Menlo Park, CA 94025 Attn: Gift Administrator, Stanford Management Co. On Behalf of the Board of Trustees Of the Leland Stanford Junior University |
|
George Stefanik, M.D. P.O. Box 5009 San Pedro, CA 90733 |
|
Sunshine Anesthesia Pension Profit Sharing Plan 47 Manzanita Road Atherton, CA 94027-2214 Attn: William Clauson, President & Trustee |
|
Sutter Hill Entrepreneurs Fund (AI), L.P. 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Dave Sweet |
|
Sutter Hill Entrepreneurs Fund (QP), L.P. 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Dave Sweet |
|
Sutter Hill Ventures, A California Limited Partnership 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 Attn: Dave Sweet |
|
Michael
B. Sweeney
1484 Hamilton Avenue Palo Alto, CA 94301 |
Tamerlane
Charitable Remainder Unitrust, Tench Coxe, Trustee
|
|
SCHEDULE OF INVESTORS |
|
Venture Lending & Leasing II, Inc 2010 North First Street, Suite 310 San Jose, CA 85131 Attn: Ronald Swenson |
|
Venture Lending & Leasing III, LLC 2010 North First Street, Suite 310 San Jose, CA 85131 Attn: Ronald Swenson |
|
Jeffrey Walter 34000 E. Carmel Valley Road Carmel Valley, CA 93924 |
|
Wells Fargo Bank, Trustee, SHV M/P/T FBO Sherryl W. Hossack l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
|
Wells Fargo Bank, Trustee, SHV M/P/T FBO Michele Y. Phua l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
|
Wells Fargo Bank, Trustee, SHV M/P/T FBO Lynne M. Brown l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
|
Wells Fargo Bank, Trustee, SHV M/P/T FBO Patricia Tom l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
|
Wells
Fargo Bank, Trustee, SHV M/P/T FBO William H. Younger, Jr.
l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
Wells
Fargo Bank, Trustee, SHV M/P/T FBO Gregory P. Sands
l420 Montgomery Street, 2nd Floor San Francisco, CA 94104 Attention: Vicki Bandel |
|
SCHEDULE OF INVESTORS |
|
H. Gabe Whelan Whelan & Gratny Capital Management 611 Santa Cruz Avenue Second Floor, Suite C Menlo Park, CA 94025 |
|
Whelan & Gratny Profit Sharing Plan 611 Santa Cruz Avenue Second Floor, Suite C Menlo Park, CA 94025 |
|
James N. White and Patricia A. OBrien as trustee of the White Family Trust Dated 4/3/97 |
|
Stephen A. Yencho, Ph.D. Vascular Innovations, Inc. 81 Encina Avenue Palo Alto, CA 94301 |
|
William H. Younger, Jr., Trustee of the Younger Living Trust 755 Page Mill Road, Suite A-200 Palo Alto, CA 94304-1005 |
|
William H. Younger, Jr. Trustee, The Younger Living Trust, U/A/D 1/20/95 755 Page Mill Road Suite A-200 Palo Alto, CA 94304-1005 |
|
SCHEDULE OF INVESTORS |
Exhibit 10.5
SEAPORT CENTRE
SEAPORT CENTRE WEST
900 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA
OFFICE LEASE AGREEMENT
BETWEEN
CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware Limited Partnership
("LANDLORD")
AND
CARDICA, INC., a Delaware Corporation
("TENANT")
TABLE OF CONTENTS
PAGE
I. |
BASIC LEASE INFORMATION |
1 |
|
II. |
LEASE GRANT |
5 |
|
III. |
POSSESSION OF THE PREMISES AND RENT COMMENCEMENT |
6 |
|
IV. |
RENT |
7 |
|
V. |
COMPLIANCE WITH LAWS; USE |
14 |
|
VI. |
SECURITY DEPOSIT |
15 |
|
VII. |
SERVICES |
17 |
|
VIII. |
LEASEHOLD IMPROVEMENTS |
18 |
|
IX. |
REPAIRS, MAINTENANCE AND ALTERATIONS |
19 |
|
X. |
USE OF UTILITY SERVICES BY TENANT |
21 |
|
XI. |
ENTRY BY LANDLORD |
22 |
|
XII. |
ASSIGNMENT AND SUBLETTING |
22 |
|
XIII. |
LIENS |
25 |
|
XIV. |
INDEMNITY AND WAIVER OF CLAIMS |
26 |
|
XV. |
INSURANCE |
27 |
|
XVI. |
SUBROGATION |
27 |
|
XVII. |
CASUALTY DAMAGE |
27 |
|
XVIII. |
CONDEMNATION |
29 |
|
XIX. |
EVENTS OF DEFAULT |
30 |
|
XX. |
REMEDIES |
30 |
|
XXI. |
LIMITATION OF LIABILITY |
32 |
|
XXII. |
NO WAIVER |
33 |
|
XXIII. |
QUIET ENJOYMENT |
33 |
|
XXIV. |
RELOCATION. [INTENTIONALLY OMITTED] |
33 |
|
XXV. |
HOLDING OVER |
33 |
|
XXVI. |
SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE |
33 |
|
XXVII. |
ATTORNEYS' FEES |
34 |
|
XXIX. |
EXCEPTED RIGHTS |
35 |
|
XXX. |
SURRENDER OF PREMISES |
35 |
|
XXXI. |
MISCELLANEOUS |
35 |
|
XXXII. |
ENTIRE AGREEMENT |
39 |
|
|
-i- |
|
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (the Lease) is made and entered into as of the 25th day of April, 2003, by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant).
I. |
Basic Lease Information. |
|
A. |
Building shall mean the building located at 900 Saginaw Drive, Redwood City, California, and commonly known as 900 Saginaw Drive. |
|
B. |
Buildings of the Campus shall mean the buildings in Redwood City, California, located at 300 Saginaw Drive, 400 Saginaw Drive, 500 Saginaw Drive, 600 Saginaw Drive, 700 Saginaw Drive, 800 Saginaw Drive and 900 Saginaw Drive. Notwithstanding the foregoing, Landlord and Tenant agree that the definition of Buildings of the Campus may change from time to time in the event Landlord elects to add or remove buildings as more fully described in Section below, in which case Tenants Pro Rata Share shall be adjusted as provided in Section I.F below. |
|
C. |
Rentable Square Footage of the Campus is deemed to be 287,399 square feet. The Rentable Square Footage of the Campus is determined by combining the total building square footages of the Buildings of the Campus. |
|
D. |
Premises shall mean the area shown on Exhibit A-1 to this Lease. The Premises are located on the first (1 st ) and second (2 nd) floors of the Building and known as suite numbers 100 and 200. The Rentable Square Footage of the Premises is deemed to be 31,062 square feet, consisting of 20,708 square feet on the first (1 st ) floor and known as Suite 100, as more particularly shown on Exhibit A-1 (the First Floor Premises), and 10,354 square feet on the second (2 nd ) floor and known as Suite 200, as more particularly shown on Exhibit A-1 (the Second Floor Premises). If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises, Landlord and Tenant stipulate and agree that the Rentable Square Footage of the Building and the Rentable Square Footage of the Premises are correct and shall not be remeasured. Notwithstanding any limitations on payments of Base Rent for certain portions of the Premises during certain periods of the Term or adjustments to Tenants Pro Rata Share as set forth herein, the Premises for all other purposes hereunder shall mean the entire Premises effective as of the Delivery Date. |
|
E. |
Base Rent: |
Prior to the Second Floor Rent Commencement Date (as defined in Section III.B below), Base Rent shall be calculated on the First Floor Premises only, as follows:
1.
Months of Term |
Annual Rate
|
Annual
|
Monthly
|
Months 1 6 |
$9.99 |
$206,872.92 |
$17,239.41 |
Months 7 24 |
$13.80 |
$285,770.40 |
$23,814.20 |
|
|
|
|
Notwithstanding anything in this Section of the Lease to the contrary, so long as Tenant is not in default under this Lease, Tenant shall be entitled to an abatement of Base Rent in the amount of $17,239.41 per month for 3 consecutive full calendar months of the Term, beginning with the first full calendar month of the Term (the Base Rent Abatement Period), in which case the first months rent payable pursuant to Section IV.A below shall be applied instead to the first month following the Base Rent Abatement Period. The total amount of Base Rent abated during the Base Rent Abatement Period shall equal $51,718.23 (the Abated Base Rent). If Tenant defaults at any time during the Term and fails to cure such default within any applicable cure period under the Lease, all unamortized Abated Base Rent (i.e. based upon the amortization of the Abated Base Rent in equal monthly amounts during the initial Term, without interest) shall immediately become due and payable. The payment by Tenant of the Abated Base Rent in the event of a default shall not limit or affect any of Landlords other rights, pursuant to this Lease or at law or in equity, During the Base Rent Abatement Period, only Base Rent shall be abated, and all Additional Rent and other costs and charges specified in this Lease shall remain as due and payable pursuant to the provisions of this Lease.
Following the Second Floor Rent Commencement Date (as defined in Section III.B below), Base Rent shall be calculated on the entire Premises, as follows:
Months of Term |
Annual Rate
|
Annual
|
Monthly
|
Months 25 36 |
$15.00 |
$465,930.00 |
$38,827.50 |
Months 37 48 |
$15.60 |
$484,567.20 |
$40,380.60 |
Months 49 60 |
$16.20 |
$503,204.40 |
$41,933.70 |
|
|
|
|
|
F. |
Tenants Pro Rata Share for the Premises (1) for the first six months following the Commencement Date is 5.2192% , (2) for the period commencing on the six month anniversary of the Commencement Date through the day immediately prior to the first day of the twenty-fifth month following the Commencement Date is 7.2053% , and for the period commencing on the first day of the twenty-fifth month following the Commencement Date through the remainder of the Term is 10.8080% . Notwithstanding the foregoing, the parties acknowledge and agree that in the event of Early Occupancy (as defined in Section III.C) of any portion of the Second Floor Premises prior to the Second Floor Rent Commencement Date, Tenants Pro Rata Share shall be immediately increased by 0.6959% (in addition to the 5.2192% or 7.2053% set forth above, as applicable), regardless of the number of Rentable Square Feet of the Second Floor Premises that are actually subject to such Early Occupancy, effective as of the first day of such Early Occupancy until the Second Floor Rent Commencement Date, at which time Tenants entire Pro Rata Share shall be 10.8080% as set forth above. For example, in the event of Early Occupancy of a portion of the Second Floor |
2.
Premises on the date that is 3 months after the Commencement Date, then Tenants Pro Rata Share shall be 5.9151% for the 4 th through 6 th months after the Commencement Date, 7.9012% for the 7 th through 23 rd month after the Commencement Date, and 10.8080% as of the Second Floor Rent Commencement Date. The parties further acknowledge and agree that notwithstanding the foregoing, in the event of Early Occupancy of the entire Second Floor Premises prior to the Second Floor Rent Commencement Date, Tenants Pro Rata Share shall be immediately increased to 10.8080% for the remainder of the Term, effective upon the first day of such Early Occupancy of the entire Second Floor Premises. In no event shall any increase in Tenants Pro Rata Share as set forth in this Section I.F affect the Base Rent amounts set forth in Section I.E. above.
Except as expressly modified above in the event of Early Occupancy and for the first six months following the Commencement Date, Tenants Pro Rata Share is the sum derived by dividing the Rentable Square Footage of the Premises then subject to Base Rent by the Rentable Square Footage of the Campus and multiplying the resulting quotient by 100. However, notwithstanding the foregoing, if one or more buildings are removed from the group of the Buildings of the Campus, whether as a result of a sale or demolition of the building(s) or otherwise, or if one or more buildings owned by Landlord, now or in the future, are added to the Buildings of the Campus, then the definition of the Rentable Square Footage of the Campus, and Tenants Pro Rata Share with respect to the Premises, shall be appropriately modified or adjusted to reflect the deletion or addition of such buildings.
Tenants Monthly Expense and Tax Payment is $8,700.00 , which is Tenants initial Pro Rata Share of the monthly estimated Expenses and monthly estimated Taxes for the Premises for the first six months of the Term (as described above), which is subject to adjustment in connection with increases in Tenants Pro Rata Share as described herein (Landlords current estimate of the amount of any such adjustment is the equivalent of $0.58 per Rentable Square Foot of the Premises). The foregoing amount is based upon a 95% occupancy rate for the Building, as described in Section IV below.
|
G. |
Term: A period of 60 months. The Term shall commence on the date (the Commencement Date) that is 120 days after the Delivery Date (as defined in Section III.A below) and, unless terminated early in accordance with this Lease, end on the date that is 60 months after the Commencement Date (the Termination Date). Notwithstanding the foregoing, if the Termination Date, as determined herein, does not occur on the last day of a calendar month, the Term shall be deemed automatically extended by the number of days necessary to cause the Termination Date to occur on the last day of the last calendar month of the Term. Tenant shall pay Base Rent and Additional Rent for such additional days at the same rate payable for the portion of the last calendar month immediately preceding such extension. At Landlords option, promptly after the determination of the Commencement Date, Landlord and Tenant shall enter into a letter agreement confirming the applicable dates substantially in the form attached as Exhibit C . |
3.
|
H. |
Tenant allowance(s): $621,240.00, as more particularly described in the Work Letter attached as Exhibit D hereto (the Work Letter). |
|
I. |
Security Deposit: $500,000.00, in the form of a Letter of Credit as more particularly described in Article VI. |
|
J. |
Guarantor(s): As of the date of this Lease, there are no Guarantors. |
|
K. |
Broker(s): Cornish & Carey Commercial. |
|
L. |
Permitted Use: General office use, research and development and manufacturing of medical devices, all as permitted by law. |
|
M. |
Notice Addresses: |
Tenant:
On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address:
Cardica, Inc.
171 Jefferson Drive
Menlo Park, California 94025
Attn: Mr. James Zuegel
|
Landlord: |
With a copy to: |
|
||||
|
CA-Seaport Centre Limited |
Equity Office Properties Trust |
|
||||
|
Partnership |
Two North Riverside Plaza |
|
||||
|
c/o Equity Office Properties Trust |
Suite 2100 |
|
||||
|
725 Saginaw Drive |
Chicago, Illinois 60606 |
|
||||
|
Redwood City, California 94063 |
Attention: Regional Counsel San Francisco Region |
|||||
Attention: Property Manager
|
N. |
Business Day(s) are Monday through Friday of each week, exclusive of New Years Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (Holidays). Landlord may designate additional Holidays, provided that the additional Holidays are commonly recognized by other office buildings in the area where the Building is located. |
|
O. |
[intentionally Omitted] |
|
P. |
Law(s) means all applicable statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity. |
|
Q. |
[Intentionally Omitted]. |
|
R. |
Property means the Building and the parcel(s) of land on which it is located and the landscaping, the parking facilities and all other improvements owned by Landlord and serving the Building and the tenants thereof and the parcel(s) of land on which they are located. |
4.
|
S. |
Campus means that certain office project commonly known as Seaport Centre West located on the parcel(s) of real estate outlined on Exhibit A-2 attached hereto and incorporated herein, which currently includes the buildings located at 300 Saginaw Drive, 400 Saginaw Drive, 500 Saginaw Drive, 600 Saginaw Drive, 700 Saginaw Drive, 800 Saginaw Drive and 900 Saginaw Drive, the Property and the Exterior Common Areas (defined below), and, at Landlords option, the parking facilities serving the Campus, all of which are located in the City of Redwood City, County of San Mateo, State of California. Notwithstanding the foregoing, Landlord and Tenant agree that the definition of the Campus may change from time to time in the event Landlord elects to add or remove buildings or parcels of land to or from the Campus. In such event, the definition of Campus shall be deemed to be amended without any further action of the parties herein to reflect such addition or deletion of building(s) or parcels of land to or from the Campus, and Tenants Pro Rata Share shall be adjusted as provided in Section l.F above. |
|
T. |
Exterior Common Areas mean those areas of the Campus and/or the Property which are not located within the Building or any other building and which are provided and maintained for the use and benefit of Landlord and tenants of the Building and/or the Campus generally and the employees, invitees and licensees of Landlord and such tenants, including, without limitation, any parking garage, artificial lakes, walkways, plaza, roads, driveways, sidewalks, surface parking and landscapes (if any). |
|
U. |
Project means those certain office and/or retail campuses which collectively are commonly known as Seaport Centre located on the parcel(s) of real estate outlined on Exhibit A-3 attached hereto and incorporated herein, which currently includes the campuses commonly known as Seaport Centre East, Seaport Centre West and the MetLife Campus, and the Project Common Areas (defined below), and, at Landlords option, the parking facilities serving the Project, all of which are located in the City of Redwood City, County of San Mateo, State of California. Notwithstanding the foregoing, Landlord and Tenant agree that the definition of the Project may change from time to time in the event Landlord elects to add or remove buildings, campuses or parcels of land to or from the Project. In such event, the definition of Project shall be deemed to be amended without any further action of the parties herein to reflect such addition or deletion of building(s), campuses or parcels of land to or from the Project. |
|
V. |
Project Common Areas mean those areas of the Project which are not located within the Campus or any other campus and which are provided and maintained for the use and benefit of landlords and tenants of the Project and/or the Campus generally and the employees, invitees and licensees of the landlords and such tenants, including, without limitation, any island entries to the Project. |
II. |
Lease Grant. |
Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, together with the right in common with others to use any portions of the Property that are reasonably designated by Landlord for the common use of tenants and others, such as sidewalks, unreserved parking areas, common corridors, elevator foyers, restrooms, vending areas and lobby areas (the Common Areas). Tenant also shall have the right to use the
5.
Dish/Antenna and Generator during the Term of the Lease, but only to the extent provided in and expressly subject to the conditions set forth in Sections VI and VII of Exhibit E .
III. |
Possession of the Premises and Rent Commencement. |
|
A. |
Tenant shall have the right to take possession of the Premises for purposes of performing the Initial Alterations, as described in the Work Letter, and, with respect to the First Floor Premises (and with respect to the Second Floor Premises subject to the provisions of Section III.C below), for performing business operations, on the date immediately following the date of full and final execution and delivery of this Lease and delivery of all prepaid rental and Security Deposits required hereunder (the Delivery Date). In the event that the Delivery Date has not occurred on or before May 1, 2003, Tenant shall have the right to terminate this Lease upon written notice to Landlord delivered no later than May 6, 2003, in which event all sums previously paid by Tenant hereunder shall be promptly returned to Tenant and neither party shall have any further liability hereunder. Such possession after the Delivery Date and prior to the Commencement Date shall be subject to all of the terms and conditions of the Lease, except that Tenant shall not be required to pay Base Rent or Additional Rent with respect to the period of time prior to the Commencement Date during which Tenant occupies the Premises for such purposes. Upon Landlords request following the Delivery Date, Tenant shall promptly execute and return to Landlord a Delivery Letter in substantially the form of the Commencement Letter attached as Exhibit C hereto, in which Tenant shall agree to acceptance of the Premises and to the determination of the Delivery Date, in accordance with the terms of this Lease, but Tenants failure or refusal to do so shall not negate Tenants acceptance of the Premises or affect determination of the Delivery Date. |
|
B. |
Subject to Landlords obligations under Article V and Section IX.B. and to construct the Demising Wall as set forth in Section III.C below, the Premises are accepted by Tenant in as is condition and configuration. By taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition, and that there are no representations or warranties by Landlord regarding the condition of the Premises, the Building, the Campus or the Project. Notwithstanding the foregoing, except to the extent caused by Tenant or any Tenant Related Party, as of the Delivery Date (but expressly excluding the Initial Alterations or any portions of the Premises to the extent such portions are damaged, removed or affected by the Initial Alterations), the base Building electrical, heating, ventilation and air conditioning, mechanical and plumbing systems of the Premises and all currently existing interior improvements shall be in good order and satisfactory condition. If the foregoing are not in good working order as provided above, Landlord shall be responsible for repairing or restoring same at its cost and expense, provided that the foregoing shall not prohibit Landlord from including the cost of routine maintenance and repair of such Building systems in Expenses as otherwise permitted under Article IV hereof. |
|
C. |
Tenant shall not commence business operations in any portion of the Second Floor Premises or use any portion of the Second Floor Premises for storage or other significant and persistent Tenant uses (either or both being considered |
6.
Early Occupancy hereunder) until the twenty-fourth (24 th ) anniversary of the Commencement Date (the Second Floor Rent Commencement Date) without first providing written notice of Tenants proposed use to Landlord (Early Occupancy Notice). In the event of Early Occupancy of all or a portion of the Second Floor Premises prior to the Second Floor Rent Commencement Date, Tenant shall not be in default hereunder, but, regardless of whether Tenant has complied with its Early Occupancy Notice requirement, Tenants Pro Rata Share shall be adjusted accordingly pursuant to Section I.F of the Lease effective as of the first day of such Early Occupancy.
|
D. |
Landlord shall construct a demising wall (Demising Wall) demising the Second Floor Premises from the remainder of the second floor within one (1) year following the Commencement Date. In the event of Early Occupancy, Landlord and Tenant agree to cooperate with each other in order to enable the Demising Wall to be constructed in a timely manner and with as little inconvenience to the operation of Tenants business as is reasonably possible. Notwithstanding anything herein to the contrary, any delay in the completion of the Demising Wall, or inconvenience suffered by Tenant during the construction of the Demising Wall in the event of Early Occupancy, shall not delay the Second Floor Rent Commencement Date, nor shall it subject Landlord to any liability for any loss or damage resulting therefrom or entitle Tenant to any credit, abatement or adjustment of Rent or other sums payable under this Lease; provided that Landlord shall diligently pursue completion of the Demising Wall as soon as practicable. Within 15 days following written demand from Landlord and presentment of applicable invoices, Tenant shall reimburse Landlord for fifty percent (50%) of the actual and reasonable cost of the Demising Wall, Tenants share thereof not to exceed $10,000.00 (the Demising Wall Costs). |
IV. |
Rent. |
|
A. |
Payments . As consideration for this Lease, Tenant shall pay Landlord, without any setoff or deduction, the total amount of Base Rent and Additional Rent due for the Term. Additional Rent means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord. Additional Rent and Base Rent are sometimes collectively referred to as Rent. Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent under applicable Law. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first (1 st ) day of each calendar month without notice or demand, provided that the installment of Base Rent and Tenants Monthly Expense and Tax Payment (as defined in Section I.F above) for the first full calendar month of the Term shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before 30 days after billing by Landlord. Rent shall be made payable to the entity, and sent to the address, Landlord designates and shall be made by good and sufficient check or by other means (such as automatic debit or electronic transfer) acceptable to Landlord. If Tenant fails to pay any item or installment of Rent when due, Tenant shall pay Landlord an administration fee equal to five percent (5%) of the past due Rent, provided that Tenant shall be entitled to a grace period of five (5) Business Days after written notice for the first two (2) late payments of Rent in a given calendar year. If the Term commences on a day other than the first day of a calendar month or |
7.
terminates on a day other than the last day of a calendar month, the monthly Base Rent and Tenants Pro Rata Share of Expenses (defined in Section IV.C.) and Taxes (defined in Section IV.D.) for the month shall be prorated based on the number of days in such calendar month. Landlords acceptance of less than the correct amount of Rent shall be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept the check or payment without prejudice to that partys right to recover the balance or pursue other available remedies. Tenants covenant to pay Rent is independent of every other covenant in this Lease.
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B. |
Payment of Tenants Pro Rata Share of Expenses and Taxes . Tenant shall pay Tenants Pro Rata Share of the total amount of Expenses (defined in Section IV.C.) and Taxes (defined in Section IV.D) for each calendar year during the Term. Landlord shall provide Tenant with a good faith estimate of the total amount of Expenses and Taxes for each calendar year during the Term. On or before the first (1 st ) day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenants Pro Rata Share of Landlords estimate of the total amount of Expenses and Taxes, which initial monthly sum is defined in Section I.F, above as the Tenants Monthly Expense and Tax Payment. If Landlord determines that its good faith estimate was incorrect by a material amount, Landlord may provide Tenant with a revised estimate. After its receipt of the revised estimate, Tenants Monthly Expense and Tax Payment shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the total amount of Expenses and Taxes by January 1 of a calendar year, Tenant shall continue to pay monthly installments based on the previous years estimate until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment shall be made for any month for which Tenant paid monthly installments based on the previous years estimate. Tenant shall pay Landlord the amount of any underpayment within 30 days after receipt of the new estimate. Any overpayment shall be refunded to Tenant within 30 days or credited against the next due future installment(s) of Additional Rent. |
As soon as is practical following the end of each calendar year, Landlord shall furnish Tenant with a statement of the actual amount of Expenses and Taxes for the prior calendar year and Tenants Pro Rata Share of the actual amount of Expenses and Taxes for the prior calendar year. Landlord shall use reasonable efforts to furnish the statement of actual Expenses on or before June 1 of the calendar year immediately following the calendar year to which the statement applies. If the estimated amount of Expenses and Taxes for the prior calendar year is more than the actual amount of Expenses and Taxes for the prior calendar year, Landlord shall apply any overpayment by Tenant against Additional Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant within 30 days after expiration of the Term after first deducting the amount of Rent due. If the estimated amount of Expenses and Taxes for the prior calendar year is less than the actual amount of Expenses and Taxes for such prior year, Tenant shall pay Landlord, within 30 days after Its receipt of the statement of Expenses and Taxes, any underpayment for the prior calendar year.
8.
Tenants obligation to pay or reimburse Landlord for any underpayment of Expenses shall expire two (2) years after the and of the calendar year in which such Expenses were incurred. In no event shall Landlord be entitled to a reimbursement from tenants for Expenses and Taxes in excess of 100% of the costs actually paid or incurred by Landlord in any applicable calendar year.
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C. |
Expenses Defined . Expenses means the sum of (a) all direct and indirect costs of operating, maintaining, repairing and managing the Building, the Property and the Campus (including any costs and expenses in connection with operating, maintaining, repairing and managing the Exterior Common Areas), (b) all costs, fees or other amounts payable to any association established for the benefit of the Campus and/or other properties, and (c) all fees payable to the company or association, if applicable, managing the parking areas within the Campus, and (iii) the Buildings, the Propertys, the Campus and the Landlords allocable percentage of (x) all direct and indirect costs of operating, maintaining, repairing and managing the Project (including any costs and expenses in connection with operating, maintaining, repairing and managing the Project Common Areas located on the Project to the extent such costs and expenses are not specifically allocated to and payable by individual buildings and campuses within the Project), (y) all costs, fees or other amounts payable to any association established for the benefit of the Project and/or other properties, and (z) all fees payable to the company or association, if applicable, managing the parking areas within the Project including, but not limited to: |
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1. |
Labor costs, including, wages, salaries, social security and employment taxes, medical and other types of insurance, uniforms, training, and retirement and pension plans; provided that if any employee performs services in connection with the Campus and other buildings or projects, costs associated with such employee may be proportionately included in Expenses based on the percentage of time such employee spends in connection with the operation, maintenance and management of the Campus. |
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2. |
Management fees, the cost of equipping and maintaining a management office, accounting and bookkeeping services, legal fees not attributable to leasing or collection activity, and other administrative costs. Landlord, by itself or through an affiliate, shall have the right to directly perform or provide any services under this Lease (including management services), provided that in no event shall Landlord, such affiliates or any third party be paid for such services in excess of three percent (3%) of the gross receipts for the Campus. |
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3. |
The cost of services, including amounts paid to service providers and the rental and purchase cost of parts, supplies, tools and equipment. |
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4. |
Premiums and deductibles paid by Landlord for insurance, including workers compensation, fire and extended coverage, earthquake, general liability, rental loss, elevator, boiler and other insurance customarily carried from time to time by owners of comparable office buildings. |
9.
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5. |
Electrical Costs (defined below) and charges for water, gas, steam and sewer, but excluding those charges for which Landlord is reimbursed by tenants. Electrical Costs means: (a) charges paid by Landlord for electricity; (b) costs incurred in connection with an energy management program for the Building, the Property, the Campus or the Project; and (c) if and to the extent permitted by Law, a fee for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for electricity, provided that such fee shall not exceed 50% of any savings obtained by Landlord. Electrical Costs shall be adjusted as follows: (i) amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs; (ii) the cost of electricity incurred to provide overtime HVAC to specific tenants (as reasonably estimated by Landlord) shall be deducted from Electrical Costs; and (iii) if Tenant is billed directly for the cost of building standard electricity to the Premises as a separate charge in addition to Base Rent, the cost of electricity to individual tenant spaces in the Building shall be deducted from Electrical Costs. |
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6. |
The amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made to the Building, Property, Campus or Project which are: (a) performed primarily to reduce operating expense costs or otherwise improve the operating efficiency of the Building, Property, Campus or Project; or (b) required to comply with any Laws that are enacted, or first interpreted to apply to the Building, Property, Campus or Project, after the date of this Lease. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or 5 years. The amortized cost of capital improvements may, at Landlords option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. Payback Period means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement. Notwithstanding the foregoing, the portion of the annual amortized costs to be included in Expenses in any calendar year with respect to a capital improvement which is intended to reduce expenses or improve operating efficiency shall equal the lesser of: (a) such annual amortized costs; and (b) the projected annual amortized reduction in expenses for that portion of the amortization period of the capital improvement which falls within the Term (based on the total cost savings for such period, as reasonably estimated by Landlord). |
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7. |
Any fees, costs and expenses relating to operating, managing, owning, repairing and maintaining the parking facilities servicing the Building, the Property, the Campus and the Project, and any fitness center(s), conference center(s), shuttle service(s) or other amenities in the Campus and the Project, but only to the extent such facilities are available to Tenant. |
10.
If Landlord incurs Expenses for the Building, the Property, the Campus or the Project together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Building, the Property and the Campus and the other buildings, properties or campuses. Expenses shall not include: the cost of capital improvements (except as set forth above); depreciation; interest (except as provided above for the amortization of capital improvements); principal payments of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds; costs in connection with leasing space in the Building, including brokerage commissions; lease concessions, including rental abatements and construction allowances, granted to specific tenants; costs incurred in connection with the sale, financing or refinancing of the Building or Campus; fines, interest and penalties incurred due to the late payment of Taxes (defined in Section IV.D) or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; or any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases.
The following items are also excluded from Expenses:
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(a) |
Repairs or other work occasioned by: (i) fire, windstorm, or other casualty of the type which Landlord has insured (to the extent that Landlord has received insurance proceeds and provided that the amount of any deductible paid by Landlord shall be included in Expenses); or (ii) the exercise of the right of eminent domain (to the extent that such repairs or other work are covered by the proceeds of the award, if any, received by Landlord); |
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(b) |
Rental concessions granted to specific tenants and expenses incurred in renovating or otherwise improving or decorating, painting, or redecorating space for specific tenants or other occupants, other than ordinary repairs and maintenance provided or available to tenants in general; |
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(c) |
Overhead and profit increment paid to subsidiaries or other affiliates of Landlord for services on or to the Premises, Building and/or Campus to the extent only that the costs of such services exceed the competitive cost for such services rendered by persons or entities of similar skill, competence and experience; |
|
(d) |
The cost of services that are not available to Tenant under this Lease or for which Tenant reimburses Landlord as a separate charge (other than through Expenses); |
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(e) |
Advertising and promotional expenditures; |
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(f) |
Costs, fines, interest, penalties, legal fees or costs of Litigation incurred due to the late payments of taxes, utility bills and other costs incurred by Landlords failure to make such payments when due unless such failure is |
11.
due to Landlords good faith and reasonable efforts in contesting the amount of such payments;
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(g) |
Accounting fees to the extent relating to Landlords general corporate overhead; |
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(h) |
Any penalties or liquidated damages that Landlord pays to Tenant under this Lease or to any other tenants in any of the Buildings on the Campus under their respective leases; |
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(i) |
Attorneys fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with tenants or other occupants of any of the Buildings on the Campus or with prospective tenants (other than attorneys fees, costs and disbursements and other expenses incurred by Landlord in seeking to enforce rules and regulations for any of the Buildings on the Campus); |
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(j) |
Any cost or expense related to removal, cleaning, abatement or remediation of Hazardous Materials in or about the Building, Campus, Property or Project, except to the extent such removal, cleaning, abatement or remediation is related to the routine repair and maintenance of the Building, Campus, Property or Project, and further provided that this provision shall not limit or affect Tenants express obligations with respect to Hazardous Materials and the Generator and Fuel Tank as set forth elsewhere in this Lease; and |
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(k) |
The cost of complying with any Laws in effect (and as enforced) on the Delivery Date, provided that if any portion of the Building that was in compliance with all applicable Laws on the Commencement Date becomes out of compliance due to normal wear and tear, the cost of bringing such portion of the Building into compliance shall be included in Expenses unless otherwise excluded pursuant to the terms hereof, and further provided that this provision shall not limit or affect Tenants express obligations with respect to Hazardous Materials and the Generator and Fuel Tank as set forth elsewhere in this Lease. |
If the Buildings of the Campus are not at least 95% occupied during any calendar year or if Landlord is not supplying services to at least 95% of the total Rentable Square Footage of the Buildings of the Campus at any time during a calendar year, Expenses shall be determined as if the Buildings of the Campus had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Buildings of the Campus during that calendar year. The extrapolation of Expenses under this Section shall be performed by appropriately adjusting the cost of those components of Expenses that are impacted by changes in the occupancy of the Buildings of the Campus.
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D. |
Taxes Defined . Taxes shall mean: (1) all real estate taxes and other assessments on the Building, the Property, the Campus and the Project, including, but not limited to, assessments for special improvement districts and building improvement districts, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the |
12.
Buildings, the Propertys, the Campus and the Projects share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Building, Property, Campus and/or Project; (2) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Building, Property, Campus or the Project; and (3) all commercially reasonable costs and fees incurred in connection with seeking reductions in any tax liabilities described in (1) and (2), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall not include any federal, state or corporate income, capital levy, franchise, capital stock, gift, estate, transfer or inheritance tax or interest on taxes or penalties resulting from Landlords failure to timely pay taxes, unless Landlord is in good faith contesting such taxes, or unless such interest is in connection with a permitted payment of such taxes in installments, as provided below. If an assessment is payable in installments, Taxes for the year shall include that installment amount and any interest due and payable during that year. For all other real estate taxes, Taxes for that year shall, at Landlords election, include either the amount accrued, assessed or otherwise imposed for the year or the amount due and payable for that year, provided that Landlords election shall be applied consistently throughout the Term. If a change in Taxes is obtained for any year of the Term, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. Tenant shall be responsible for, and shall pay prior to delinquency, taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital taxes, or other charges imposed upon, levied with respect to, or assessed against, its personal property, and its interest pursuant to this Lease. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount properly allocated to Tenant as invoiced to Tenant by Landlord prior to the delinquency of such taxes. In the event that the tenant improvements in the Building which correspond to any initial alterations to the Premises are assessed and taxed separately by the applicable taxing authority, then Tenant shall be liable and shall pay that portion of the Taxes applicable to the value of the initial alterations to the Premises based on the value attributed thereto by the applicable taxing authority to either (a) the applicable taxing authority prior the delinquency of such taxes in the event Tenant is billed directly by such taxing authority, or (b) the Landlord within 30 days after written demand, in the event Landlord is billed directly by the applicable taxing authority.
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E. |
Net Lease . This shall be a triple net Lease and Base Rent shall be paid to Landlord absolutely net of all costs and expenses, except as specifically provided to the contrary in this Lease. The provisions for payment of Expenses and Taxes and the determination of Tenants Monthly Expense and Tax Payment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in this Article IV incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building, Campus and/or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building, Campus and/or Project. |
13.
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F. |
Audit Rights . Tenant may, within 180 days after receiving Landlords statement of Expenses, give Landlord written notice (Review Notice) that Tenant intends to review Landlords records of the Expenses for that calendar year. Within a reasonable time after receipt of the Review Notice, Landlord shall make all pertinent records available for inspection that are reasonably necessary for Tenant to conduct its review. If any records are maintained at a location other than the office of the Campus, Tenant may either inspect the records at such other location or pay for the reasonable cost of copying and shipping the records. If Tenant retains an agent to review Landlords records, the agent must be with a licensed CPA firm. Notwithstanding the foregoing, Landlord agrees that Tenant may retain a third party agent to review Landlords books and records which is not a CPA firm, so long as the third party agent retained by Tenant shall have expertise in and familiarity with general industry practice with respect to the operation of and accounting for a first class office building and whose, compensation shall in no way be contingent upon or correspond to the financial impact on Tenant resulting from the review. Tenant shall be solely responsible for all costs, expenses and fees incurred for the audit. However, notwithstanding the foregoing, if Landlord and Tenant determine that Expenses for the Building for the year in question were less than stated by more than 5%, Landlord, within 30 days after its receipt of paid invoices therefor from Tenant, shall reimburse Tenant for the reasonable amounts paid by Tenant to third parties in connection with such review by Tenant. Within 60 days after the records are made available to Tenant, Tenant shall have the right to give Landlord written notice (an Objection Notice) stating in reasonable detail any objection to Landlords statement of Expenses for that year. If Tenant fails to give Landlord an Objection Notice within the 60 day period or fails to provide Landlord with a Review Notice within the 180 day period described above, Tenant shall be deemed to have approved Landlords statement of Expenses and shall be barred from raising any claims regarding the Expenses for that year. If Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenants Objection Notice. If Landlord and Tenant determine that Expenses for the calendar year are less than reported, Landlord shall provide Tenant with a credit against the next installment of Rent in the amount of the overpayment by Tenant. Likewise, if Landlord and Tenant determine that Expenses for the calendar year are greater than reported, Tenant shall pay Landlord the amount of any underpayment within 30 days. The records obtained by Tenant shall be treated as confidential, except to the extent required by law, legal process between the parties in connection with Tenants audit of Expenses, and provided that such information may be shared by Tenant with Tenants lenders, investment brokers, advisors, accountants and attorneys to the extent reasonably necessary for the conduct of Tenants business, provided that Tenant shall use commercially reasonable efforts to cause such parties to keep such information confidential, in no event shall Tenant be permitted to examine Landlords records or to dispute any statement of Expenses unless Tenant has paid and continues to pay all Rent when due. |
V. |
Compliance with Laws; Use. |
The Premises shall be used only for the Permitted Use and for no other use whatsoever. Tenant shall not use or permit the use of the Premises for any purpose which is illegal, dangerous to persons or property or which, in Landlords reasonable opinion, unreasonably
14.
disturbs any other tenants of the Building, the Campus or the Project or interferes with the operation of the Building, the Campus or the Project. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the Common Areas as a result of the use by Tenant or any Tenant Related Party thereof. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Campus. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Campus with any of the above-referenced rules or any other terms or provisions of such tenants or occupants lease or other contract. Tenant shall comply with all Laws, including the Americans with Disabilities Act and any Laws relating to the use, generation, storage or disposal of Hazardous Materials (hereinafter defined), regarding the operation of Tenants business and the use, condition, configuration and occupancy of the Premises. Notwithstanding the foregoing, Landlord, at its sole cost and expense (except to the extent properly included in Expenses), shall be responsible for correcting any violations of Title Ill of the Americans with Disabilities Act or of applicable building or fire codes with respect to the Premises, provided that Landlords obligation shall be limited to violations that arise out of the condition of the Premises prior to the Initial Alterations and installation of any furniture, equipment and other personal property of Tenant. Landlord shall have the right to contest any alleged violation in good faith, including, without limitation, the right to apply for and obtain a waiver or deferment of compliance, the right to assert any and all defenses allowed by Law and the right to appeal any decisions, judgments or rulings to the fullest extent permitted by Law, Landlord, after the exhaustion of any and all rights to appeal or contest, will make all repairs, additions, alterations or improvements necessary to comply with the terms of any final order or judgment. Notwithstanding the foregoing, Tenant, not Landlord, shall be responsible for the correction of any violations that arise out of or in connection with any claims brought under any provision of the Americans with Disabilities Act other than Title lie the specific nature of Tenants business in the Premises (other than general office use), the acts or omissions of Tenant, its agents, employees or contractors, Tenants arrangement of any furniture, equipment or other property in the Premises, any repairs, alterations, additions or improvements performed by or on behalf of Tenant (including the Initial Alterations) and any design or configuration of the Premises specifically requested by Tenant after being informed that such design or configuration may not be in strict compliance with the ADA. As of the date hereof, Landlord has not received written notice from any governmental agencies that the Building is in violation of Title III of the Americans with Disabilities Act or of applicable building or fire codes. Tenant, within 10 days after receipt, shall provide Landlord with copies of any notices it receives regarding a violation or alleged violation of any Laws. Tenant shall comply with the rules and regulations of the Campus attached as Exhibit B and such other reasonable rules and regulations adopted by Landlord from time to time. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations. Landlord shall not knowingly discriminate against Tenant in Landlords enforcement of the rules and regulations. If there is a conflict between this Lease and any rules and regulations enacted after the date of this Lease, the terms of this Lease shall control. The rules and regulations shall be generally applicable, and generally applied in the same manner, to all tenants of the Building and/or Campus.
15.
VI. |
Security Deposit. |
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A. |
The Security Deposit, if any, shall be delivered to Landlord upon the execution of this Lease by Tenant and shall be held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenants obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenants liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Rent or to cure (after expiration of any applicable cure period) any uncured default by Tenant. If Landlord uses the Security Deposit, Tenant shall within ten (10) days following written demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 30 days after the later to occur of (1) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (2) the Termination Date; provided that in addition to any other deductions Landlord is entitled to make pursuant to the terms hereof, Landlord shall have the right to make a good faith and reasonable estimate of any unreconciled Expenses and/or Taxes as of the Termination Date or date of surrender, as applicable, and to deduct any anticipated shortfall from the Security Deposit. Such good faith and reasonable estimate shall be final and binding upon Tenant. If Landlord transfers its interest in the Premises, Landlord shall assign the Security Deposit to the transferee and, following the assignment, Landlord shall have no further liability for any claims by Tenant for the return of the Security Deposit to the extent such claims arise or accrue after the date of such transfer. Landlord shall not be required to keep the Security Deposit separate from its other accounts. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any similar or successor Laws now or hereinafter in effect. |
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B. |
The Security Deposit shall be in the form of an irrevocable letter of credit (the Letter of Credit), which Letter of Credit shall: (a) be in the original amount of $500,000.00; (b) be issued on the form attached hereto as Exhibit H ; (c) name Landlord as its beneficiary; and (d) be drawn on an FDIC insured financial institution reasonably satisfactory to the Landlord. Landlord agrees that Silicon Valley Bank shall be deemed a satisfactory financial institution for the purpose of issuing the initial Letter of Credit. The Letter of Credit (and any renewals or replacements thereof) shall be for a term of not less than 1 year. Tenant agrees that it shall from time to time, as necessary, whether as a result of a draw on the Letter of Credit by Landlord pursuant to the terms hereof or as a result of the expiration of the Letter of Credit then in effect, renew or replace the original and any subsequent Letter of Credit so that a Letter of Credit, in the amount required hereunder, is in effect until a date which is at least 60 days after the Termination Date of the Lease. If Tenant fails to furnish such renewal or replacement at least 60 days prior to the stated expiration date of the Letter of Credit then held by Landlord, Landlord may draw upon such Letter of Credit and hold the proceeds thereof (and such proceeds need not be segregated) as a Security Deposit pursuant to the terms of this Article VI. Any renewal or replacement of the original or any subsequent Letter of Credit shall meet the requirements for the original Letter of Credit as set forth above, except that such replacement or renewal shall be issued by an FDIC insured financial institution reasonably satisfactory to the Landlord at the time of the issuance thereof. |
16.
If Landlord draws on the Letter of Credit as permitted in this Lease or the Letter of Credit, then, within ten (10) days after written demand of Landlord, Tenant shall restore the amount available under the Letter of Credit to its original amount by providing Landlord with an amendment to the Letter of Credit evidencing that the amount available under the Letter of Credit has been restored to its original amount. In the alternative, Tenant may provide Landlord with cash, to be held by Landlord in accordance with this Article, equal to the restoration amount required under the Letter of Credit.
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C. |
Subject to the remaining terms of this Article VI, Tenant shall have the right to reduce the Security Deposit (i.e. the Letter of Credit) by the amount of the Unused Allowance (as defined in the Work Letter). In addition, but subject to the remaining terms of this Article VI, and provided Tenant has timely paid all Rent due under this Lease during the 12 month period immediately preceding the effective date of any reduction of the Security Deposit, Tenant shall have the right to reduce the amount of the Security Deposit (i.e., the Letter of Credit) on or after the following dates by the following amounts: (i) less $24,000.00, effective as of the first day of the fifteenth (15 th ) month of the Term; (ii) less an additional $42,000.00, effective as of the first day of the twenty-fifth (25 th ) month of the Term; (iii) less an additional $42,000.00, effective as of the first day of the thirty-seventh (37 th ) month of the Term; and (iv) less an additional $42,000.00, effective as of the first day of the forty-ninth (49 th ) month of the Term. If Tenant is not entitled to reduce the Security Deposit (i.e., the Letter of Credit) as of a particular reduction effective date due to Tenants failure to timely pay all Rent during the 12 months prior to that particular reduction effective date, then any subsequent reduction(s) Tenant is entitled to hereunder shall be reduced by the amount of the reduction Tenant would have been entitled to had Tenant timely paid all Rent during the 12 months prior to that particular earlier reduction effective date. Notwithstanding anything to the contrary contained herein, if Tenant has been in default under this Lease at any time prior to the effective date of any reduction of the Security Deposit and Tenant has failed to cure such default within any applicable cure period, then Tenant shall have no further right to reduce the amount of the Security Deposit (i.e. the Letter of Credit) as described herein. |
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D. |
Any reduction in the Letter of Credit shall be accomplished by Tenant providing Landlord with a substitute letter of credit in the reduced amount. |
VII. |
Services. |
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A. |
Tenant shall (where practicable) contract for and pay directly (at Tenants sole cost and expense) when due, all services and utilities to the Premises, including, but not limited to, heating, ventilation and air-conditioning, electricity, water, gas, light, power, trash pick-up, sewer, telephone, sprinkler charges, janitorial and interior Building security services and all other utility services supplied to the Premises, and all taxes and surcharges thereon, together with any maintenance charges related thereto. If any such services are not separately billed or metered to Tenant, Tenant shall pay an equitable proportion, as determined in good faith by Landlord, of all charges billed or metered with other premises. All sums payable under this Article VII shall constitute Additional Rent hereunder. Landlord agrees to maintain and repair the Property as described in Article IX.B. Tenant shall have access to the Building for Tenant and its employees 24 hours |
17.
per day/7 days per week, subject to the terms of this Lease and such security or monitoring systems as Landlord may reasonably impose, including, without limitation, sign-in procedures and/or presentation of identification cards.
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B. |
Any interruption or termination of, services due to the application of Laws, the failure of any equipment, the performance of repairs, improvements or alterations, or the occurrence of any other event (a Service Failure) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. Furthermore, in no event shall Landlord be liable to Tenant for any loss or damage, including the theft of Tenants Property (defined in Article XV), arising out of or in connection with the failure of any security services, personnel or equipment. However, if the Premises, or a material portion of the Premises, are made untenantable for a period in excess of 3 consecutive Business Days as a result of a Service Failure that is reasonably within the control of Landlord to correct, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the 4 th consecutive Business Day of the Service Failure and ending on the day the service has been restored. If the entire Premises have not been rendered untenantable by the Service Failure, the amount of abatement shall be equitably prorated. |
VIII. |
Leasehold Improvements. |
All improvements to the Premises (collectively, Leasehold improvements) shall he owned by Landlord and shall remain upon the Premises without compensation to Tenant. However, Landlord, by written notice to Tenant within 30 days prior to the Termination Date, may require Tenant to remove, at Tenants expense: (1) Cable (defined in Section IX.A) installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building, Campus and/or Project; and (2) any Leasehold Improvements that are performed by or for the benefit of Tenant and, in Landlords reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (collectively referred to as Required Removables). Without limitation, it is agreed that Required Removables include internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications of any type. However, it is agreed that Required Removables shall not include any usual office improvements such as gypsum board, partitions, ceiling grids and tiles, fluorescent lighting panels, Building standard doors and non-glued down carpeting. The Required Removables designated by Landlord shall be removed by Tenant before the Termination Date, provided that upon prior written notice to Landlord, Tenant may remain in the Premises for up to 10 Business Days after the Termination Date for the sole purpose of removing the Required Removables. Tenants possession of the Premises shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Rent on a per diem basis at the rate in effect for the last month of the Term. Tenant shall repair damage caused by the installation or removal of Required Removables. If Tenant fails to remove any Required Removables or perform related repairs in a timely manner, Landlord, at Tenants expense, may remove and dispose of the Required Removables and perform the required repairs. Tenant, within 30 days after receipt of an invoice, shall reimburse Landlord for the reasonable and actual costs incurred by Landlord. Notwithstanding the foregoing, Tenant, at the time it requests approval for a proposed Alteration (defined in Section IX.C), may request in writing that Landlord advise Tenant whether the Alteration or any portion of the Alteration will be
18.
designated as a Required Removable. Within 10 days after receipt of Tenants request, Landlord shall advise Tenant in writing as to which portions of the Alteration, if any, will be considered to be Required Removables. Notwithstanding anything herein to the contrary, Tenant shall not be required to remove any of the Initial Alterations as Required Removables, subject, however, to Landlords right to identify in writing any specific improvements that Landlord reasonably designates as Required Removables at the time of Landlords approval of Tenants Plans for the Initial Alterations.
IX. |
Repairs, Maintenance and Alterations. |
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A. |
Tenants Repair and Maintenance Obligations . Tenant shall, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlords express responsibility under this Lease, and shall keep the interior of the Premises in good condition and repair (including the replacement of any applicable improvements and appurtenances when necessary), reasonable wear and tear and damage by casualty (subject to the terms of Article XVII) excepted. Tenants repair and replacement obligations include, without limitation, repairs to and replacements of: (1) floor covering; (2) interior partitions; (3) doors (4) interior walls and wall coverings; (5) electronic, phone and data cabling and related equipment (collectively, Cable) that is installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building, Campus or Project; (6) private showers and kitchens, including hot water heaters, and similar facilities; (7) mechanical (including HVAC), plumbing fixtures, fire sprinklers, sewer connections (within the Building), wiring, electrical, lighting, and fire, life safety equipment and systems exclusively serving the Premises; (8) windows, glass and plate glass; (9) ceilings; (10) the roof membrane to the extent covering the Premises; (11) skylights, smoke hatches and roof vents (to the extent any exist in the Premises); (12) fixtures and equipment; (13) truck doors, hardware, dock bumpers, dock plates and levelers; (14) floors and floor coverings; and (15) Alterations performed by contractors retained by Tenant, including related HVAC balancing. All work shall be performed in accordance with the rules and procedures described in Section IX.C. below. If Tenant uses rail and if required by the railroad company, Tenant agrees to sign a joint maintenance agreement governing the use of the rail spur, if any. In addition, Tenant shall, at its sole cost and expense, provide janitorial service to the Premises in a manner consistent with other similar projects in the Redwood City, California area. The janitorial service to be provided by Tenant shall include, but not be limited to, the obligation to clean the exterior windows and to keep the interior of the Premises such as the windows, floors, walls, doors, showcases and fixtures clean and neat in appearance and to remove all trash and debris which may be found in or around the Premises. Tenant shall also enter into and keep and maintain in effect, service contracts reasonably acceptable to Landlord for regularly scheduled preventative maintenance with contractors reasonably acceptable to Landlord for the maintenance of those systems exclusively servicing the Premises which Tenant is required to maintain hereunder, including, without limitation, the HVAC, electrical and life safety systems exclusively serving the Premises. Such service contracts must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective and a copy thereof delivered to Landlord within 30 days after the Commencement Date. Without limiting the foregoing, Tenant shall, at Tenants sole cost and expense, |
19.
(a) immediately replace all broken glass in the Premises with glass equal to or in excess of the specification and quality of the original glass; and (b) subject to Section XVI, repair any damage caused by Tenant, Tenants agents, employees, invitees, visitors, subtenants or contractors. If Tenant fails to make any repairs or replacements to the Premises or fails to perform the required janitorial work in the Premises at the level required or fails to enter into a service contract required herein for more than 15 days after written notice from Landlord (although notice shall not be required if there is an emergency), Landlord may make the repairs or replacements, perform the janitorial work or enter into a service contract on behalf of Tenant, as the case may be, and Tenant shall pay the reasonable cost thereof to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 3% of the cast of the work performed. Notwithstanding the foregoing, if the repair to be performed by Tenant cannot reasonably be completed within 15 days after Landlords written notice to Tenant, Landlord shall not exercise its right to make such repair on Tenants behalf so long as Tenant commences such repair within 15 days after written notice from Landlord and is diligently pursuing the same to completion. Tenant shall maintain written records of maintenance and repairs and shall use certified technicians to perform any such maintenance and repairs. Nothing herein shall expressly or by implication render Tenant Landlords agent or contractor to effect any repairs or maintenance required of Tenant under this Article IX.A., as to all of which Tenant shall be solely responsible.
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B. |
Landlords Repair Obligation . Landlord shall keep and maintain in good repair and working order and make repairs to and perform maintenance upon: (1) the structural elements of the Building, including, without limitation, the columns, footings, structural floor, interior load bearing and exterior walls; (2) Common Areas; (3) the roof of the Building, including roof screens and roof screen penetrators, but excluding the roof membrane; and (4) elevators (if any) serving the Building. Landlord shall promptly make repairs (considering the nature and urgency of the repair) for which Landlord is responsible. Tenant shall pay Tenants Pro Rata Share of such repair and maintenance costs incurred by Landlord to the extent such costs are properly included in Expenses. The term exterior walls as used herein shall not include windows, glass or plate glass, doors, dock bumpers or dock plates, special store fronts or office entries, Subject to Section XVI, any damage caused by or repairs necessitated by any negligence or act of Tenant or any Tenant Related Party (as defined in Article XIV below) may be repaired by Landlord at Landlords option and Tenants expense. Tenant shall promptly give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlords liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenants business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building, the Campus or the Project, or to fixtures, appurtenances or equipment in the Building, except as provided in Section VII.B and Article XVII. Tenant hereby waives any and all rights under and benefits of subsection 1 of |
20.
Section 1932, and Sections 1941 and 1942 of the California Civil Code, or any similar or successor Laws now or hereinafter in effect.
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C. |
Alterations . Tenant shall not make alterations, additions or improvements to the Premises or install any Cable in the Premises or other portions of the Building, the Campus or the Project (collectively referred to as Alterations) without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld, conditioned or delayed, However, Landlords consent shall not be required for any Alteration that satisfies all of the following criteria (a Cosmetic Alteration): (1) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (2) is not visible from the exterior of the Premises or Building; (3) will not affect the systems or structure of the Building, the Campus or the Project; and (4) does not require work to be performed inside the walls or above the ceiling of the Premises. However, even though consent is not required, the performance of Cosmetic Alterations shall be subject to all the other provisions of this Section IX.C. Prior to starting work, Tenant shall furnish Landlord with plans and specifications reasonably acceptable to Landlord; names of contractors reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Building systems); copies of contracts; necessary permits and approvals; evidence of contractors and subcontractors insurance in amounts reasonably required by Landlord; and any security for performance that is reasonably required by Landlord (provided that no such security shall be required for Alterations costing less than $50,000.00). Changes to the plans and specifications must also be submitted to Landlord for its approval, which shall not be unreasonably withheld, conditioned or delayed. Alterations shall be constructed in a good and workmanlike manner using materials of a quality that is at least equal to the quality designated by Landlord as the minimum standard for the Building and the Campus. Landlord may designate reasonable rules, regulations and procedures for the performance of work in the Building, the Campus and the Project and, to the extent reasonably necessary to avoid disruption to the occupants of the Building, the Campus and the Project, shall have the right to designate the reasonable time when Alterations may be performed. Tenant shall reimburse Landlord within 30 days after receipt of an invoice for reasonable and actual sums paid by Landlord for third party examination of Tenants plans for non-Cosmetic Alterations. In addition, within 30 days after receipt of an invoice from Landlord, Tenant shall pay Landlord a fee for Landlords oversight and coordination of any non-Cosmetic Alterations equal to 3% of the cost of the non-Cosmetic Alterations. Upon completion, Tenant shall furnish as-built plans (except for Cosmetic Alterations), completion affidavits, full and final waivers of lien in recordable form, and receipted bills covering all labor and materials. Tenant shall assure that the Alterations comply with all insurance requirements and Laws. Landlords approval of an Alteration shall not be a representation by Landlord that the Alteration complies with applicable Laws or will be adequate for Tenants use. At least 10 Business Days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. |
21.
X. |
Use of Utility Services by Tenant. |
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A. |
Electricity, gas, water and other utility services used by Tenant in the Premises shall be paid for by Tenant through inclusion in Expenses (except as provided in Section X.B. for excess usage). Electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges. Landlord shall have the exclusive right to select any company providing electrical service to the Premises, to aggregate the electrical service for the Property and Premises with other buildings, to purchase electricity through a broker and/or buyers group and to change the providers and manner of purchasing electricity. Landlord shall be entitled to receive a fee (if permitted by Law) for the selection of utility companies and the negotiation and administration of contracts for electricity, provided that the amount of such fee shall not exceed 10% of any savings obtained by Landlord. |
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B. |
Tenants use of electrical service shall not exceed, either in voltage, rated capacity, or overall load, that which Landlord deems to be standard for the Building. If Tenant requests permission to consume excess electrical service, Landlord may refuse to consent or may condition consent upon conditions that Landlord reasonably elects (including, without limitation, the installation of utility service upgrades, meters, submeters, air handlers or cooling units), and the additional usage (to the extent permitted by Law), and reasonable and actual installation and maintenance costs shall be paid by Tenant. Landlord shall have the right to separately meter electrical usage for the Premises and to measure electrical usage by survey or other commonly accepted methods. |
XI. |
Entry by Landlord. |
Landlord, its agents, contractors and representatives may enter the Premises to inspect or (during the last nine (9) months of the Term) to show the Premises, to clean and make repairs, alterations or additions to the Premises, and to conduct or facilitate repairs, alterations or additions to any portion of the Building, the Campus or the Project, including other tenants premises. Except in emergencies or to provide janitorial or maintenance services (if Landlord so elects in accordance with Article IX.A above) and other regularly scheduled Services after normal business hours, Landlord shall provide Tenant with reasonable prior notice (at least 24 hours, except in connection with showing of the Premises to prospective tenants during the last 9 months of the Term) of entry into the Premises, which may be given orally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close all or a portion of the Premises to perform repairs, alterations and additions. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after normal business hours. Entry by Landlord shall not constitute constructive eviction or entitle Tenant to an abatement or reduction of Rent. Notwithstanding the foregoing, except in emergency situations as determined by Landlord, Landlord shall exercise reasonable efforts not to unreasonably interfere with the conduct of the business of Tenant in the Premises.
22.
XII. |
Assignment and Subletting. |
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A. |
Except in connection with a Permitted Transfer (defined in Section XII.E. below), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a Transfer) without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed if Landlord does not elect to exercise its termination rights under Section XII.B below. Without limitation, it is agreed that Landlords consent shall not be considered unreasonably withheld, conditioned or delayed if: (1) the proposed transferees financial condition does not meet the criteria Landlord uses to select Building and Campus tenants having similar leasehold obligations, provided, with respect to a subtenant, Landlord shall apply a standard of whether the proposed subtenant is financially able to meet its sublease obligations, including its obligation to pay rent under the sublease, as they become due; (2) the proposed transferees business is not suitable for the Building, the Campus or the Project considering the business of the other tenants and the prestige of the Building, the Campus and the Project, or would result in a violation of another tenants rights; (3) the proposed transferee is a governmental agency or occupant of the Building or the Campus; (4) Tenant is in default after the expiration of the notice and cure periods in this Lease; or (5) any portion of the Premises, the Building, the Campus or the Project would likely become subject to additional or different Laws as a consequence of the proposed Transfer. Notwithstanding the above, Landlord will not withhold its consent solely because the proposed transferee is an occupant of the Building or Campus if Landlord does not have space available for lease in the Building or Campus that is comparable to the space Tenant desires to sublet or assign. Landlord shall be deemed to have comparable space if it has, or will have, space available an any floor of the Building or another building in the Campus that is approximately the same size as the space Tenant desires to Transfer within 6 months of the proposed commencement of the proposed sublease or assignment. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer and Tenants sole remedy shall be an action to enforce any such provision through specific performance or declaratory judgment. Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any similar or successor Laws, now or hereinafter in effect, and all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable Laws, on behalf of the proposed transferee. Any attempted Transfer in violation of this Article shall, at Landlords option, be void. Consent by Landlord to one or more Transfer(s) shall not operate as a waiver of Landlords rights to approve any subsequent Transfers. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease. |
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B. |
As part of its request for Landlords consent to a Transfer (other than a Permitted Transfer), Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord may reasonably request. Landlord shall, by written notice to Tenant within 10 Business Days of its receipt of the required information and documentation, |
23.
either: (1) consent to the Transfer by the execution of a consent agreement in a form reasonably designated by Landlord or reasonably refuse to consent to the Transfer in writing; or (2) exercise its right to terminate this Lease with respect to the entire Premises, if Tenant is proposing to assign the Lease, or with respect to the portion of the Premises that Tenant is proposing to sublet if the proposed sublease term, with or without renewal options relating thereto, is to expire during the last 12 months of the Term of the Lease and would result in 50% or more of the Tenants Premises being subject to sublease. Any such termination shall be effective on the proposed effective date of the Transfer for which Tenant requested consent. If Landlord fails to respond to any request for consent within the 10 Business Day period set forth above, Tenant shall have the right to provide Landlord with a second request for consent. Tenants second request for consent must specifically state that Landlords failure to respond within a period of 10 days shall be deemed to be an approval by Landlord. If Landlords failure to respond continues for 10 days after its receipt of the second request for consent, the Transfer for which Tenant has requested consent shall be deemed to have been approved by Landlord. Tenant shall pay Landlord a review fee of $1,250.00 for Landlords review of any Permitted Transfer or requested Transfer, provided if Landlords actual reasonable costs and expenses (including reasonable attorneys fees) exceed $1,250.00, Tenant shall reimburse Landlord for its actual reasonable costs and expenses in lieu of a fixed review fee (not to exceed $2,500.00, unless Landlords actual and reasonable costs exceed such amount as the direct result of Tenants or transferees request for material changes to Landlords standard form of consent or if this Lease needs to be amended as a result thereof).
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C. |
Tenant shall pay Landlord 50% of all rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer. Tenant shall pay Landlord for Landlords share of any excess within 30 days after Tenants receipt of such excess consideration. Tenant may deduct from the excess alt reasonable and customary expenses directly incurred by Tenant attributable to the Transfer (other than Landlords review fee), including brokerage fees, legal fees and construction costs. If Tenant is in Monetary Default (defined in Section XIX.A. below), Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of any payments received (less Landlords share of any excess). Notwithstanding anything in the foregoing to the contrary, in the event that Tenant Transfers any portion of the Second Floor Premises (other than pursuant to a Permitted Transfer) prior to the Second Floor Rent Commencement Date, during any part of the term of such Transfer that is prior to the Second Floor Rent Commencement Date, Tenant shall pay Landlord 100% of all rent and other consideration which Tenant receives (after appropriate deductions as provided above) as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Second Floor Premises subject to the Transfer; provided that If the term of such Transfer extends beyond the Second Floor Rent Commencement Date, following the Second Floor Rent Commencement Date Landlord shall be entitled to only 50% of such excess rent and consideration. |
24.
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D. |
Except as provided below with respect to a Permitted Transfer, if Tenant is a corporation, limited liability company, partnership, or similar entity, and if the entity which owns or controls a majority (more than 50%) of the voting shares/rights at any time changes for any reason (including but not limited to a merger, consolidation or reorganization), such change of ownership or control shall constitute a Transfer. The foregoing shall not apply so long as Tenant is an entity whose outstanding stock is listed on a recognized security exchange, or if at least 80% of its voting stock is owned by another entity, the voting stock of which is so listed. |
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E. |
So long as Tenant is not entering into the Permitted Transfer for the purpose of avoiding or otherwise circumventing the remaining terms of this Article XII, Tenant may assign its entire interest under this Lease, without the consent of Landlord, to (i) an affiliate, subsidiary, or parent of Tenant, or a corporation, partnership or other legal entity wholly owned by Tenant (collectively, an Affiliated Party), or (ii) a successor to Tenant by purchase, merger, consolidation or reorganization, provided that all of the following conditions are satisfied (each such Transfer a Permitted Transfer): (1) Tenant is not in default under this Lease beyond applicable cure periods; (2) the Permitted Use does not allow the Premises to be used for retail purposes; (3) unless prohibited by law (in which case Tenant shall give Landlord notice within 10 days, or as soon thereafter as is permitted by law, following the transfer), Tenant shall give Landlord written notice at least 15 days prior to the effective date of the proposed Permitted Transfer; (4) with respect to a proposed Permitted Transfer to an Affiliated Party, Tenant continues to have a net worth equal to or greater than Tenants net worth at the date of this Lease; and (5) with respect to a purchase, merger, consolidation or reorganization or any Permitted Transfer which results in Tenant ceasing to exist as a separate legal entity, (a) Tenants successor shall own all or substantially all of the assets of Tenant, and (b) Tenants successor shall have a net worth which is at least equal to the greater of Tenants net worth at the date of this Lease or Tenants net worth as of the day prior to the proposed purchase, merger, consolidation or reorganization. Tenants notice to Landlord shall include information and documentation showing that each of the above conditions has been satisfied. If requested by Landlord, Tenants successor shall sign a commercially reasonable form of assumption agreement. As used herein, (A) parent shall mean a company which owns a majority of Tenants voting equity; (B) subsidiary shall mean an entity wholly owned by Tenant or at least 51% of whose voting equity is owned by Tenant; and (C) affiliate shall mean an entity controlled, controlling or under common control with Tenant. Notwithstanding the foregoing, if any parent, affiliate or subsidiary to which this Lease has been assigned or transferred subsequently sells or transfers its voting equity or its interest under this Lease other than to another parent, subsidiary or affiliate of the original Tenant named hereunder, such sale or transfer shall be deemed to be a Transfer requiring the reasonable consent of Landlord hereunder. |
XIII. |
Liens. |
Tenant shall not permit mechanics or other liens to be placed upon the Premises, the Building, the Property, the Campus, the Project or Tenants leasehold interest in connection with any work or service done or purportedly done by or for benefit of Tenant. If a lien is so placed,
25.
Tenant shall, within 10 days of written notice from Landlord of the filing of the lien, fully discharge the lien by settling the claim which resulted in the lien or by bonding or insuring over the lien in the manner prescribed by the applicable lien Law. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to bond or insure over the lien or discharge the lien, including, without limitation, reasonable attorneys fees (if and to the extent permitted by Law) within 30 days after receipt of an invoice from Landlord. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by Law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Building, the Campus, the Project and any other party having an interest therein, from mechanics and materialmens liens, and Tenant shall give Landlord not less than 10 Business Days prior written notice of the commencement of any work in the Premises, Building or Campus which could lawfully give rise to a claim for mechanics or materialmens liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, it Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlords consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics or materialmens liens.
XIV. |
Indemnity and Waiver of Claims. |
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A. |
Except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) (defined in Article XXVI) and agents (Landlord Related Parties) harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys fees and other professional fees (if and to the extent permitted by Law) (collectively, Claims), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties and arising out of or in connection with any damage or injury occurring in the Premises or any acts or omissions (including violations of Law) of Tenant, the Tenant Related Parties (defined below) or any of Tenants transferees, contractors or licensees. |
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B. |
Except to the extent caused by the negligence or willful misconduct of Tenant or any Tenant Related Parties (defined below), Landlord shall indemnify, defend and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees and agents (Tenant Related Parties) harmless against and from all Claims which may be imposed upon, incurred by or asserted against Tenant or any of the Tenant Related Parties and arising out of or in connection with the acts or omissions (including violations of Law) of Landlord, the Landlord Related Parties or any of Landlords contractors. |
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C. |
Landlord and the Landlord Related Parties shall not be liable for, and Tenant waives, all claims for loss or damage to Tenants business or loss, theft or damage to Tenants Property or the property of any person claiming by, through or under Tenant resulting from: (1) wind or weather; (2) the failure of any sprinkler, heating or air-conditioning equipment, any electric wiring or any gas, water or steam pipes; (3) the backing up of any sewer pipe or downspout; (4) the |
26.
bursting, leaking or running of any tank, water closet, drain or other pipe; (5) water, snow or ice upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building, the Campus or the Project; (6) any act or omission of any party other than Landlord or Landlord Related Parties; and (7) any causes not reasonably within the control of Landlord. Tenant shall insure itself against such losses under Article XV below. Notwithstanding the foregoing, except as provided in Article XVI to the contrary, Tenant shall not be required to waive any claims against Landlord (other than for loss or damage to Tenants business) where such loss or damage s due to the negligence or willful misconduct of Landlord or any Landlord Related Parties. Nothing herein shall be construed as to diminish the repair and maintenance obligations of Landlord contained elsewhere in this Lease.
XV. |
Insurance. |
Tenant shall carry and maintain the following insurance (Tenants Insurance), at its sole cost and expense: (1) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $3,000,000.00; (2) All Risk Property/Business Interruption Insurance, including flood and earthquake, written at replacement cost value and with a replacement cost endorsement covering all of Tenants trade fixtures, equipment, furniture and other personal property within the Premises (Tenants Properly); (3) Workers Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute; and (4) Employers Liability Coverage of at least $1,000,000.00 per occurrence. Any company writing any of Tenants Insurance shall have an A.M. Best rating of not less than A-VIII. All Commercial General Liability Insurance policies shall name Tenant as a named insured and Landlord (or any successor), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, Equity Office Properties Management Corp., a Delaware corporation, and their respective members, principals, beneficiaries, partners, officers, directors, employees, and agents, and other designees of Landlord as the interest of such designees shall appear, as additional insureds. All policies of Tenants Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days advance written notice of any change, cancellation, termination or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenants Insurance prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 15 days prior to the expiration of the insurance coverage. Landlord shall maintain so called All Risk property insurance on the Building at replacement cost value, as reasonably estimated by Landlord. Landlord shall maintain Commercial General Liability insurance providing, on an occurrence basis, a minimum combined single limit of at least $2,000,000.00. Except as specifically provided to the contrary, the limits of either partys insurance shall not limit such partys liability under this Lease.
XVI. |
Subrogation. |
Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive and shall cause their respective insurance carriers to waive any and all rights of recovery, claim, action or causes of action against the other and their respective trustees, principals, beneficiaries, partners, officers, directors, agents, and employees, for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to Tenants Property, the Premises, the Building, the Campus,
27.
any additions or improvements to the Premises, the Building or the Campus, or any contents thereof, including all rights of recovery, claims, actions or causes of action arising out of the negligence of Landlord or any Landlord Related Parties or the negligence of Tenant or any Tenant Related Parties, which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance.
XVII. |
Casualty Damage. |
|
A. |
If all or any part of the Premises is damaged by fire or other casualty, Tenant shall immediately notify Landlord in writing. During any period of time that all or a material portion of the Premises is rendered untenantable as a result of a fire or other casualty (including due to the inaccessibility of the Premises), the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. Landlord shall have the right to terminate this Lease if: (1) the Building, the Campus or the Project shall be damaged so that, in Landlords reasonable judgment, substantial alteration or reconstruction of the Building or the Campus shall be required (whether or not the Premises has been damaged), and such reconstruction or alteration would effectively eliminate the continued use of the Premises in the manner contemplated by this Lease; (2) Landlord is not permitted by Law to rebuild the Building, the Campus or the Project in substantially the same form as existed before the fire or casualty; (3) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the casualty; (4) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (5) a material uninsured loss to the Building, the Campus or the Project occurs. Notwithstanding the foregoing, Landlord will not be entitled to terminate this Lease solely because there is less than 2 years on the Term if Tenant has an exercisable right to renew or extend the Term and Tenant, within 15 days after receipt of Landlords written notice of termination, validly exercises such right. The foregoing shall not prohibit Landlord from exercising its right to terminate for any of the other reasons set forth herein. Landlord may exercise its right to terminate this Lease by notifying Tenant in writing of such termination as soon as reasonably practicable (taking into consideration delays such as adjustment of insurance claims), but in all circumstances within 90 days after the date of the casualty. If Landlord does not terminate this Lease, Landlord shall commence and proceed with reasonable diligence to repair and restore the Building and the Leasehold Improvements (excluding any Alterations that were performed by Tenant in violation of this Lease). However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord together with any applicable deductible; provided that if Landlord does not receive sufficient insurance proceeds to substantially complete the restoration of the Premises and Landlord elects not to fund any shortfall, Landlord shall so notify Tenant immediately and Tenant, within 10 days after such notification, shall have the right to terminate this Lease by the giving of written notice to Landlord. Landlord shall not be liable for any loss or damage to Tenants Property or to the business of Tenant resulting in any way from the fire or other casualty or from the repair and restoration of the damage. Landlord and Tenant hereby waive the provisions of any Law relating to the matters addressed in this Article, and agree that their respective rights for damage to or destruction of the Premises shall be those specifically provided in this Lease. |
28.
|
B. |
If all or any portion of the Premises shall be made untenantable (including due to the inaccessibility of the Premises) by fire or other casualty, Landlord shall, with reasonable promptness, cause an architect or general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required to substantially complete the repair and restoration of the Premises and make the Premises tenantable again, using standard working methods (Completion Estimate). If the Completion Estimate indicates that the Premises cannot be made tenantable within 180 days from the date the repair and restoration is started, then regardless of anything in Section XVII.A above to the contrary, either party shall have the right to terminate this Lease by giving written notice to the other of such election within 10 days after receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the fire or casualty was caused by the negligence or intentional misconduct of Tenant, Tenant Related Parties or any of Tenants transferees, contractors or licensees. Notwithstanding the foregoing, if Tenant was entitled to but elected not to exercise its right to terminate the Lease and Landlord does not substantially complete the repair and restoration of the Premises within 2 months after the expiration of the estimated period of time set forth in the Completion Estimate, which period shall be extended to the extent of any Reconstruction Delays, then Tenant may terminate this Lease by written notice to Landlord within 15 days after the expiration of such period, as the same may be extended. For purposes of this Lease, the term Reconstruction Delays shall mean: (i) any delays caused by the insurance adjustment process; (ii) any delays caused by Tenant; and (iii) any delays caused by events of Force Majeure. |
|
C. |
The provisions of this Lease, including this Article XVII, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building, the Property, the Campus or the Project, and any Laws, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any similar or successor Laws now or hereinafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building, the Property, the Campus or the Project. |
XVIII. |
Condemnation. |
Either party may terminate this Lease if the whole or any material part of the Premises, of all reasonable access thereto or all parking to which Tenant is entitled to pursuant to the Parking Agreement and Landlord is unable to provide reasonable alternative access or parking to Tenant, shall be taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a Taking). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building, the Property, the Campus or the Project which would leave the remainder of the Building, the Campus or the Project unsuitable for use as an office building or an office project in a manner comparable to the use of the Building, the Campus or the Project prior to the Taking. In order to exercise its right to terminate the Lease, Landlord or Tenant, as the case may be, must provide written notice of termination to the other within 45 days after the terminating party first receives notice of the Taking. Any such termination shall be effective as of the date the physical taking of the Premises or the portion of the Building, the Property, the Campus or the Project occurs. If this
29.
Lease is not terminated, the Rentable Square Footage of the Campus, the Rentable Square Footage of the Premises, the Buildings allocable percentage of the Campus, the Campus allocable percentage of the Project and Tenants Pro Rata Share shall, if applicable, be appropriately adjusted. In addition, Rent for any portion of the Premises taken or condemned shall be abated during the unexpired Term of this Lease effective when the physical taking of the portion of the Premises occurs. All compensation awarded for a Taking, or sale proceeds, shall be the property of Landlord, any right to receive compensation or proceeds being expressly waived by Tenant except as expressly provided below. However, Tenant may file a separate claim at its sole cost and expense for Tenants Property (including any loss of goodwill or business interruption, but in no event for the value of the leasehold estate), any improvements to the Premises actually paid for by Tenant and not reimbursed by application of the Allowance, and Tenants reasonable relocation expenses, provided the filing of the claim does not diminish the award which would otherwise be receivable by Landlord. Tenant hereby waives any and alt rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure, or any similar or successor Laws.
XIX. |
Events of Default. |
Tenant shall be considered to be in default of this Lease upon the occurrence of any of the following events of default:
|
A. |
Tenants failure to pay when due all or any portion of the Rent, if the failure continues for 3 Business Days after written notice to Tenant (Monetary Default). |
|
B. |
Tenants failure (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, if the failure is not cured within 20 days after written notice to Tenant. However, if Tenants failure to comply cannot reasonably be cured within 20 days, Tenant shall be allowed additional time (not to exceed 60 days) as is reasonably necessary to cure the failure so long as: (1) Tenant commences to cure the failure within 20 days, and (2) Tenant diligently pursues a course of action that will cure the failure and bring Tenant hack into compliance with the Lease. However, if Tenants failure to comply creates a hazardous condition, the failure must be cured immediately upon notice to Tenant. In addition, if Landlord provides Tenant with notice of Tenants failure to comply with any particular term, provision or covenant of the Lease on 3 occasions during any 12 month period, Tenants subsequent violation of such term, provision or covenant during the 12 months immediately following the date of Landlords third such notice shall, at Landlords option, be an incurable event of default by Tenant. |
|
C. |
Tenant or any Guarantor becomes insolvent, makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts when due. |
|
D. |
The leasehold estate is taken by process or operation of Law. |
XX. |
Remedies. |
|
A. |
Upon the occurrence of any event or events of default under this Lease, whether enumerated in Article XIX or not, Landlord shall have the option to pursue any one or more of the following remedies without any notice (except as expressly |
30.
prescribed herein) or demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives notice and demand for payment of Rent or other obligations, except for those notices specifically required pursuant to the terms of Article XIX or this Article XX, and waives any and all other notices or demand requirements imposed by applicable law):
|
1. |
Terminate this Lease and Tenants right to possession of the Premises and recover from Tenant an award of damages equal to the sum of the following: |
|
(a) |
The Worth at the Time of Award of the unpaid Rent which had been earned at the time of termination; |
|
(b) |
The Worth at the Time of Award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant affirmatively proves could have been reasonably avoided; |
|
(c) |
The Worth at the Time of Award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant affirmatively proves could be reasonably avoided; |
|
(d) |
Any other amount necessary to compensate Landlord for all the detriment either proximately caused by Tenants failure to perform Tenants obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and |
|
(e) |
All such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable law. |
The Worth at the Time of Award of the amounts referred to in parts (a) and (b) above, shall be computed by allowing interest at the lesser of a per annum rate equal to: (i) the greatest per annum rate of interest permitted from time to time under applicable law, or (ii) the Prime Rate plus 4%. For purposes hereof, the Prime Rate shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the State of California. The Worth at the Time of Award of the amount referred to in part (c), above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%;
|
2. |
Employ the remedy described in California Civil Code § 1951.4 (Landlord may continue this Lease in effect after Tenants breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations); or |
|
3. |
Notwithstanding Landlords exercise of the remedy described in California Civil Code § 1951.4 in respect of an event or events of default, at such time thereafter as Landlord may elect in writing, to terminate this Lease |
31.
and Tenants right to possession of the Premises and recover an award of damages as provided above in Paragraph XX.A.1.
|
B. |
The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlords knowledge of such preceding breach at the time of acceptance of such Rent. No waiver by Landlord of any breach hereof shall be effective unless such waiver is in writing and signed by Landlord. |
|
C. |
TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION 3275 OF THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174 (c) AND 1179 OF THE CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY AND ALL OTHER LAWS AND RULES OF LAW FROM TIME TO TIME IN EFFECT DURING THE LEASE TERM PROVIDING THAT TENANT SHALL HAVE ANY RIGHT TO REDEEM, REINSTATE OR RESTORE THIS LEASE FOLLOWING ITS TERMINATION BY REASON OF TENANTS BREACH. TENANT ALSO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE. |
|
D. |
No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every sight and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon en event of default shall not be deemed or construed to constitute a waiver of such default. |
|
E. |
If Tenant is in default, then, to the extent permitted by Law, Landlord shall be entitled to receive interest on any unpaid item of Rent at a rate equal to the lesser of the maximum rate permitted by Law or the Prime Rate plus 4% per annum. For purposes hereof, the Prime Rate shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the state in which the Building is located. |
|
F. |
This Article XX shall be enforceable to the maximum extent such enforcement is not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion. |
XXI. |
Limitation of Liability. |
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORDS INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NEITHER
32.
LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN ARTICLE XXVI BELOW) ON THE PROPERTY, BUILDING OR PREMISES, NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT. FOR PURPOSES HEREOF, INTEREST OF LANDLORD IN THE PROPERTY SHALL INCLUDE RENTS DUE FROM TENANTS, INSURANCE PROCEEDS, AND PROCEEDS FROM CONDEMNATION OR EMINENT DOMAIN PROCEEDINGS (PRIOR TO THE DISTRIBUTION OF SAME TO ANY PARTNER OR SHAREHOLDER OF LANDLORD OR ANY OTHER THIRD PARTY).
XXII. |
No Waiver. |
Either partys failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of the default, nor shall it constitute an estoppel. Either partys failure to enforce its rights for a default shall not constitute a waiver of its rights regarding any subsequent default. Receipt by Landlord of Tenants keys to the Premises shall not constitute an acceptance or surrender of the Premises.
XXIII. |
Quiet Enjoyment. |
Tenant shall, and may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building, and shall not be a personal covenant of Landlord or the Landlord Related Parties.
XXIV. |
Relocation. [Intentionally Omitted] |
XXV. |
Holding Over. |
Except for any permitted occupancy by Tenant under Article VIII, if Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, occupancy of the Premises after the termination or expiration shall be that of a tenancy at sufferance. Tenants occupancy of the Premises during the holdover shall be subject to all the terms and provisions of this Lease and (a) during the first 30 days of any such holdover, Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to the greater of (i) 150% of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover, and (ii) the fair market gross rental for the Premises as reasonably determined by Landlord, and (b) commencing as of the 31 st day of such holdover, Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the greater of: (1) the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover; or (2) the fair market gross rental for the Premises as reasonably determined by Landlord. No holdover by Tenant or payment by Tenant after the expiration or early termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Landlord is unable to deliver possession of the Premises to a new tenant, or to perform
33.
improvements for a new tenant, as a result of Tenants holdover and Tenant fails to vacate the Premises Within 15 days after Landlord notifies Tenant in writing of Landlords inability to deliver possession, or perform improvements, Tenant shall be liable to Landlord for all damages, including, without limitation, consequential damages, that Landlord suffers from the holdover.
XXVI. |
Subordination to Mortgages; Estoppel Certificate. |
Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building, the Property, the Campus or the Project, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a Mortgage). The party having the benefit of a Mortgage shall be referred to as a Mortgagee. This clause shall be self-operative, but upon written request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. If requested by a successor-in-interest to all or a part of Landlords interest in the Lease, Tenant shall, without charge, attorn to the successor-in-interest. Landlord and Tenant shall each, within 10 Business Days after receipt of a written request from the other, execute and deliver an estoppel certificate to those parties as are reasonably requested by the ether (including a Mortgagee or prospective purchaser). The estoppel certificate shall include a statement certifying that this Lease is unmodified (except as identified in the estoppel certificate) and in full force and effect, describing the dates to which Rent and other charges have been paid, representing that, to such partys actual knowledge, there is no default (or stating the nature of the alleged default) and indicating other matters with respect to the Lease that may reasonably be requested. Landlord represents that there is no Mortgage in effect as of the date of this Lease. Notwithstanding the foregoing, upon written request by Tenant, Landlord will use reasonable efforts to obtain a non-disturbance, subordination and attornment agreement from Landlords then current Mortgagee on such Mortgagees then current standard form of agreement. Reasonable efforts of Landlord shall not require Landlord to incur any cost, expense or liability to obtain such agreement, it being agreed that Tenant shall be responsible for any fee or review costs charged by the Mortgagee. Upon request of Landlord, Tenant will execute the Mortgagees form of non-disturbance, subordination and attornrnent agreement (to the extent such form is commercially reasonable) and return the same to Landlord for execution by the Mortgagee. Landlords failure to obtain a non-disturbance, subordination and attornrnent agreement for Tenant shall have no effect on the rights, obligations and liabilities of Landlord and Tenant or be considered to be a default by Landlord hereunder.
XXVII. |
Attorneys Fees. |
If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Lease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys fees.
XXVIII. |
Notice. |
If a demand, request, approval, consent or notice (collectively referred to as a notice) shall or may be given to either party by the other, the notice shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service at the partys respective Notice Address(es) set forth in Article I, except that if Tenant has vacated the Premises (or if the Notice Address for Tenant is other than
34.
the Premises, and Tenant has vacated such address) without providing Landlord a new Notice Address, Landlord may serve notice in any manner described in this Article or in any other manner permitted by Law. Each notice shall be deemed to have been received or given on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or the other Notice Address of Tenant without providing a new Notice Address, 3 days after notice is deposited in the U.S. mail or with a courier service in the manner described above. Either party may, at any time, change its Notice Address (other than to a post office box address) by giving the other party written notice of the new address in the manner described in this Article.
XXIX. |
Excepted Rights. |
This Lease does not grant any rights to light or air over or about the Building, the Campus or the Project. Landlord excepts and reserves exclusively to itself the use of: (1) roofs, (2) telephone, electrical and janitorial closets, (3) equipment rooms, Building risers or similar areas that are used by Landlord for the provision of Building services, (4) rights to the land and improvements below the floor of the Premises, (5) the improvements and air rights above the Premises, (6) the improvements and air rights outside the demising walls of the Premises, and (7) the areas within the Premises used for the installation of utility lines and other installations serving occupants of the Building, the Campus or the Project. Landlord has the right to change the Buildings, the Campuss or the Projects name or address. Landlord also has the right to make such other changes to the Building, the Property, the Campus and the Project as Landlord deems appropriate, provided the changes do not materially affect Tenants parking rights (unless and to the extent Landlord provides Tenant with reasonable alternative parking) or Tenants ability to use or access the Premises for the Permitted Use, Landlord shall also have the right (but not the obligation) to temporarily close the Building, the Campus or the Project if Landlord reasonably determines that there is an imminent danger of significant damage to the Building, the Campus or the Project or of personal injury to Landlords employees or the occupants of the Building, the Campus or the Project. The circumstances under which Landlord may temporarily close the Building, the Campus or the Project shall include, without limitation, electrical interruptions, hurricanes and civil disturbances. A closure of the Building, the Campus or the Project under such circumstances shall not constitute a constructive eviction nor entitle Tenant to an abatement or reduction of Rent; provided, however, Tenant shall be entitled to an abatement of Rent in accordance with Section VII.B. if the Building is closed, other than as required by Law or by order of proper governmental authority, and Tenant is unable to use the Premises as a result of such closure, for a period of at least 3 consecutive Business Days.
XXX. |
Surrender of Premises. |
At the expiration or earlier termination of this Lease or Tenants right of possession, Tenant shall remove Tenants Property (defined in Article XV) from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear and damage by fire or other casualty for which Landlord is required to make repairs hereunder excepted. Tenant shall also be required to remove the Required Removables in accordance with Article VIII. If Tenant fails to remove any of Tenants Property within 10 Business Days after the termination of this Lease or of Tenants right to possession, Landlord, at Tenants sole cost and expense, shall be entitled (but not obligated) to remove and store Tenants Property, Landlord shall not be responsible for the value, preservation or safekeeping of Tenants Property. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred for Tenants Property. In addition, if Tenant fails to remove Tenants Property from the Premises or storage at the expiration or earlier termination of this Lease, as
35.
the case may be, within 30 days after written notice, Landlord may deem all or any part of Tenants Property to be abandoned, and title to Tenants Property shall be deemed to be immediately vested in Landlord.
XXXI. |
Miscellaneous. |
|
A. |
This Lease and the rights and obligations of the parties shall be interpreted, construed and enforced in accordance with the Laws of the State of California and Landlord and Tenant hereby irrevocably consent to the jurisdiction and proper venue of such state. If any term or provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by Law. The headings and titles to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of the Lease. |
|
B. |
Tenant shall not record this Lease or any memorandum without Landlords prior written consent. |
|
C. |
Landlord and Tenant hereby waive any right to trial by jury in any proceeding based upon a breach of this Lease. |
|
D. |
Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant, the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, civil disturbances and other causes beyond the reasonable control of the performing party (Force Majeure). However, events of Force Majeure shall not extend any period of time for the payment of Rent or other sums payable by either party or any period of time for the written exercise of an option or right by either party. |
|
E. |
Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building, Property, Campus and/or Project referred to herein, and upon such transfer Landlord shall he released from any further obligations hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations; provided that Landlord and its successors, as the case may be, shall remain liable after their respective periods of ownership with respect to any sums due in connection with a breach or default by such party that arose during such period of ownership by such party. |
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F. |
Tenant represents that it has dealt directly with and only with Broker and with The Staubach Company as brokers in connection with this Lease. Tenant shall Indemnify, defend and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers other than Broker, including The Staubach Company, claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify, defend and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers other than The Staubach Company claiming to have represented Landlord in connection with this Lease. Landlord agrees to pay a brokerage commission to Broker in accordance with the terms of a separate written commission agreement to be entered into between |
36.
Landlord and Broker, but Landlord shall not be responsible for any brokerage commission to The Staubach Company, which commission, if any, shall be paid pursuant to a separate agreement between Broker and The Staubach Company.
Equity Office Properties Management Corp. (EOPMC) is an affiliate of Landlord and represents only the Landlord in this transaction. Any assistance rendered by any agent or employee of EOPMC in connection with this Lease or any subsequent amendment or modification hereto has been or will be made as an accommodation to Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant.
|
G. |
Tenant covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; (2) this Lease is binding upon Tenant; and (3) Tenant is duly organized end legally existing in the state of its organization and is qualified to do business in the State of California. If there is more than one Tenant, or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities. Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them. Landlord covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Landlord is authorized to do so on behalf of Landlord; (2) this Lease is binding upon Landlord; and (3) Landlord is duly organized and legally existing in the state of its organization and is qualified to do business in the state in which the Premises are located. |
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H. |
Time is of the essence with respect to Tenants exercise of any expansion, renewal or extension rights granted to Tenant. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture or any other relationship. This Lease and the covenants and conditions in this Lease shall inure only to the benefit of and be binding only upon Landlord and Tenant and their permitted successors anti assigns. |
|
I. |
The expiration of the Term, whether by lapse of time or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease, except to the extent expressly provided herein. Without limiting the scope of the prior sentence, it is agreed that Tenants obligations under Articles IV, VIII, XIV, XX, XXV and XXX, and Landlords obligation under Section XIV.B, shall survive the expiration or early termination of this Lease. |
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J. |
Landlord has delivered a copy of this Lease to Tenant for Tenants review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party. |
|
K. |
All understandings and agreements previously made between the parties are superseded by this Lease, and neither party is retying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant. |
37.
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L. |
Tenant, within 15 days after written request, shall provide Landlord with a current financial statement prepared in the ordinary course of Tenants business and such other information as Landlord may reasonably request in order to create a business profile of Tenant and determine Tenants ability to fulfill its obligations under this Lease. Landlord, however, shall not require Tenant to provide such information unless Landlord is requested to produce the information in connection with a proposed financing or sale of the Building, the Campus or the Project. Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement covering any confidential information that is disclosed by Tenant. |
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M. |
This Lease shall be subject and subordinate to, and Tenant agrees to perform and comply with, the terms, conditions and provisions of (i) all documents of record now entered into affecting the Building, Property, Campus and Project, and (ii) documents entered into in the future affecting the Building, Property, Campus or Project which do not materially adversely affect Tenants rights under this Lease, to the extent copies of such documents under this item (ii) are provided to Tenant. |
|
N. |
Subject to the provisions of this Section N, so long as Tenant is not in default under this Lease, and provided Tenants employees execute the applicable standard waiver of liability form(s), then Tenants employees (the Fitness Center Users) shall be entitled to use the fitness center (the Fitness Center) located in 101 Saginaw Drive, Redwood City, California. The use of the Fitness Center shall be subject to the reasonable rules and regulations (including rules regarding hours of use) established from time to time by the owner of the Fitness Center (Fitness Center Owner) or Landlord for the Fitness Center. Landlord and Tenant acknowledge that the use of the Fitness Center by the Fitness Center Users shall be at their own risk and that the terms and provisions of Section XIV.A of this Lease shall apply to Tenant and the Fitness Center Users use of the Fitness Center. The costs of operating, maintaining and repairing the Fitness Center may be included as part of Expenses. Tenant acknowledges that the provisions of this Section shall not be deemed to be a representation by Landlord that the Fitness Center shall be continuously maintained and operated throughout the Term of this Lease, and Tenant specifically acknowledges and agrees that the Fitness Center may be expanded, reduced, eliminated or otherwise modified during the Term of this Lease. In addition, in the event Landlord no longer has the right to use the Fitness Center, the rights of Tenant and the Fitness Center Users to use the Fitness Center may, at Landlords option, be terminated. No expansion, contraction, elimination or modification of the Fitness Center, and no termination of Tenants or the Fitness Center Users rights to the Fitness Center shall entitle Tenant to an abatement or reduction in Rent, or constitute a constructive eviction, or result in an event of default by Landlord under this Lease. |
|
O. |
Subject to the provisions of this Section O, so long as Tenant is not in default under this Lease, and so long as Landlord permits a shuttle service (the Shuttle Service) to operate at the Property and be available for use by Tenant and its employees, Tenant and Tenants employees (Riders) shall be entitled to use the Shuttle Service operated at the Property. The use of the Shuttle Service shall be subject to the reasonable rules and regulations (including rules regarding |
38.
hours of use) established from time to time by Landlord and/or the operator of the Shuttle Service. Landlord and Tenant acknowledge that the use of the Shuttle Service by the Riders shall be at their own risk and that the terms and provisions of Section XIV.A of this Lease shall apply to Tenant and the Riders use of the Shuttle Service. The costs of operating, maintaining and repairing the Shuttle Service may be included as part of Expenses. Tenant acknowledges that the provisions of this Section shall not be deemed to be a representation by Landlord that Landlord shall continuously maintain the Shuttle Service (or any other shuttle service) throughout the Term of this Lease, and Landlord shall have the right, at Landlords sole discretion, to expand, contract, eliminate or otherwise modify the Shuttle Service. Landlord, or the operator of the Shuttle Service shall have a right to charge a fee to the users of the Shuttle Service. No expansion, contraction, elimination or modification of the Shuttle Service, and no termination of Tenants or the Riders rights to the Shuttle Service shall entitle Tenant to an abatement or reduction in Rent, constitute a constructive eviction, or result in an event of default by Landlord under this Lease.
XXXII. |
Entire Agreement. |
This Lease, including the following exhibits and attachments which are hereby incorporated into and made a part of this Lease, constitute the entire agreement between the parties and supersede all prior agreements and understandings related to the Premises, including all lease proposals, letters of intent and other documents: Exhibit A-1 (Outline and Location of Premises), Exhibit A-2 (Outline and Location of Campus), Exhibit A-3 (Outline and Location of Project), Exhibit B (Campus Rules and Regulations), Exhibit C (Commencement Letter), Exhibit D (Work Letter), Exhibit E-1 (Hazardous Materials), Exhibit E-2 (Hazardous Materials Questionnaire), Exhibit F (Additional Provisions), Exhibit F-1 (Offering Space), Exhibit F-2 (Location of Monument Sign), Exhibit F-3 (Location of Generator and Tank), Exhibit G (Parking Agreement) and Exhibit H (Form of Letter of Credit).
Landlord and Tenant have executed this Lease as of the day and year first above written.
39.
LANDLORD:
CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnershi p
By: EOM GP, L.L.C., a Delaware limited liability company, its general partner
By: Equity Office Management, L.L.C., a Delaware limited liability company, its non-member manager
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By: |
/s/ Mark Geisreiter |
|
|
Name: |
Mark Geisreiter |
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|
Title: |
Senior Vice President |
|
TENANT:
CARDICA, INC., a Delaware corporation
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By: |
/s/ Bernard A. Hausen |
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Name: |
Bernard A. Hausen |
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Title: |
President & CEO |
40.
EXHIBIT A-1
OUTLINE AND LOCATION OF PREMISES
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1.
EXHIBIT A-1
OUTLINE AND LOCATION OF PREMISES
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1.
EXHIBIT A-2
OUTLINE AND LOCATION OF CAMPUS
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1.
EXHIBIT A-3
OUTLINE AND LOCATION OF PROJECT
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1.
EXHIBIT B
CAMPUS RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking facility (if any), the Property, the Campus, the Project and the appurtenances. Capitalized terms have the same meaning as defined in the Lease.
1. |
Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, litter, trash, or material shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenants employees to loiter in Common Areas, Exterior Common Areas, Project Common Areas or elsewhere about the Building, Property, Campus or Project. |
2. |
Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed in the fixtures or appliances. Damage resulting to fixtures or appliances by Tenant, its agents, employees or invitees, shall be paid for by Tenant, and Landlord shall not be responsible for the damage. |
3. |
No signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building, the Campus or the Project, except those of such color, size, style and in such places as are first reasonably approved in writing by Landlord. All tenant identification and suite numbers at the entrance to the Premises shall be installed by Landlord, at Tenants cost and expense, using the standard graphics for the Building. Except in connection with the hanging of lightweight pictures and wall decorations, no nails, hooks or screws shall be inserted into any part of the Premises, the Building, the Campus or the Project except by the Building maintenance personnel. |
4. |
Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board or other directory device listing tenants, and no other directory shall be permitted unless previously consented to by Landlord in writing. |
5. |
Tenant shall not place any lock(s) on any door in the Premises, the Building, the Campus or the Project without Landlords prior written consent (not to be unreasonably withheld, conditioned or delayed) and Landlord shall have the right to retain at all times and to use keys to all locks within and into the Premises. A reasonable number of keys to the locks on the entry doors in the Premises shall be furnished by Landlord to Tenant at Tenants cost, and Tenant shall not make any duplicate keys. All keys shall be returned to Landlord at the expiration or early termination of this Lease. |
6. |
All contractors, contractors representatives and installation technicians performing work in the Building, the Campus or the Project shall be subject to Landlords prior approval and shall be required to comply with Landlords reasonable standard rules, regulations, policies and procedures, which may be reasonably revised from time to time. |
7. |
Movement in or out of the Building, the Campus or the Project of furniture or office equipment, or dispatch or receipt by Tenant of merchandise or materials requiring the use of elevators, stairways, lobby areas or loading dock areas, shall be restricted to hours reasonably designated by Landlord. Tenant shall obtain Landlords prior approval |
1.
(which shall not be unreasonably withheld, conditioned or delayed) by providing a detailed listing of the activity. If approved by Landlord, the activity shall be under the supervision of Landlord and performed in the manner reasonably required by Landlord. Tenant shall assume all risk for damage to articles moved and injury to any persons resulting from the activity. If equipment, property, or personnel of Landlord or of any other party is damaged or injured as a result of or in connection with the activity (unless as the direct result of the gross negligence of Landlord or its agents), Tenant shall be solely liable for any resulting damage or loss.
8. |
Landlord shall have the right to reasonably approve the weight, size, or location of heavy equipment or articles in and about the Premises. Damage to the Building, the Campus or the Project by the installation, maintenance, operation, existence or removal of Tenants Property shall be repaired at Tenants sole expense. |
9. |
Corridor doors, when not in use, shall be kept closed. |
10. |
Tenant shall not: (1) make or permit any improper, objectionable or unpleasant noises or odors in the Building, the Campus or the Project, or otherwise interfere in any way with other tenants or persons having business with them; (2) solicit business or distribute, or cause to be distributed, in any portion of the Building, the Campus or the Project, handbills, promotional materials or other advertising; or (3) conduct or permit other activities in the Building, the Campus or the Project that might, in Landlords sole opinion, constitute a nuisance. |
11. |
No animals, except those assisting handicapped persons, shall be brought into the Building, the Campus or the Project or kept in or about the Premises. |
12. |
No inflammable, explosive or dangerous fluids or substances shall be used or kept by Tenant in the Premises, the Building, the Property, the Campus or about the Project, except limited quantities of substances commonly found within offices in the ordinary course of business and used, stored and disposed of by Tenant in compliance with all applicable laws. Tenant shall not, without Landlords prior written consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Building, the Property, the Campus or the Project, any asbestos-containing materials or any solid, liquid or gaseous material now or subsequently considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable environmental Law which may now or later be in effect. Tenant shall comply with all Laws pertaining to and governing the use of these materials by Tenant, and shall remain solely liable for the costs of abatement and removal. |
13. |
Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises, the Building, the Campus or the Project. Tenant shall not use, or permit any part of the Premises to be used, for lodging, sleeping or for any illegal purpose. |
14. |
Tenant shall not take any action which would violate Landlords labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute, or interfere with Landlords or any other tenants or occupants business or with the rights and privileges of any person lawfully in the Building, the Campus or the Project (Labor Disruption). Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the |
2.
Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume. Tenant shall have no claim for damages against Landlord or any of the Landlord Related Parties, nor shall the Commencement Date of the Term be extended as a result of the above actions.
15. |
Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, the Campus or the Project, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord. Tenant shall not furnish cooling or heating to the Premises, including, without limitation, the use of electric or gas heating devices, without Landlords prior written consent. Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building, the Campus or the Project. |
16. |
Tenant shall not operate or permit to be operated a coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes and other goods), except for machines for the exclusive use of Tenants employees, and then only if the operation does not violate the lease of any other tenant in the Building, the Campus or the Project. |
17. |
Bicycles and other vehicles are not permitted inside the Building or on the walkways outside the Building, except in areas designated by Landlord. |
18. |
Landlord may from time to time adopt systems and procedures for the security and safety of the Building, the Property, the Campus or the Project, its occupants, entry, use and contents. Tenant, its agents, employees, contractors, guests and invitees shall comply with such systems and procedures. |
19. |
Landlord shall have the right to prohibit the use of the name of the Building, the Campus or the Project or any other publicity by Tenant that in Landlords sole opinion may impair the reputation of the Building, the Campus or the Project or their desirability. Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately. |
20. |
Tenant shall not canvass, solicit or peddle in or about the Building, the Property, the Campus or the Project. |
21. |
Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Common Areas, the Exterior Common Areas, the Project Common Areas, unless the Common Areas, the Exterior Common Areas or the Project Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building, the Campus or the Project. Landlord shall have the right to designate the Building, the Campus and/or the Project (including the Premises) as a non-smoking building. |
22. |
Landlord shall have the right to designate and approve standard window coverings for the Premises and to establish rules to assure that the Building presents a uniform exterior appearance. Tenant shall ensure, to the extent reasonably practicable, that |
3.
window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun.
23. |
Deliveries to and from the Premises shall be made only at the times, in the areas and through the entrances and exits designated by Landlord. Tenant shall not make deliveries to or from the Premises in a manner that might interfere with the use by any other tenant of its premises or of the Common Areas, Exterior Common Areas, the Project Common Areas, any pedestrian use, or any use which is inconsistent with good business practice. |
24. |
The work of cleaning personnel shall not be hindered by Tenant after 5:30 P.M., and cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles to prevent unreasonable hardship to the cleaning service. |
25. |
Fitness Center Rules . Tenant shall cause its employees (whether members or prospective members of the Fitness Center) to comply with the following Fitness Center rules and regulations (subject to change from time to time as Landlord may reasonably determine): |
|
A. |
Membership in the Fitness Center is open to the tenants of Seaport Centre only. No guests will be permitted to use the Fitness Center without the prior written approval of Landlord, Landlords representative or the Fitness Center Owner. |
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B. |
Fitness Center Users are not allowed to be in the Fitness Center other than the hours designated by Landlord and the Fitness Center Owner from time to time, Landlord and the Fitness Center Owner shall have the right to alter the hours of use of the Fitness Center, at their sole discretion. |
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C. |
All Fitness Center Users must execute Landlords Waiver of Liability prior to use of the Fitness Center and agree to all terms and conditions outlined therein. |
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D. |
Individual membership and guest keycards to the Fitness Center shall not be shared and shall only be used by the individual to whom such keycard was issued. Failure to abide by this rule may result in immediate termination of such Fitness Center Users right to use the Fitness Center. |
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E. |
All Fitness Center Users and approved guests must have a pre-authorized keycard to enter the Fitness Center. A pre-authorized keycard shall not be issued to a prospective Fitness Center User until receipt by Landlord of Landlords initial fee, if any, for use of the Fitness Center by such Fitness Center User(s). |
4.
EXHIBIT C
COMMENCEMENT LETTER
(EXAMPLE)
Date |
_____________________________ |
Tenant |
_____________________________ |
Address |
_____________________________ |
|
_____________________________ |
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_____________________________ |
Re: Commencement Letter with respect to that certain Lease dated as of the _______ day of _______________, ____, by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership, as Landlord, and CARDICA, INC., a Delaware corporation, as Tenant, for _________ rentable square feet on the _____________ floor of the Building located at 900 Saginaw Drive, Redwood City, California.
Dear ______________:
In accordance with the terms and conditions of the above referenced Lease, Tenant accepts possession of the Premises and agrees:
|
1. |
The Commencement Date of the Lease is ; |
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|
2. |
The Termination Date of the Lease is . |
Please acknowledge your acceptance of possession and agreement to the terms set forth above by signing all 3 counterparts of this Commencement Letter in the space provided and returning 2 fully executed counterparts to my attention.
AGREED AND ACCEPTED:
LANDLORD:
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TENANT:
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CA-SEAPORT CENTRE LIMITED PARTNERSHIP,
By: EOM GP, L.L.C., a Delaware limited liability
By: Equity
Office Management, L.L.C., a
By: _____________________________ Name: ___________________________ Title: ____________________________ |
CARDICA, INC., a Delaware corporation
By: _____________________________ Name: ___________________________ Title: ____________________________ Date: ____________________________ |
1.
EXHIBIT D
WORK LETTER
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
As used in this Work Letter, the Premises shall be deemed to mean the Premises, as initially defined in the attached Lease.
1. |
Alterations and Allowance. |
|
A. |
Tenant, following the Delivery Date (as defined in the Lease to which this Exhibit is attached) shall have the right to perform alterations and improvements in the Premises (the Initial Alterations). Notwithstanding the foregoing, Tenant and its contractors shall not have the right to perform Initial Alterations in the Premises unless and until Tenant has complied with all of the terms and conditions of Article IX of the Lease, including, without limitation, approval by Landlord of the final plans for the Initial Alterations and the contractors to be retained by Tenant to perform such Initial Alterations to the extent provided herein. Tenant shall be responsible for all elements of the design of Tenants plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the premises and the placement of Tenants furniture, appliances and equipment), and Landlords approval of Tenants plans shall in no event relieve Tenant of the responsibility for such design. Landlord shall cooperate with Tenant to identify up to four (4) contractors (one of which shall be Venture Builders) that Landlord would approve to perform the Initial Alterations and to which Tenant would submit a bid request in connection with the Initial Alterations, which approval shall not be unreasonably withheld. The parties agree that Landlords approval of the general contractor to perform the Initial Alterations shall not be considered to be unreasonably withheld it any such general contractor (i) does not have trade references reasonably acceptable to Landlord, (ii) does not maintain insurance as required pursuant to the terms of this Lease, (iii) does not have the ability to be bonded for the work in an amount of no less than 150% of the total estimated cost of the Initial Alterations, (iv) does not provide current financial statements reasonably acceptable to Landlord, or (v) is not licensed as a contractor in the state/municipality in which the Premises is located. Tenant acknowledges the foregoing is not intended to be an exclusive list of the reasons why Landlord may reasonably withhold its consent to a general contractor. Tenant shall solicit bids for the mechanical, electrical and plumbing (MEP) portions of the Initial Alterations from all MEP subcontractors set forth on the approved list provided by Landlord to Tenant (Pre-approved MEP Subcontractors), as well as from Future Air (mechanical), Serrano (electrical) and Greater Bay Mechanical (plumbing) (each of the latter an Alternate MEP Subcontractor). Tenant shall use a Pre-approved MEP Subcontractor for each trade in connection with the Initial Alterations, unless the bid obtained from the Alternate MEP Subcontractor for such trade is lower than the lowest bid for such trade from a Pre-approved MEP Contractor by more than three percent (3%), in |
1.
which case Tenant may use the Alternate MEP Subcontractor providing such low bid for such trade.
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B. |
Provided Tenant is not in default, Landlord agrees to contribute the sum of $621,240.00 (the Allowance) toward the cost of performing the Initial Alterations in preparation of Tenants occupancy of the Premises. The Allowance may be used for the cost of (1) preparing design and construction documents and mechanical and electrical plans for the Initial Alterations, (2) hard costs in connection with the construction of Initial Alterations, (3) telecommunications equipment and installation, (4) manufacturing of Tenants signage for the Building, as otherwise permitted under the Lease, (5) third party consultants and attorneys fees, but only as incurred in connection with the design, permitting and construction of the Initial Improvements, (6) moving costs (7) furniture systems, cabling and other specialty trade fixtures and equipment, and (8) installing Tenants signage on the Monument Sign, as provided in Section V of Exhibit E to the Lease; provided that at least 75% of the Allowance actually used by Tenant for the Initial Alterations must be applied towards costs set forth in Clause (2) above. The Allowance, less a 10% retainage (which retainage shall be payable as part of the final draw), shall be paid to Tenant or, at Landlords option, to the order of the general contractor that performs the Initial Alterations, in periodic disbursements within 20 days after receipt of the following documentation: (i) an application for payment and sworn statement of contractor substantially in the form of AIA Document G-702 covering all work for which disbursement is to be made to a date specified therein; (ii) a certification from an AIA architect substantially in the form of the Architects Certificate for Payment which is located on AIA Document G702, Application and Certificate of Payment; (iii) Contractors, subcontractors and material suppliers waivers of liens which shall cover all Initial Alterations for which disbursement is being requested and all other statements and forms required for compliance with the mechanics lien laws of the state in which the Premises is located; (iv) a cost breakdown for each trade or subcontractor performing the Initial Alterations; (v) copies of all change orders, if any; and (vi) a request to disburse from Tenant containing an approval by Tenant of the work done and a good faith estimate of the cost to complete the Initial Alterations. Upon completion of the Initial Alterations, and prior to final disbursement of the Allowance, Tenant shall furnish Landlord with: (1) general contractor and architects completion affidavits in the form specified by AIA Document A201, (2) full and final waivers of lien in the form of AIA Document G-706, (3) as-built plans of the Initial Alterations, and (4) the certification of Tenants architect that the Initial Alterations have been installed in accordance with the approved plans. In no event shall Landlord be required to disburse the Allowance more than one time per month. If the Initial Alterations exceed the Allowance, Tenant shall be entitled to the Allowance in accordance with the terms hereof, but each individual disbursement of the Allowance shall be disbursed in the proportion that the Allowance bears to the total cost for the Initial Alterations, less the 10% retainage referenced above. Notwithstanding anything herein to the contrary, Landlord shall not be obligated to disburse any portion of the Allowance during the continuance of an uncured default under the Lease, and Landlords obligation to disburse shall only resume when and if such default is cured. |
2.
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C. |
In no event shall the Allowance be used for the purchase of equipment, furniture or other items of personal property of Tenant, except as specifically provided in Section I.B above. If Tenant does not submit a request for payment of the entire Allowance to Landlord in accordance with the provisions contained in this Exhibit by the date that is 90 days after the Commencement Date, Tenant shall be entitled to reduce the Security Deposit by an amount equal to the unused Allowance (but in no event shall such Tenant thereby be entitled to reduce the Security Deposit by more than $200,000.00) (as so capped, the Unused Allowance) in accordance with the provisions of Article VI of the Lease. For example, if the Unused Allowance is $150,000.00, the Security Deposit set forth in Section I of the Basic Lease Information ($500,000.00) shall be reduced to $350,000.00, and if the Unused Allowance is $250,000.00, the Security Deposit set forth in Section I of the Basic Lease Information shall be reduced to $300,000.00. Tenant shall be responsible for all applicable state sales or use taxes, if any, payable in connection with the Initial Alterations and/or Allowance. |
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D. |
Except as specifically provided herein and in the Lease, Tenant agrees to accept the Premises in its as-is condition and configuration, it being agreed that Landlord shall not be required to perform any work or, except as provided above with respect to the Allowance, incur any costs in connection with the construction or demolition of any improvements in the Premises. |
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E. |
This Exhibit shall not be deemed applicable to any additional space added to the Premises at any time or from time to time, whether by any options under the Lease of otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the original Term of the Lease, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease. |
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F. |
Notwithstanding any provision to the contrary in this Lease, in no event shall Landlord charge any direct or third party construction management fee, supervision fee, plan review fee or other administered charge related to or in connection with the construction of the Initial Alterations. |
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G. |
In the event any Hazardous Materials (as defined in the Lease) are discovered or are present at the Premises as of the Delivery Date, none of the Allowance shall be used or applied to remediate or remove any of such Hazardous Materials, any remediation and/or removal shall be the sole obligation, responsibility and liability of Landlord and none of the cost thereof shall be part of Expenses. |
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H. |
In the event that Tenant requests any changes to the approved plans for the Initial Alterations, Landlord shall rot unreasonably withhold its consent to any such changes, and shall respond to such changes within three (3) Business Days after Landlords receipt of same. If such changes increase the cost of constructing the Initial Alterations, the cost of same shall be deducted from the Allowance and, if exhausted, Tenant shall pay such increased costs on a monthly basis according to the invoices for such costs on a percentage completion basis. |
3.
EXHIBIT E-1
HAZARDOUS MATERIALS
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1. |
HAZARDOUS MATERIALS. |
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A. |
General Restrictions. Tenant shall conduct its business and shall cause each Tenant Related Party to act in such a manner as to (a) not release or permit the release of any Hazardous Material in, under, on or about the Premises, the Building, the Campus or the Project, or (b) not use, store, generate, treat, discharge, disperse, handle, manufacture, transport or dispose of (collectively, Handle) any Hazardous Materials (other than incidental amounts of customary cleaning and office supplies) in or about the Premises, the Building, the Campus or the Project without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion (Hazardous Materials Consent Requirements). Hazardous Material means any hazardous, explosive, radioactive or toxic substance, material or waste which is or becomes regulated by any local, state or federal governmental authority or agency, including, without limitation, any material or substance which is (i) defined or listed as a hazardous waste, extremely hazardous waste, restricted hazardous waste, hazardous substance, hazardous material, pollutant or contaminant under any regulation, petroleum or petroleum derivative, (iii) a flammable explosive, (iv) a radioactive material or waste, (v) a polychlorinated biphenyl, (vi) asbestos or asbestos containing material, (vii) infectious waste, or (viii) a carcinogen (collectively, the Regulations). |
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B. |
Required Disclosures. Prior to Tenant (and at least 5 days prior to any assignee or any subtenant of Tenant) taking possession of any part of the Premises, and on each anniversary of the Commencement Date (each such date is hereinafter referred to as a Disclosure Date), until and including the first Disclosure Date occurring after the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials, or any combination thereof, which were Handled on, in, under or about the Premises or the Campus for the 12-month period prior to such Disclosure Date, or which Tenant intends to Handle on, under or about the Premises during the 12-month period following the Disclosure Date by executing and delivering to Landlord a Hazardous Materials Questionnaire, in the form attached hereto as Exhibit E-2 (as updated and modified by Landlord, from time to time). Tenants disclosure obligations under this Section 1.B shall include a requirement that, to the extent any information contained in a Hazardous Materials Questionnaire previously delivered by Tenant shall become inaccurate in any material respect, Tenant shall promptly deliver to Landlord a new updated Hazardous Materials Questionnaire. |
1.
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C. |
Additional Obligations. If any Hazardous Materials shall be released into the environment comprising or surrounding the Campus in connection with the acts, omissions or operations of Tenant or any Tenant Related Party, Tenant shall at its sole expense promptly prepare a remediation plan therefor consistent with applicable Regulations and recommended industry practices (and approved by Landlord and all governmental agencies having jurisdiction) to fully remediate such release, and thereafter shall prosecute the remediation plan so approved to completion with all reasonable diligence and to the satisfaction of Landlord and applicable governmental agencies. If any Hazardous Materials are Handled in, under, on or about the Premises during the Term, or any extension, holdover or renewal thereof, or if Landlord determines in good faith that any release of any Hazardous Material or violation of Hazardous Materials Regulations may have occurred in, on, under or about the Premises during the Term or any extension, holdover or renewal thereof, Landlord may require Tenant to at Tenants sole expense, (i) retain a qualified environmental consultant reasonably satisfactory to Landlord to conduct a reasonable investigation (an Environmental Assessment) of a nature and scope reasonably approved in writing in advance by Landlord with respect to the existence of any Hazardous Materials in, on, under or about the Premises and providing a review of all Hazardous Materials activities of Tenant and the Tenant Related Parties, and (ii) provide to Landlord a reasonably detailed, written report, prepared in accordance with the institutional real estate standards, of the Environmental Assessment. |
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D. |
Indemnity. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord and the Landlord Related Parties harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys and consultants fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of the Tenant Related Parties in, on, under or about the Premises, the Building, the Campus or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, the Building, the Campus or the Project, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all Laws pertaining to Hazardous Materials shall excuse Tenant from Tenants obligation of indemnification pursuant to this Section I.D. Tenants obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. |
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E. |
Exculpation of Tenant: Tenant shall not be liable to Landlord for nor otherwise obligated to Landlord under any provision of the Lease with respect to the following: (i) any claim, remediation, obligation, investigation, obligation, liability, cause of action, attorneys fees, consultants cost, expense or damage resulting from any Hazardous Materials present in, on or about the Premises, the Building or Campus to the extent not caused or otherwise permitted, directly or indirectly, by Tenant or any Tenant Related Party; or (ii) the removal, investigation, monitoring or remediation of any Hazardous Material present in, on or about the Premises or the Building or Campus caused by any source, including third parties, other than by Tenant or any Tenant Related Party. |
3.
EXHIBIT E-2
HAZARDOUS MATERIALS QUESTIONNAIRE
THIS HAZARDOUS MATERIALS QUESTIONNAIRE (the Questionnaire) is designed to solicit information regarding Tenants proposed use, generation, treatment, storage, transfer or disposal of hazardous or toxic materials, substances or wastes. The reference herein to any such items shall include all items defined as Hazardous Materials, Hazardous Substances, Hazardous Wastes, Toxic Materials, Toxic Substances, Toxic Wastes, or such similar definitions contained in the Lease. Please complete the questionnaire and return it to Landlord for evaluation. If Tenants use of materials or substances, or generation of wastes is considered to be significant, further information may be requested by Landlord regarding Tenants plans for hazardous and toxic materials management. Your cooperation in this matter is appreciated. If you have any questions, do not hesitate to call the Property Manager for assistance.
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7. |
HAZARDOUS WASTE DISCLOSURE |
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Will any hazardous waste, including recyclable waste, be generated by the operation of your business at the Premises? Yes ___ No ___ If the answer is yes, please list the hazardous waste which is expected to be generated (or potentially will be generated) at the Premises, its hazard class and volume/frequency of generation on a monthly basis. |
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Waste Name |
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Volume/Month |
Maximum Period of Premises Storage |
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Attach additional sheets if necessary |
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If the answer is yes, please also Indicate if any such wastes are to be stored within the Premises and the proposed method of storage (i.e., drums, aboveground or underground storage tanks, cylinders, other). |
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Waste Name |
Hazard Class |
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Attach additional sheets if necessary.
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If the answer is yes, please also describe the method(s) of disposal for each waste. Indicate where disposal wits taste place Including the methods, equipment and companies to be used to transport me waste: |
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Is any treatment or processing of hazardous wastes to be conducted at the Premises? Yes ___ No ___ if the answer is yes, please describe proposed treatment/processing methods: |
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Which agencies are responsible for monitoring and evaluating compliance with respect to the storage and disposal et hazardous materials or wastes at or from the Premises? (Please list all agencies): |
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Have there been any agency enforcement actions regarding Tenant (or any affiliate thereof), or any existing Tenants (or any affiliates) facilities, or any past, pending or outstanding administrative orders or consent decrees with respect to Tenant or any affiliate thereof? Yes ___ No ___ If the answer is yes, have there been any continuing compliance obligations imposed on Tenant or its affiliates as a result of the decrees or orders? Yes ___ No ___ If the answer is yes, please describe: |
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Has Tenant or any of its affiliates been the recipient of requests for information, notice and demand letters, cleanup and abatement orders, or cease and desist orders or other administrative inquiries? Yes ___ No ___ If the answer is yes, please describe: |
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Are there any pending citizen lawsuits, or have any notices of violations been provided to Tenant or its affiliates or with respect le any existing facilities pursuant to the citizens suit provisions of any statute? Yes ___ No ___ If the answer is yes, please described: |
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Have there been any previous lawsuits against the company regarding environmental concerns? Yes ___ No ___ if the answer is yes, please describe how these lawsuits were resolved: |
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Has en environmental audit ever been conducted at any of your companys existing facilities? Yes ___ No ___ if the answer is yes, please describe: |
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Does your company carry environmental impairment insurance? Yes ___ No ___ If the answer is yes, what is the name of the carrier and what are the effective periods and monetary limits of such coverage? |
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8. |
EQUIPMENT LOCATED OR TO BE LOCATED AT THE PREMISES |
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Is (or will there be) any electrical transformer or other equipment containing polychlorinated biphenyls located at the Premises? Yes ___ No ___ If the answer is yes, please specify the size, number and location (or proposed location): |
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Is (or will there be) any tank for storage of a petroleum product located ath the Premises? Yes ___ No ___ If the answer is yes, please specify capacity and contents of tank; permits, licenses and/or approvals received or to be received therefor and any spill prevention control or conformance plan to be taken in connection therewith:: |
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9. |
ONGOING ACTIVITIES (APPLICABLE TO TENANTS IN POSSESSION) |
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Has any hazardous material, substance or waste spilled, leaked, discharged, leached, escaped or otherwise been released into the environment at the Premises? Yes ___ No ___ If the answer is yes, please describe including (i) the date and duration of each such release, (ii) the material, substance or waste released, (iii) the extent of the spread of such release into or onto the air, soil and/or water, (iv) any action to clean up the release, (v) any reports or notifications made of filed with any federal, state, or local agency, or any quasi-governmental agency (please provide copies of such reports or notifications) and (vi) describe any legal, administrative or other action taken by any of the foregoing agencies or by any other person as a result of the release: |
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This Hazardous Materials Questionnaire is certified as being true and accurate and has been completed by the party whose signature appears below on behalf of Tenant as of the date set forth below.
DATED:
, a(n)
By:
Name:
Title:
By:
Name:
Title:
7.
EXHIBIT F
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
I. |
Renewal Option. |
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A. |
Grant of Option; Conditions . Tenant shall have the right to extend the Term (the Renewal Option) for one additional period of three (3) years commencing on the day following the Termination Date of the initial Term and ending on the third (3 rd ) anniversary of the Termination Date (the Renewal Term), if: |
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1. |
Landlord receives notice of exercise (Initial Renewal Notice) not less than 6 full calendar months prior to the expiration of the initial Term and not more than 12 full calendar months prior to the expiration of the initial Term; and |
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2. |
Tenant is not in default under the Lease beyond any applicable cure periods at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice (as defined below); and |
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3. |
No part of the Premises is sublet (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice; and |
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4. |
The Lease has not been assigned (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) prior to the date that Tenant delivers its Initial Renewal Notice or prior to the date Tenant delivers its Binding Notice. |
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B. |
Terms Applicable to Premises During Renewal Term . |
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1. |
The initial Base Rent rate per rentable square foot for the Premises during the Renewal Term shall equal the Prevailing Market rate (hereinafter defined) per rentable square foot for the Premises. Base Rent during the Renewal Term shall increase, if at all, in accordance with the increases assumed in the determination of Prevailing Market rate. Base Rent attributable to the Premises shall be payable in monthly installments in accordance with the terms and conditions of Article IV of the Lease. |
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2. |
Tenant shall pay Additional Rent (i.e. Taxes and Expenses) for the Premises during the Renewal Term in accordance with the terms of Article IV of the Lease, and the manner and method in which Tenant reimburses Landlord for Tenants share of Taxes and Expenses and the Base Year, if any, applicable to such matter, shall be some of the factors |
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considered in determining the Prevailing Market rate for the Renewal Term.
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C. |
Initial Procedure for Determining Prevailing Market . Within 30 days after receipt of Tenants Initial Renewal Notice, Landlord shall advise Tenant in writing of the applicable Base Rent rate for the Premises for the Renewal Term. Tenant, within 15 days after the date on which Tenant receives notice from Landlord of the applicable Base Rent rate for the Renewal Term, shall either (i) give Landlord final binding written notice (Binding Notice) of Tenants exercise of its Renewal Option, or (ii) if Tenant disagrees with Landlords determination, provide Landlord with written notice of rejection (the Rejection Notice). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such 15 day period, Tenants Renewal Option shall be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into the Renewal Amendment (as defined below) upon the terms and conditions set forth herein. If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market rate for the Premises during the Renewal Term. Upon agreement, Landlord and Tenant shall enter into the Renewal Amendment in accordance with the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and Tenant fail to agree upon the Prevailing Market rate within 30 days after the date Tenant provides Landlord with the Rejection Notice, Tenant, by written notice to Landlord (the Arbitration Notice) within 5 days after the expiration of such 30 day period, shall have the right to have the Prevailing Market rate determined in accordance with the arbitration procedures described in Section D below. If Landlord and Tenant fail to agree upon the Prevailing Market rate within the 30 day period described and Tenant fails to timely exercise its right to arbitrate, Tenants Renewal Option shall be deemed to be null and void and of no further force and effect. |
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D. |
Arbitration Procedure . |
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1. |
If Tenant provides Landlord with an Arbitration Notice, Landlord and Tenant, within 5 days after the date of the Arbitration Notice, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the Premises during the Renewal Term (collectively referred to as the Estimates). If the higher of such Estimates is not more than 105% of the lower of such Estimates, then Prevailing Market rate shall be the average of the two Estimates. If the Prevailing Market rate is not resolved by the exchange of Estimates, then, within 7 days after the exchange of Estimates, Landlord and Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Premises during the Renewal Term. Each appraiser so selected shall be certified as an MAI appraiser or as an ASA appraiser and shall have had at least 5 years experience within the previous 10 years as a real estate appraiser working in the Redwood City area, with working knowledge of current rental rates and practices. For purposes hereof, an MAI appraiser means an individual who holds an MAI designation conferred by, and is an independent member of, the American Institute of Real Estate Appraisers (or its successor organization, or in the event there is no |
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successor organization, the organization and designation most similar), and an ASA appraiser means an individual who holds the Senior Member designation conferred by, and is an independent member of, the American Society of Appraisers (or its successor organization, or, in the event there is no successor organization, the organization and designation most similar).
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2. |
Upon selection, Landlords and Tenants appraisers shall work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Premises. The Estimate chosen by such appraisers shall be binding on both Landlord and Tenant as the Base Rent rate for the Premises during the Renewal Term, subject to the terms of Section D.4 below regarding the Minimum Renewal Base Rent, as defined therein. If either Landlord or Tenant fails to appoint an appraiser within the 7 day period referred to above, the appraiser appointed by the other party shall be the sole appraiser for the purposes hereof. If the two appraisers cannot agree upon which of the two Estimates most closely reflects the Prevailing Market within 20 days after their appointment, then, within 10 days after the expiration of such 20 day period, the two appraisers shall select a third appraiser meeting the aforementioned criteria. Once the third appraiser (i.e. arbitrator) has been selected as provided for above, then, as soon thereafter as practicable but in any case within 14 days, the arbitrator shall make his determination of which of the two Estimates most closely reflects the Prevailing Market rate and such Estimate shall be binding on both Landlord and Tenant as the Base Rent rate for the Premises, subject to the terms of Section D.4 below regarding the Minimum Renewal Base Rent, as defined therein. If the arbitrator believes that expert advice would materially assist him, he may retain one or more qualified persons to provide such expert advice. The parties shall share equally in the costs of the arbitrator and of any experts retained by the arbitrator. Any fees of any appraiser, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, counsel or expert. |
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3. |
If the Prevailing Market rate has not been determined by the commencement date of the Renewal Term, Tenant shall pay Base Rent upon the terms and conditions in effect during the last month of the initial Term for the Premises until such time as the Prevailing Market rate has been determined. Upon such determination, the Base Rent for the Premises shall be retroactively adjusted to the commencement of the Renewal Term for the Premises. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within 30 days after the determination thereof. If such adjustment results in an overpayment of Base Rent by Tenant, Landlord shall credit such overpayment against the next installment of Base Rent due under the Lease and, to the extent necessary, any subsequent installments, until the entire amount of such overpayment has been credited against Base Rent. |
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4. |
Notwithstanding anything to the contrary contained herein, the parties agree that the Prevailing Market rate for the Premises during any year of the Renewal Term shall not be less than 100% of the Base Rent rate, per rentable square foot per annum, applicable during the last year of the initial Term (the Minimum Renewal Term Base Rent Rate), regardless of any determination of Prevailing Market rate made by the appraisers or arbitrator, as described above. |
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E. |
Renewal Amendment . If Tenant is entitled to and properly exercises its Renewal Option, Landlord shall prepare an amendment (the Renewal Amendment) to reflect changes in the Base Rent, Term, Termination Date and other appropriate terms. The Renewal Amendment shall be sent to Tenant within a reasonable time after receipt of the Binding Notice and Tenant shall execute and return the Renewal Amendment to Landlord within 15 days after Tenants receipt of same, but, upon final determination of the Prevailing Market rate applicable during the Renewal Term as described herein, an otherwise valid exercise of the Renewal Option shall be fully effective whether or not the Renewal Amendment is executed. |
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F. |
Prevailing Market . For purposes hereof, Prevailing Market shall mean the arms length fair market annual rental rate per rentable square foot under renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and office buildings comparable to the Building in the Redwood City area. The determination of Prevailing Market shall take into account any material economic differences between the terms of this Lease and any comparison lease or amendment, such as rent abatements, construction costs and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes. |
II. |
Right of First Offer. |
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A. |
Grant of Option; Conditions . Tenant shall have the one time right of first offer (the Right of First Offer) with respect to the remaining portion of the second (2nd) floor of the Building, consisting of approximately 10,000 rentable square feet, shown on the demising plan attached hereto as Exhibit F-1 (the Offering Space). Tenants Right of First Offer shall be exercised as follows: at any time after Landlord has determined that the tenant that first enters into a lease for all or a portion of tile Offering Space after the date of this Lease will not extend or renew the term of its lease for the Offering Space (but prior to leasing such Offering Space to a party other than such initial tenant), Landlord shall advise Tenant (the Advice) of the terms under which Landlord is prepared to lease the Offering Space to Tenant for the remainder of the Term, which terms shall reflect the First Offer Prevailing Market (hereinafter defined) rate for such Offering Space as reasonably determined by Landlord. Tenant may lease such Offering Space in its entirety only, under such terms, by delivering written notice of exercise to Landlord (the Notice of Exercise) within 10 days after the date of the Advice, except that Tenant shall have no such Right of First Offer and Landlord need not provide Tenant with an Advice, if: |
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1. |
Tenant is in default under the Lease beyond any applicable cure periods at the time that Landlord would otherwise deliver the Advice; or |
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2. |
the Premises, or any portion thereof, is sublet (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) at the time Landlord would otherwise deliver the Advice; or |
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3. |
the Lease has been assigned (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) prior to the date Landlord would otherwise deliver the Advice; or |
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Tenant is not occupying the Premises on the date Landlord would otherwise deliver the Advice; or |
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the Offering Space is not intended for the exclusive use of Tenant during the Term. |
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B. |
Terms for Offering Space . |
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The term for the Offering Space shall commence upon the commencement date stated in the Advice and thereupon such Offering Space shall be considered a part of the Premises, provided that all of the terms stated in the Advice shall govern Tenants leasing of the Offering Space and only to the extent that they do not conflict with the Advice, the terms and conditions of this Lease shall apply to the Offering Space. |
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2. |
Tenant shall pay Base Rent and Additional Rent for the Offering Space in accordance with the terms and conditions of the Advice, which terms and conditions shall reflect the First Offer Prevailing Market rate for the Offering Space as determined in Landlords reasonable judgment. |
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3. |
The Offering Space (including improvements and personality, if any) shall be accepted by Tenant in its condition and as-built configuration existing on the earlier of the date Tenant takes possession of the Offering Space or as of the date the term for such Offering Space commences, unless the Advice specifies any work to be performed by Landlord in the Offering Space, in which case Landlord shall perform such work in the Offering Space. If Landlord is delayed delivering possession of the Offering Space due to the holdover or unlawful possession of such space by any party, Landlord shall use reasonable efforts to obtain possession of the space, and the commencement of the term for the Offering Space shall be postponed until the date Landlord delivers possession of the Offering Space to Tenant free from occupancy by any party. |
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C. |
Termination of Right of First Offer . The rights of Tenant hereunder with respect to the Offering Space shall terminate on the earlier to occur of: (i) the original Termination Date; (ii) Tenants failure to exercise its Right of First Offer within the 10 day period provided in Section A above; and (iii) the date Landlord would have provided Tenant an Advice if Tenant had not been in violation of one or mere of the conditions set forth in Section A above. |
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D. |
Offering Amendment . If Tenant exercises its Right of First Offer, Landlord shall prepare an amendment (the Offering Amendment) adding the Offering Space to the Premises on the terms set forth in the Advice and reflecting the changes in the Base Rent, Rentable Square Footage of the Premises, Tenants Pro Rata Share and other appropriate terms. A copy of the Offering Amendment shall be sent to Tenant within a reasonable time after Landlords receipt of the Notice of Exercise executed by Tenant, and Tenant shall execute and return the Offering Amendment to Landlord within 15 days thereafter, but an otherwise valid exercise of the Right of First Offer shall be fully effective whether Of not the Offering Amendment is executed. |
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E. |
Definition of First Offer Prevailing Market . For purposes of this Right of First Offer provision, First Offer Prevailing Market shall mean the annual rental rate per square foot for space comparable to the Offering Space in the Building and office buildings comparable to the Building in the Redwood City area under leases and renewal and expansion amendments being entered into at or about the time that First Offer Prevailing Market is being determined, giving appropriate consideration to tenant concessions, brokerage commissions, tenant improvement allowances, existing improvements in the space in question, and the method of allocating operating expenses and taxes. Notwithstanding the foregoing, space leased under any of the following circumstances shall not be considered to be comparable for purposes hereof: (i) the lease term is for less than the lease term of the Offering Space, (ii) the space is encumbered by the option rights of another tenant, or (ill) the space has a lack of windows and/or an awkward or unusual shape or configuration. The foregoing is not intended to be an exclusive list of space that will not be considered to be comparable. |
III. |
Medical Waste Policy. |
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A. |
Tenant hereby agrees to furnish to Landlord upon demand, written evidence that Tenant has established a written policy (the Medical Waste Policy) concerning the identification, collection, storage, decontamination and disposal of Hazardous Medical Waste and Infectious Waste (each as defined in Subsection B below). Tenant is responsible for the proper containment and identification of its Hazardous Medical Waste and Infectious Waste, the disposal of the Hazardous Medical Waste and Infectious Waste and the transportation of the Hazardous Medical Waste and Infectious Waste using a properly qualified agent, as more particularly described in Section IV.B of this Exhibit F. |
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B. |
Hazardous Medical Waste is defined as used needles and syringes, gloves and linen, uniforms and laundry, and cleaning equipment or materials used to clean any of the foregoing; any solid, liquid or gas that is capable of producing harmful affects on humans or the environment; material that is ignitable, corrosive, reactive or toxic; or any materials that are classified as hazardous medical waste by Law. Infectious Waste is defined as any waste that contains pathogens or is capable of producing infectious disease; material contaminated by potentially infectious materials (taking into consideration the factors necessary for induction of disease, which include, but are not limited to, adequate dose, resistance of host, portal of entry and presence of a pathogen and virulence); material that contains pathogens with sufficient virulence and quantity so that exposure to the |
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waste by a susceptible host could result in an infectious disease; or wastes capable of causing disease; including but not limited to.
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Cultures and stocks of agents infectious to humans, and associated biologicals (including but not limited to cultures from medical laboratories; waste from the production of biologicals; discarded live and attenuated vaccines, and culture dishes and devices used to transfer, inoculate and mix cultures); |
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Human pathological wastes [including but not limited to tissue, organs and body parts (except teeth and the contiguous structures of bone and gum), and body fluids that are removed during medical procedures and specimens of body fluids and their containers]; |
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Discarded waste blood and blood components (including but not limited to serum and plasma) and saturated material containing free flowing blood and blood components (including but not limited to lab specimens); |
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Discarded sharps used in human patient care, medical research or clinical or pharmaceutical laboratories (including but not limited to hypodermic, I.V., and other medical needles; hypodermic and I.V. syringes; Pasteur pipettes; scalpel blades; blood vials; and broken or unbroken glassware in contact with infectious agents, including slides or cover slips); and |
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Discarded hypodermic, I.V. and other medical needles, hypodermic, I.V., syringes, sharps and scalpel blades and whether used or unused (as it is often difficult to determine if they have been used). |
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C. |
Tenant further agrees that such Medical Waste Policy shall incorporate the following elements: (a) Tenants employees and agents shall be expressly forbidden from disposing of any Hazardous Medical Waste or Infectious Waste within the Premises, the Building or the Project in a manner which is contrary to the terms of the Medical Waste Policy; (b) all such Hazardous Medical Waste and Infectious Waste shall be collected, stored, decontaminated and removed from the Premises and the Building by a qualified party in compliance with all applicable Laws and guidelines (including, without limitation, the Occupational Safety and Health Act) of any local, state or federal entity having jurisdiction over this matter; (c) Infectious Waste shall be separated from other waste by containing it in disposable red plastic bags/containers which are impervious to moisture; (d) needles and sharps shall be contained in disposable rigid containers which can be sealed with a tight fitting lid; (e) all spills of Infectious Waste shall be wiped immediately using a spill kit that contains instructions and disposable red plastic bags; (f) any spillage, or injury from handling Infectious Waste shall be immediately reported to Landlord and Landlord shall immediately be given a specific incident report; and (g) Tenant and its employees and agents shall at all times employ proper procedures, including, without limitation, the use of tags, signs or other appropriate written communication, to prevent accidental injury or illness to other tenants in the Building (including their employees, agents and invitees) resulting from Tenants collection, storage, decontamination and disposal of Hazardous Medical Waste and Infectious Waste. Tenant hereby |
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covenants and agrees that at all times during the Term, Tenant and its employees and agents shall adhere to the terms and conditions of the Medical Waste Policy, and Tenant agrees to indemnify, defend and hold Landlord and the Landlord Related Parties harmless from and against any and all liabilities, obligations, damages, penalties, claims, costs, charges or expenses, including without limitation, reasonable attorneys fees, clean-up costs, fines or penalties arising out of or resulting from Tenants violation of any of the provisions of this Section III of Exhibit F.
IV. |
Permitted Use/Restrictions. |
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A. |
1. |
Tenant shall use the Premises for the Permitted Use and for no other purpose. The Premises shall not be used as an emergency clinic or emergency medical facility, no patients shall be permitted to stay overnight in the Premises; and no patients shall be transported to the Premises on gurneys or transported to the Building in emergency vehicles. Further, in no event shall Tenant use or occupy the Premises in a manner that would be inconsistent with the character and dignity of the Building and Landlord may require Tenant to immediately cease any business, procedures, activities or other use which is causing (i) disturbance of, or interference with Landlords operation and management of the Building or the use and occupancy thereof by any tenant therein, or (ii) any public disputes, demonstrations or unflattering media attention involving the Building or any business conducted therein. |
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2. |
Without limiting the scope of the foregoing sentence or the limitations imposed by the Permitted Use clause, Tenant shall not use or permit the Premises to be used for any purpose that would allow medical or medicinal odors or fumes to emanate from the Premises. In the event such odors or fumes do emanate from the Premises, Tenant, at its sole cost and expense, shall be responsible for taking whatever steps are necessary to either eliminate such odors or fumes or to keep such odors or fumes from emanating from the Premises, including, without limitation, the installation of direct ventilation to the outside of the Building in a manner approved by Landlord. |
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3. |
In the event of a conflict between the rules and regulations for the Building and the specific terms and conditions of this Lease, the terms and conditions of this Lease shall control. |
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B. |
1. |
Tenant agrees to be solely responsible for the proper disposal of all medical, infectious and hazardous waste that is generated in the Tenants Premises, including but not limited to Hazardous Medical Waste and Infectious Waste, and to indemnify and hold Landlord and all Landlord Related Parties harmless against and from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses (including, without limitation, reasonable attorneys fees) which may be imposed upon, incurred by, or asserted against Landlord in connection with the generation, existence and disposal of such medical, infectious and/or hazardous waste and the removal thereof from the Premises. Tenant agrees to comply with all laws, ordinances, orders, ruled and regulations |
8.
of any governmental or regulatory agency with respect to the generation, existence, removal and disposal of any such medical, infectious and/or hazardous waste.
|
2. |
Tenant agrees to contract with a licensed and insured medical waste disposal vendor acceptable to Landlord and to provide a copy of such contract to Landlord. If vendors are changed, Tenant agrees to notify Landlord of such change prior to the effective date thereof and to provide the appropriate documentation to Landlord. In no event shall any medical, infectious and/or hazardous waste be placed or stored outside of the Premises, it being agreed that all such materials shall be kept in the Premises until picked up by the approved medical waste disposal vendor. Any such medical, infectious and/or hazardous waste shall be removed from the Building by use of the freight elevators and in no event shall the passenger elevators be used for such purpose. |
|
C. |
Tenant, at Tenants sole cost and expense, shall obtain and maintain throughout the Term any licenses, permits or zoning approvals required by any governmental body for the conduct of Tenants business and medical practices within the Premises. |
V. |
Monument Sign. |
|
A. |
During the initial Term and any extension thereof and provided that Tenant leases and occupies at least 20,000 rentable square feet in the Building, and provided that Tenant installs its name on the Monument Sign (defined below) within 6 months following the Commencement Date, Tenant, at Tenants sole cost (subject to Tenants right to apply the Allowance thereto, as set forth in the Work Letter), but subject to governmental approval, shall have the right to place its name on the Building monument sign located as shown on Exhibit F-2 attached hereto (the Monument Sign). The design, size and color of the signage with Tenants name to be included on the Monument Sign, and the manner in which it is attached to the Monument Sign, shall be subject to the reasonable approval of Landlord and all applicable governmental authorities, and Landlord shall have the right to require that all names on the Monument Sign be of the same size and style. Tenant, at its cost, shall be responsible for the maintenance, repair or replacement of Tenants signage on the Monument Sign, which shall be maintained in a manner reasonably satisfactory to Landlord. The location of Tenants name on the Monument Sign shall be subject to Landlords reasonable approval. Although the Monument Sign will be maintained by Landlord, Tenant shall pay its proportionate share of the cost of any maintenance, and repair associated with the Monument Sign. |
|
B. |
Upon expiration or earlier termination of the Lease or Tenants right to possession of the Premises, or if Tenant leases and occupies less than 20,000 rentable square feet in the Building, Landlord, at Tenants cost, payable as Additional Rent within 30 days after written demand therefor, shall have the right to remove Tenants signage from the Monument Sign and restore the Monument Sign to the condition it was in prior to installation of Tenants signage thereon, ordinary wear and tear excepted. |
9.
|
C. |
The rights provided in this Section V of Exhibit F shall be non-transferable except pursuant to a Permitted Transfer or unless otherwise agreed by Landlord in writing. |
VI. |
USE OF GENERATOR AND TANK. |
|
A. |
Tenant, subject to the terms and conditions of this Section VI of Exhibit E, shall have the right, but only to the extent such right is available to Landlord to grant and without representation or warranty except as expressly provided below, to the exclusive right to use the existing supplemental generator (the Generator) and associated above ground fuel tank (the Tank) located outside the Building, as more particularly shown on Exhibit F-3 hereto, to provide backup additional electrical capacity to the Premises during the Term. Landlord represents that Landlord has not granted (other than to Prior Tenant), and covenants that Landlord will not during the Term grant, the right to use the Generator or Tank to any other tenant of the Building or Campus. |
|
B. |
Tenant acknowledges that the Generator and Tank were installed by a prior tenant (Prior Tenant) that filed bankruptcy, and that Landlord is in the process of trying to obtain title to the Generator and Tank from Prior Tenant and makes no representation or warranty to Tenant with respect to the current ownership of or title to the Generator or Tank. Landlord further makes no representation or warranty as to the fitness of the Generator or Tank for Tenants proposed use thereof, or the condition of the Generator and/or Tank or the compliance thereof with applicable Laws. Tenant acknowledges that Tenant shall use the Generator and/or Tank at Tenants sole risk and the Landlord shall have no liability to Tenant in connection therewith. TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANTS PROPERTY ARISING FROM OR RELATED TO TENANTS USE OF THE GENERATOR AND/OR THE TANK OR EXERCISE OF ANY RIGHTS UNDER THIS SECTION VI OF EXHIBIT E, WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORDS ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO LANDLORDS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. |
|
C. |
At any time during the Term of this Lease, if required by Law or otherwise reasonably required by Landlord, Tenant shall install a secondary containment system to protect against and contain any release of hazardous materials from the Generator and/or Tank prior to any further use thereof by Tenant. Tenants right to use the Generator and the Tank shall be subject to Landlords reasonable approval of the manner in which any new or additional cables are run to and from the Generator to the Premises and the measures that will be taken to eliminate any vibrations or sound disturbances from the operation of the Generator, including, without limitation, any necessary 2 hour rated enclosures or sound installation, as reasonably required by Landlord. If Landlord or Tenant determines that the Generator or Tank installation by Prior Tenant was defective, prior to any use of the Generator and Tank, at Tenants sole option, Tenant shall cure the defects at Tenants sole cost. Tenant shall be solely responsible for obtaining and maintaining alt necessary governmental and regulatory approvals |
10.
and for the cost of operating, maintaining the Generator and the Tank. Tenant shall not operate the Generator or the Tank until Tenant has obtained and submitted to Landlord copies of all required governmental permits, licenses and authorizations necessary for the operation of the Generator and the Tank, if any. In addition to, and without limiting Tenants obligations under the Lease, Tenant shall comply with all applicable environmental and fire prevention Laws pertaining to Tenants use of the Generator and Tank. Tenant shall also be responsible for the cost of all utilities consumed in the operation of the Generator. and the Tank.
|
D. |
Tenant shall be responsible for assuring that the maintenance and operation of the Generator and tee Tank shall in no way damage any portion of the Building or Property. To the maximum extent permitted by Law, the Generator and the Tank and all appurtenances thereto shall be at the sole risk of Tenant, and Landlord shall have no liability to Tenant if the Generator, the Tank or any appurtenances are damaged for any reason. Tenant agrees to be responsible for any damage caused to the Building or Property in connection with the maintenance or operation of the Generator and, in accordance with the terms of Article XIV of the Lease, to indemnify, defend and hold Landlord and the Landlord Related Parties harmless from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including, without limitation, reasonable architects and attorneys fees (if and to the extent permitted by Law), which may be imposed upon, incurred by, or asserted against Landlord or any of the Landlord Related Parties in connection with the maintenance or operation by Tenant or Tenants agents or contractors of the Generator and the Tank, including, without limitation, any environmental and hazardous materials claims. Landlord represents that Landlord has received no written notice of any existing releases of Hazardous Materials from the Generator or Fuel Tank. Tenant acknowledges that Tenant has had the opportunity to inspect the Generator and Tank and to perform any inspections desired by Tenant in connection therewith, and agrees to indemnify, defend and hold Landlord harmless with respect to any Hazardous Materials claims arising out of or related to releases of Hazardous Materials from or in connection with the Generator or Tank, regardless of whether such claims arose prior to or during the Term, but not to the extent such claims arise after the expiration or earlier termination of the Term unless actually caused by Tenant or Tenants agents or contractors. Tenant acknowledges that Landlord is relying on the foregoing indemnity in allowing Tenant the use of the Generator and Tank. In addition to, and without limiting Tenants obligations under the Lease, Tenant covenants and agrees that the use of the Generator and the Tank and appurtenances shall not adversely affect the insurance coverage for the Building. If for any reason, the use of the Generator, the Tank and/or the appurtenances shall result in an increase in the amount of the premiums for such coverage, then Tenant shall be liable for the full amount of any such increase. |
|
E. |
Tenant shall be responsible for the operation, cleanliness and maintenance of the Generator and the Tank and. the appurtenances thereto. Such maintenance and operation shall be performed in a manner to avoid any unreasonable interference with any other tenants or Landlord. Tenant shall take the Generator and Tank as is in the condition in which the Generator and Tank are in as of the Commencement Date, without any obligation on the part of Landlord to prepare |
11.
|
|
or construct the Generator or Tank for Tenants use. Tenant shall have no right to make any changes, alterations, additions, decorations or other improvements to the Generator or Tank without Landlords prior written consent. Tenant agrees to maintain the Generator and the Tank in good condition and repair, so long as Tenant has the right to use the Generator and Tank pursuant to this Section VI of Exhibit E. Tenant shall not be required to remove the Generator or Tank upon expiration or earlier termination of the Lease, provided that the foregoing shall not limit Tenants responsibility to address Hazardous Materials in connection with the Generator or Tank as set forth elsewhere herein. |
|
F. |
Tenant, upon prior notice to Landlord and subject to the rules and regulations enacted by Landlord, shall have access to the Generator and the Tank and its surrounding area for the purpose of repairing, maintaining and using the Generator and the Tank. |
|
G. |
All electricity generated by the Generator may only be consumed by Tenant in the Premises. |
|
H. |
Landlord shall have no obligation to provide any services, including, without limitation, electric current or fuel, to the Generator or Tank. |
|
I. |
Tenant shall have no right to transfer or assign its right to use the Generator or Tank to any party (other than in connection with a Permitted Transfer of the Lease). |
|
J. |
Notwithstanding anything to the contrary contained herein, if at any time during the Term Landlord determines in its sole but bona fide business judgment, that the Generator, Tank and/or any appurtenances interfere with the operations of the Building or the operations of any of the occupants of the Building, then Tenant shall, upon notice from Landlord, cease any further operation of the Generator and Tank. From and after such notice by Landlord, Tenant shall have no further right to operate the Generator or Tank unless and until Tenant, at Tenants sole election, shall have redesigned and modified the Generator, Tank and/or installations in a manner approved by Landlord, provided however, that Landlords approval of such redesign and modification shall constitute the mere permission to operate the Generator and the Tank, which permission shall in no event be construed to abrogate or diminish Landlords rights or Tenants obligations under this Section VI of Exhibit E or the Lease. |
VII. |
USE OF DISH/ANTENNA. |
|
A. |
Tenant, subject to the terms and conditions of this Section VII of Exhibit E, shall have the right, but only to the extent such right is available to Landlord to grant and without representation or warranty except as expressly provided below, to the exclusive right to use the existing satellite dish(es)/antenna(e) (collectively the Dish/Antenna) located as of the date of the Lease on the roof of the Building, to provide communications services to the Premises during the Term. Landlord represents that Landlord has not granted (other than to Prior Tenant), and covenants that Landlord will not during the Term grant, the right to use the Dish/Antenna to any other tenant of the Building or Campus. |
12.
|
B. |
Tenant acknowledges that the Dish/Antenna was installed by Prior Tenant (as defined in Section VI above), and that Landlord is in the process of trying to obtain title to the Dish/Antenna from Prior Tenant and makes no representation or warranty to Tenant with respect to the current ownership of or title to the Dish/Antenna. Landlord further makes no representation or warranty as to the fitness of the Dish/Antenna for Tenants proposed use thereof, or the condition of the Dish/Antenna or the compliance thereof with applicable Laws. Tenant acknowledges that Tenant shall use the Dish/Antenna at Tenants sole risk and the Landlord shall have no liability to Tenant in connection therewith. TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANTS PROPERTY ARISING FROM OR RELATED TO TENANTS USE OF THE DISH/ANTENNA OR EXERCISE OF ANY RIGHTS UNDER THIS SECTION VII OF EXHIBIT E, WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORDS ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION: PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO LANDLORDS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. |
|
C. |
The location(s) of the Dish/Antenna on the roof is collectively referred to herein as the Roof Space. Landlord reserves the right to relocate the Roof Space as reasonably necessary during the Term, but taking into account Tenants use of the Dish/Antenna. Tenants right to use the Dish/Antenna shall be subject to the reasonable approval rights of Landlord with respect to the manner in which any new or additional cables are run to and from the Dish/Antenna. If Landlord or Tenant determines that the Dish/Antenna installation by Prior Tenant was defective, Tenant shall not use the Dish/Antenna unless and until Tenant, at Tenants option, has cured such defects at Tenants sole cost. |
|
D. |
Landlord agrees that Tenant, upon reasonable prior written notice to Landlord, shall have access to the roof of the Building and the Roof Space for the purpose of maintaining and repairing the Dish/Antenna and any appurtenances thereto, all of which shall be performed by Tenant or Tenants authorized representative or contractors, which shall be approved by Landlord, at Tenants sole cost and risk. It is agreed, however, that only authorized engineers, employees or properly authorized contractors of Tenant, FCC (defined below) inspectors, or persons under their direct supervision will be permitted to have access to the roof of the Building and the Roof Space. Tenant further agrees to exercise firm control over the people requiring access to the roof of the Building and the Roof Space in order to keep to a minimum the number of people having access to the roof of the Building and the Roof Space and the frequency of their visits. |
|
E. |
It is further understood and agreed that the maintenance and operation of the Dish/Antenna is not permitted to damage the Building or the roof thereof, or interfere with the use of the Building and roof by Landlord. Tenant agrees to be responsible for any damage caused to the roof or any other part of the Building, which may be caused by Tenant or any of its agents or representatives. |
|
F. |
Tenant agrees to use the Dish/Antenna only to the extent that the frequencies used will not cause unreasonable interference to Landlord or existing tenants of the Building. In the event the Dish/Antenna causes such interference, Tenant will |
13.
change the frequency on which it transmits and/or receives and take any other steps necessary to eliminate the interference. If said interference cannot be eliminated within a reasonable period of time, in the judgment of Landlord, then Tenant agrees to cease using the Dish/Antenna.
|
G. |
Tenant shall, at its sole cost and expense, and at its sole risk, operate and maintain the Dish/Antenna in compliance with all Building, electric, communication, and safety codes, ordinances, standards, regulations and requirements, now in effect or hereafter promulgated, of the Federal Government, including, without limitation, the Federal Communications Commission (the FCC), the Federal Aviation Administration (FAA) or any successor agency of either the FCC or FAA having jurisdiction over radio or telecommunications, and of the state, city and county in which the Building is located. Under this Lease, the Landlord and its agents assume no responsibility for the licensing, operation and/or maintenance of Tenants equipment. Tenant has the responsibility of carrying out the terms of its FCC license in all respects. The Dish/Antenna shall be connected to Landlords power supply in strict compliance with all applicable Building, electrical, fire and safety codes. Neither Landlord nor its agents shall be liable to Tenant for any stoppages or shortages of electrical power furnished to the Dish/Antenna or the Roof Space because of any act, omission or requirement of the public utility serving the Building, or the act or omission of any other tenant, invitee or licensee or their respective agents, employees or contractors, or for any other cause beyond the reasonable control of Landlord, and Tenant shall not be entitled to any rental abatement for any such stoppage or shortage of electrical power. Neither Landlord nor its agents shall have any responsibility or liability for the conduct or safety of any of Tenants representatives, repair, maintenance and engineering personnel while in or on any part of the Building or the Roof Space. |
|
H. |
In light of the specialized nature of the Dish/Antenna, Tenant shall be permitted to utilize the services of its choice for operation and repair of the Dish/Antenna and the appurtenances, if any, subject to the reasonable approval of Landlord. Notwithstanding the foregoing, Tenant must provide Landlord with prior written notice of any such repair and coordinate such work with Landlord in order to avoid voiding or otherwise adversely affecting any warranties granted to Landlord with respect to the roof. If necessary, upon written notice from Landlord Tenant, at its sole cost and expense, shall retain any contractor having a then existing warranty in effect on the roof to perform such work (to the extent that it involves the roof), or, at Tenants option, to perform such work in conjunction with Tenants contractor. In the event the Landlord contemplates roof repairs that could affect the Dish/Antenna, or which may result in an interruption of the Tenants telecommunication service, Landlord shall formally notify Tenant at least 30 days in advance (except in cases of an emergency) prior to the commencement of such contemplated work in order to allow Tenant to make other arrangements for such service. |
|
I. |
Tenant shall not allow any provider of telecommunication, video, data or related services (Communication Services) to locate any equipment on the roof of the Building or in the Roof Space for any purpose whatsoever, nor may Tenant use the Roof Space and/or Dish/Antenna to provide Communication Services to an unaffiliated tenant, occupant or licensee of another building, or to facilitate the |
14.
|
|
provision of Communication Services on behalf of another Communication Services provider to an unaffiliated tenant, occupant or licensee of the Building or any other building. |
|
J. |
Tenant acknowledges that Landlord may at some time establish a standard license agreement (the License Agreement) with respect to the use of roof space by tenants of the Building. Tenant, upon request of Landlord, shall enter into such License Agreement with Landlord provided that such agreement does not materially alter the rights of Tenant hereunder with respect to the Roof Space or impose any fee upon Tenant for the use of the Roof Space or Dish/Antenna. |
|
K. |
Tenant specifically acknowledges and agrees that the terms and conditions of Article XIV of the Lease (Indemnity and Waiver of Claims) shall apply with full force and effect to the Roof Space and any other portions of the roof accessed or utilized by Tenant, its representatives, agents, employees or contractors. |
|
L. |
If Tenant defaults under any of the terms and conditions of this Section or the Lease, and Tenant fails to cure said default within the time allowed by Article XIX of the Lease, Landlord shall be permitted to exercise all remedies provided under the terms of the Lease, including removing the Dish/Antenna. |
15.
EXHIBIT F-1
OFFERING SPACE
1.
EXHIBIT F-2
LOCATION OF MONUMENT SIGN
LOCATION OF MONUMENT SIGN
1.
EXHIBIT F-3
LOCATION OF GENERATOR AND TANK
LOCATION OF GENERATOR AND TANK
1.
EXHIBIT G
PARKING AGREEMENT
This Exhibit (the Parking Agreement) is attached to and made a part of the Lease by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership (Landlord) and CARDICA, INC., a Delaware corporation (Tenant) for space in the Building located at 900 Saginaw Drive, Redwood City, California.
1. |
The capitalized terms used in this Parking Agreement shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Parking Agreement. In the event of any conflict between the Lease and this Parking Agreement, the latter shall control. |
2. |
Landlord hereby grants to Tenant and persons designated by Tenant a license to use 96 non-reserved parking spaces in the parking facility servicing the Building (Parking Facility). The term of such license shall commence on the Delivery Date under the Lease and shall continue until the earlier to occur of the Termination Date under the Lease, the sooner termination of the Lease, or Tenants abandonment of the Premises thereunder. During the term of the Lease and any extensions thereof, Tenant shall not be required to pay Landlord any monthly charges for use of the non-reserved parking spaces set forth above. Tenant may, from time to time request additional parking spaces, and if Landlord shall provide the same, such parking spaces shall be provided and used on a month-to-month basis, and otherwise on the foregoing terms and provisions, and at such prevailing monthly parking charges as shall be established from time to time. |
3. |
Tenant shall at all times comply with all applicable ordinances, rules, regulations, codes, laws, statutes and requirements of all federal, state, county and municipal governmental bodies or their subdivisions respecting the use of the Parking Facility. Landlord reserves the right to adopt, modify and enforce reasonable rules (Rules) governing the use of the Parking Facility from time to time including any key-card, sticker or other identification or entrance system and hours of operation. The Rules set forth herein are currently in effect. Landlord may refuse to permit any person who violates such Rules to park in the Parking Facility, and any violation of the Rules shall subject the car to removal from the Parking Facility. |
4. |
Unless specified to the contrary above, the parking spaces hereunder shall be provided on a non-designated first-come, first-served basis. Tenant acknowledges that Landlord has no liability for claims arising through acts or omissions of any independent operator of the Parking Facility. Landlord shall have no liability whatsoever for any damage to items located in the Parking Facility, nor for any personal injuries or death arising out of any matter relating to the Parking Facility, and in all events, Tenant agrees to look first to its insurance carrier and to require that Tenants employees look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the Parking Facility. Tenant hereby waives on behalf of its insurance carriers all rights of subrogation against Landlord or Landlords agents. Landlord reserves the right to assign specific parking spaces, and to reserve parking spaces for visitors, small cars, handicapped persons and for other tenants, guests of tenants or other parties, which assignment and reservation or spaces may be relocated as reasonably determined by Landlord from time to time, and Tenant and persons designated by Tenant hereunder |
1.
shall not park in any location designated for such assigned or reserved parking spaces. Tenant acknowledges that the Parking Facility may be closed entirely or in part in order to make repairs or perform maintenance services, or to alter, modify, re-stripe or renovate the Parking Facility, or if required by casualty, strike, condemnation, act of God, governmental law or requirement or other reason beyond the operators reasonable control. In such event, Landlord shall refund any prepaid parking fee hereunder, prorated on a per diem basis.
5. |
If Tenant shall default under this Parking Agreement, the operator shall have the right to remove from the Parking Facility any vehicles hereunder which shall have been involved or shall have been owned or driven by parties involved in causing such default, without liability therefor whatsoever. In addition, if Tenant shall default under this Parking Agreement, Landlord shall have the right to cancel this Parking Agreement on 30 days written notice, unless within such 30 day period, Tenant cures such default. If Tenant defaults with respect to the same term or condition under this Parking Agreement more than 3 times during any 12 month period, and Landlord notifies Tenant thereof promptly after each such default, the next default of such term or condition during the succeeding 12 month period, shall, at Landlords election, constitute an incurable default. Such cancellation right shall be cumulative and in addition to any other rights or remedies available to Landlord at law or equity, or provided under the Lease (all of which rights and remedies under the Lease are hereby incorporated herein, as though fully set forth). Any default by Tenant under the Lease shall be a default under this Parking Agreement. |
RULES
|
(i) |
Subject to the provisions set forth herein, Tenant shall have access to the Parking Facility on a 24 hour basis, 7 days a week. Notwithstanding the foregoing, Landlord reserves the right to reasonably establish and change Parking Facility hours from time to time. Tenant shall not store or permit its employees to store any automobiles in the Parking Facility without the prior written consent of the operator, which shall not be unreasonably withheld, conditioned or delayed. Except for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the Parking Facility, or on the Property. If it is necessary for Tenant or its employees to leave an automobile in the Parking Facility overnight, Tenant shall provide the operator with prior notice thereof designating the license plate number and model of such automobile. |
|
(ii) |
Cars must be parked entirely within the stall lines painted on the floor, and only small cars may be parked in areas reserved for small cars. |
|
(iii) |
All directional signs and arrows must be observed. |
|
(iv) |
The speed limit shall be 5 miles per hour. |
|
(v) |
Parking spaces reserved for handicapped persons must be used only by vehicles properly designated. |
|
(vi) |
Parking is prohibited in all areas not expressly designated for parking, including without limitation: |
2.
|
(a) |
Areas not striped for parking |
|
(b) |
aisles |
|
(c) |
where no parking signs are posted |
|
(d) |
ramps |
|
(e) |
loading zones |
|
(vii) |
Parking stickers, key cards or any other devices or forms of identification or entry supplied by the operator shall remain the property of the operator. Such device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking passes and devices are not transferable and any pass or device in the possession of an unauthorized holder will be void. |
|
(viii) |
Monthly fees, if any, shall be payable in advance prior to the first day of each month. Failure to do so will automatically cancel parking privileges and a charge at the prevailing daily parking rate will be due. No deductions or allowances from the monthly rate will be made for days on which the Parking Facility is not used by Tenant or its designees. |
|
(ix) |
Parking Facility managers or attendants are not authorized to make or allow any exceptions to these Rules. |
|
(x) |
Every parker is required to park and lock his/her own car. |
|
(xi) |
Loss or theft of parking pass, identification, key cards or other such devices must be reported to Landlord and to the Parking Facility manager immediately. Any parking devices reported lost or stolen found on any authorized car will be confiscated. Lost or stolen passes and devices found by Tenant or its employees must be reported to the office of the Parking Facility immediately. |
|
(xii) |
Washing, waxing, cleaning or servicing of any vehicle by the customer and/or his agents is prohibited. Parking spaces may be used only for parking automobiles. |
|
(xiii) |
Tenant agrees to acquaint all persons to whom Tenant assigns a parking space with these Rules. |
6. |
TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANTS PROPERTY (INCLUDING, WITHOUT LIMITATIONS, ANY LOSS OR DAMAGE TO TENANTS AUTOMOBILE OR THE CONTENTS THEREOF DUE TO THEFT, VANDALISM OR ACCIDENT) ARISING FROM OR RELATED TO TENANTS USE OF THE PARKING FACILITY OR EXERCISE OF ANY RIGHTS UNDER THIS PARKING AGREEMENT, WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORDS ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION. THE LIMITATION ON LANDLORDS LIABILITY UNDER THE PRECEDING SENTENCE SHALL NOT APPLY HOWEVER TO LOSS OR DAMAGE ARISING DIRECTLY FROM LANDLORDS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. |
7. |
Without limiting the provisions of Paragraph 6 above, Tenant hereby voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action for personal |
3.
injury or property damage occurring to Tenant arising as a result of parking in the Parking Facility, or any activities incidental thereto, wherever or however the same may occur, and further agrees that Tenant will not prosecute any claim for personal injury or property damage against Landlord or any of its officers, agents, servants or employees for any said causes of action. It is the intention of Tenant by this instrument, to exempt and relieve Landlord from liability for personal injury or property damage caused by negligence.
8. |
The provisions of Article XXI of the Lease are hereby incorporated by reference as if fully recited. |
Tenant acknowledges that Tenant has read the provisions of this Parking Agreement, has been fully and completely advised of the potential dangers incidental to parking in the Parking Facility and is fully aware of the legal consequences of agreeing to this instrument.
4.
EXHIBIT H
FORM OF LETTER OF CREDIT
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No.
Issuance Date:
Expiration Date:
|
Applicant: |
Cardica, Inc. |
Beneficiary
CA-Seaport Centre Limited Partnership
c/o Equity Office Properties Trust
725 Saginaw Drive
Redwood City, California 94063
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your favor for the account of the above referenced Applicant in the amount of FIVE HUNDRED THOUSAND U.S. Dollars ($500,000.00) available for payment at sight by your draft drawn on us when accompanied by the following documents:
1. |
An original of this Irrevocable Standby Letter of Credit. |
2. Beneficiarys dated statement purportedly signed by an authorized signatory or agent reading: This draw in the amount of U.S. Dollars ($ ) under your irrevocable Standby Letter of Credit No. represents funds due and owing to us pursuant to the terms of that certain lease by and between CA-Seaport Centre Limited Partnership, a Delaware corporation, as landlord, and Cardica, Inc., a Delaware corporation, as tenant, and/or any amendment to the lease or any other agreement between such parties related to the lease.
It is a condition of this Irrevocable Standby Letter of Credit that it will be considered automatically renewed for a one year period upon the expiration dale set forth above and upon each anniversary of such date, unless at least 50 days prior to such expiration date or applicable anniversary thereof, we notify you in writing, by certified mail return receipt requested or by recognized overnight courier service, that we elect not to so renew this Irrevocable Standby Letter of Credit. A copy of any such notice shall also be sent, in the same manner, to: Equity Office Properties Trust, 2 North Riverside Plaza, Suite 2100, Chicago, Illinois 60606, Attention: Treasury Department. In addition to the foregoing, we understand and agree that you shall be entitled to draw upon this Irrevocable Standby Letter of Credit in accordance with 1 and 2 above in the event that we elect not to renew this Irrevocable Standby Letter of Credit and, in addition, you provide us with a dated statement purportedly signed by an authorized signatory or agent of Beneficiary stating that the Applicant has failed to provide you with an
1.
acceptable substitute irrevocable standby letter of credit in accordance with the terms of the above referenced lease. We further acknowledge and agree that: (a) upon receipt of the documentation required herein, we will honor your draws against this Irrevocable Standby Letter of Credit without inquiry into the accuracy of Beneficiarys signed statement and regardless of whether Applicant disputes the content of such statement; (b) this Irrevocable Standby Letter of Credit shall permit partial draws and, in the event you elect to draw upon less than the full stated amount hereof, the stated amount of this Irrevocable Standby Letter of Credit shall be automatically reduced by the amount of such partial draw; and (c) you shall be entitled to transfer your interest in this Irrevocable Standby Letter of Credit from time to time and more than one time without our approval and without charge. In the event of a transfer, we reserve the right to require reasonable evidence of such transfer as a condition to any draw hereunder.
This Irrevocable Standby Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 revision) ICC Publication No. 500.
We hereby engage with you to honor drafts and documents drawn under and in compliance with the terms of this Irrevocable Standby Letter of Credit.
All communications to us with respect to this irrevocable Standby Letter of Credit must be addressed to our office located at __________________________________________________________________
to the attention of ___________________________________.
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Very truly yours, |
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[name] |
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[title] |
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2.
FIRST AMENDMENT
THIS FIRST AMENDMENT (this Amendment ) is made and entered into as of the 21st day of January, 2004, by and between CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limit partnership ( Landlord ), and CARDICA, INC., a Delaware corporation ( Tenant ).
RECITALS
A. |
Landlord and Tenant are parties to that certain Office Lease Agreement dated April 25, 2004 (the Original Lease as amended hereby, the Lease ). Pursuant to the Original Lease, Landlord has leased to Tenant space containing approximately 31,062 rentable square feet (the Premises ) consisting of approximately 20,708 rentable square feet (the Original First Floor Premises ) described as Suite No. 100 on the 1 st floor and approximately 10,354 rentable square feet (the Second Floor Premises ) described as Suite 200 on the 2 nd floor, all in the building located at 900 Saginaw Drive in Redwood City, California (the Building ) and on the terms and conditions more particularly set forth in the Lease. |
B. |
Landlord and Tenant desire to correct the description and square footage of the Original First Floor Premises as set forth in the Original Lease and to identify the approximately 1,448 rentable square feet of Common Areas (as defined in the Original Lease) on the 1 st floor of the Building and more particularly shown on Exhibit A hereto (the First Floor Common Area ), and to amend the Original Lease as set forth herein. |
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
I. |
Amendment . Effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), Landlord and Tenant agree that the Original Lease shall be amended in accordance with the following terms and conditions: |
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A. |
First Floor Premises and First Floor Common Area. |
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1. |
Descriptions . Effective February 1, 2004 (the Effective Date ), the Original First Floor Premises are hereby decreased from 20,708 rentable square feet to 19,260 rentable square feet by the elimination of the First Floor Common Area. As of the Effective Date, the First Floor Common Area shall be deemed surrendered by Tenant to Landlord, the Lease shall be deemed terminated with respect to the First Floor Common Area, and the First Floor Premises, as defined in the Original Lease, shall be deemed to mean the Original First Floor Premises, less the First Floor Common Area. Notwithstanding anything in the Original Lease to the contrary, thereafter the First Floor Common Area shall be considered part of the Common Areas of the Building. Tenant shall fully comply with all obligations under the Lease respecting the First Floor Common Area up to the Effective Date. |
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2. |
Common Area Work . Promptly following the date hereof, Landlord shall commence and thereafter diligently prosecute to completion the following |
1.
improvements to the First Floor Common Area, at Landlords sole cost and expense and using Building standard methods, finishes and materials, and all as more particularly shown on Exhibit B hereto (collectively, the Common Area Work ):
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Demising the First Floor Common Area from the First Floor Premises (as reduced hereby) to create a common lobby area, provide common access to the elevator, and provide a rear exit corridor from the rear stairs; |
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Installing a card key access system to Tenants medium conference room adjacent to the elevator lobby; and |
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Moving the door to the small conference room designated as Dir. Legal, VP Legal to the other end of the room so that the entrance is within the First Floor Premises. |
Landlord and Tenant shall continue to cooperate to allow Landlord to complete the Common Area Work as soon as practicable following the date of this Amendment. Landlord shall be responsible for performing the Common Area Work in compliance with applicable Laws.
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3. |
Base Rent . The Monthly Base Rent for the First Floor Premises set forth in Section I.E of the Original Lease shall be reduced from $23,814.20 to $22,149.00 for the 7 th through the 24 th month of the Term to reflect the reduced square footage of the First Floor Premises. |
In addition, the Base Rent Table set forth in Section I.E of the Original Lease pertaining to Months 25 through 60 of the Term is hereby replaced with the following, to reflect the reduced square footage of the First Floor Premises:
Months of Term |
Annual Rate
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Annual
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Monthly
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Months 25 36 |
$15.00 |
$444,210.00 |
$37,017.50 |
Months 37 48 |
$15.60 |
$461,978.40 |
$38,498.20 |
Months 49 60 |
$16.20 |
$479,746.80 |
$39,978.90 |
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4. |
Pro Rata Share . Tenants Pro Rata Share for the 7 th through 24 th months of the Term, as set forth in Section l.F of the Lease, shall be reduced from 7.2053% to 6.7015% , and Tenants Pro Rata Share for the 25 th month through the remainder of the Term, as set forth in Section I.F of the Lease, shall be reduced from 10.8080% to 10.3041% , to reflect the reduced square footage of the First Floor Premises. Tenants Pro Rata Share shall remain subject to adjustment in the event of Early Occupancy as set forth in Section I.F of the Original Lease, as modified by Paragraph I.6 below. |
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B. |
Occupancy of Second Floor Premises. Section III.C of the Original Lease is hereby amended to provide that the following uses of the Second Floor Premises by Tenant shall not be deemed Early Occupancy (and accordingly shall not trigger an increase in Tenants Pro Rata Share as set forth in Section I.F of the Original Lease): general storage purposes, storage of fitness equipment and use |
2.
thereof by Tenants employees, and occasional, intermittent, non-persistent uses such as the holding of all-hands meetings; provided that the general conducting of business from the Second Floor Premises shall be considered Early Occupancy.
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C. |
Second Floor Premises Security System. Subject to the terms of the Lease, including, without limitation Section IX.C thereof, Tenant may, at its own expense except as expressly provide in this Paragraph I.C, install its own security system on the second floor to control access to the Second Floor Premises ( Tenants Security System ); provided, however, that Tenant shall coordinate the installation and operation of Tenants Security System with Landlord to assure that Tenants Security System is compatible with the Buildings systems and equipment. Subject to the foregoing, and so long as Tenant is not in default under the Lease, Landlord shall reimburse Tenant for the actual, reasonable third-party costs incurred by Tenant to install Tenants Security System on the second floor, up to a maximum of $2,000.00, within 30 days of Landlords receipt of written request for reimbursement accompanied by final receipts documenting such costs. Tenant shall be solely responsible, at Tenants sole cost and expense, for the monitoring, operation and removal upon the expiration or earlier termination of the Term of Tenants Security System. |
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D. |
Parking. Tenant shall be entitled to convert 2 of the 96 non-reserved parking spaces provided to Tenant in the Parking Agreement attached to the Original Lease into 2 reserved spaces near the shipping and receiving area of the Building at no charge through the initial Term or any extensions thereof. The remaining 94 spaces shall remain non-reserved. |
II. |
Miscellaneous. |
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A. |
This Amendment and Exhibits A and B attached hereto set forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. |
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B. |
Except as herein modified or amended, the provisions, conditions and terms of the Original Lease shall remain unchanged and in full force and effect. |
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C. |
In the case of any inconsistency between the provisions of the Original Lease and this Amendment, the provisions of this Amendment shall govern and control. |
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D. |
Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. |
3.
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E. |
The capitalized terms used in this Amendment shall have the same definitions as set forth in the Original Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment. |
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F. |
Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment. Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents (collectively, the Landlord Related Parties) harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment. Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents (collectively, the Tenant Related Parties) harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment. Equity Office Properties Management Corp. ( EOPMC ) is an affiliate of Landlord and represents only the Landlord in this transaction. Any assistance rendered by any agent or employee of EOPMC in connection with this Amendment or any subsequent amendment or modification hereto has been or will be made as an accommodation to Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant. |
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G. |
Each signatory of this Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting. |
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H. |
Tenant agrees that neither Tenant nor its agents or any other parties acting on behalf of Tenant shall disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. |
[SIGNATURES ARE ON FOLLOWING PAGE]
4.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
LANDLORD:
CA-SEAPORT CENTRE LIMITED PARTNERSHIP, a Delaware limited partnership
By: EOM GP, L.L.C., a Delaware limited liability company, its general partner
By: Equity Office Management, L.L.C., a Delaware limited liability company, its non-member manager
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By: |
/s/ Mark Geisreiter |
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Name: |
Mark Geisreiter |
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Title: |
Senior Vice President |
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TENANT:
CARDICA, INC., a Delaware corporation
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By: |
/s/ James R. Zuegel |
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Name: |
James R. Zuegel |
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Title: |
VP Operations |
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5.
EXHIBIT A
First Floor Common Area
A-1
EXHIBIT B-1
Depiction of First Floor Common Area Work
B-1
Exhibit 10.8
SUBORDINATED 5% CONVERTIBLE NOTE
CARDICA, INC.
5% Convertible Note, due June 17, 2008
No. CSN-1 |
Menlo Park, CA |
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$3,000,000 |
June 17, 2003 |
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Cardica, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the Company), for value received, hereby promises to pay to Century Medical, Inc., a Japanese corporation (Century), or its registered assigns (Century or its assigns being the Registered Holder), the principal sum of THREE MILLION DOLLARS (US$3,000,000) on June 17, 2008 (the Maturity), and to pay interest (computed on the basis of the actual number of days elapsed and a year of 365 days) (i) on the unpaid principal balance thereof from the date of this Note at the rate of five percent (5%) per annum from the date hereof, payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year (each, an Interest Payment Date) (commencing July 31, 2003) until such unpaid principal balance shall become due and payable (whether at Maturity, or by declaration, acceleration or otherwise) and (ii) to the extent permitted by applicable law on each overdue payment of principal or any overdue payment of interest, at a rate per annum equal to twelve percent (12.0%) (computed on the basis of the actual number of days elapsed and a year of 365 days) payable quarterly as aforesaid.
The interest and principal payments payable with respect to this Note, on any Interest Payment Date, at Maturity or by declaration, acceleration or otherwise, pursuant to the Note Agreement (as defined herein), shall be paid to Century in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Such interest and principal payments shall be made to Century in accordance with the provisions of the Note Agreement.
This 5% Convertible Note is the Note due June 17, 2008 of the Company issued in an aggregate principal amount of Three Million Dollars ($3,000,000) pursuant to the Subordinated Convertible Note Agreement, dated June 16, 2003, by and between the Company and Century (the Note Agreement). The Registered Holder of this Note is entitled to the benefits of the Note Agreement, and may enforce the Note Agreement and exercise the remedies provided for thereby or otherwise available in respect thereof.
This Note may be transferred or assigned by Century or Registered Holder as provided in the Note Agreement, provided that the right to receive principal and/or interest payments on this Note may be assigned or transferred only in one of the following methods: (1) by surrender of this Note to the Company and (a) reissuance by the Company of this Note to the new Registered Holder or (b) issuance by the Company of a new note to the new Registered Holder; or (2) by notification to the Company of the transfer and a change by the Company in the Companys books identifying the new owner of an interest in principal or interest on this Note. The Company shall at all times maintain a book entry system, which shall reflect ownership of this Note, and interests therein. In the event the first method of transfer is used, the Company shall
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1. |
also change its records to reflect such transfer or reissuance. The method of transfer, as detailed above, will be determined by mutual agreement of Century and Registered Holder.
In the case of an Event of Default (as defined in the Note Agreement), the principal of this Note in certain circumstances may be declared or otherwise become due and payable in the manner and with the effect provided in the Note Agreement, without presentment, demand, protest or any other notice of any kind, of which are hereby expressly waived.
This Note is subject to conversion into Common Stock pursuant to the terms and conditions of the Note Agreement and conversion shall be evidenced by a Notice of Conversion as attached hereto.
The Indebtedness evidenced by this Note is, to the extent provided in the Note Agreement, subordinate and subject in right of payment to the Senior Indebtedness (as defined in the Note Agreement), and this Note is issued subject to the provisions of the Note Agreement with respect thereto. Each Registered Holder of this Note, by accepting the same, agrees to and shall be bound by such provisions.
No reference herein to the Note Agreement and no provision of this Note or of the Note Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Note as provided in the Note Agreement.
All terms used in this Note, which are defined in the Note Agreement, shall have the meanings assigned to them in the Note Agreement.
This Note has been delivered to Century in Menlo Park, California, and the Note and the Note Agreement are governed by and shall be construed and enforced in accordance with and the rights of the parties shall be governed by the law of the State of California excluding choice-of-law principles.
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2. |
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: June 17, 2003
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CARDICA, INC.
By: /s/ Bernard Hausen Its: CEO |
Attest:
By: /s/ Robert Newell Its: CFO |
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3. |
NOTICE OF CONVERSION TO 5% CONVERTIBLE NOTE
Registered Holder, as defined in the certain Subordinated Convertible Note Agreement, dated June 16, 2003 (the Note Agreement) hereby irrevocably exercises the option to convert this 5% Convertible Note, or that portion hereof below designated, into shares of Common Stock in accordance with the terms of the Note Agreement, and represents that the shares issuable and deliverable upon such conversion, together with written confirmation of transmittal of a wire transfer to Registered Holder in payment for any fractional shares and in payment of accrued but unpaid interest on the Note or portion of the Note to he converted, and any 5% Convertible Note representing any unconverted principal amount hereof, will be issued and delivered to the current Registered Holder of the 5% Convertible Note.
Principal amount to be converted (if less than all): $
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REGISTERED HOLDER
Name: By: Its:
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4. |
Exhibit 10.11
CARDICA, INC.
8.75% Note
No. N-1 |
Menlo Park, CA |
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$5,000,000 |
August 19, 2003 |
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Cardica, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the Company ), for value received, hereby promises to pay to Guidant Investment Corporation, a California corporation ( Guidant ), the principal sum of Five Million Dollars ($5,000,000) on the Maturity Date (as defined in the Agreement referred to below), and to pay interest (computed on the basis of the actual number of days elapsed and a year of 365 days) on the unpaid principal balance thereof from the date of this Note at the rate of eight and three quarters percent (8.75%) per annum from the date hereof, payable in arrears on the Maturity Date.
The interest and principal payments payable with respect to this Note, on the Maturity Date, regardless of whether by declaration, acceleration or otherwise, pursuant to the Agreement (as defined herein), shall be paid to Guidant in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Such interest and principal payments shall be made to Guidant in accordance with the provisions of the Note Agreement.
This Note is one of the Notes of the Company issued in an aggregate principal amount of up to Ten Million Two Hundred Fifty Thousand Dollars ($10,250,000) pursuant to the Agreement, dated August 19, 2003, by and between the Company and Guidant (the Agreement ). Guidant is entitled to the benefits of the Agreement, and may enforce the Agreement and exercise the remedies provided for thereby or otherwise available in respect thereof.
This Note may not be transferred or assigned by Guidant to any Person other than to its Affiliates.
In the case of an Event of Default (as defined in the Agreement), the principal of this Note in certain circumstances may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived.
The Indebtedness evidenced by this Note is, to the extent provided in the Agreement, subordinate and subject in right of payment to the Senior Indebtedness (as defined in the Agreement), and this Note is issued subject to the provisions of the Agreement with respect thereto.
No reference herein to the Agreement and no provision of this Note or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
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the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
All terms used in this Note that are defined in the Agreement shall have the meanings assigned to them in the Agreement.
This Note has been delivered to Guidant in Santa Clara, California, and the Note and the Credit Agreement are governed by and shall be construed and enforced in accordance with and the rights of the parties shall be governed by the law of the State of California excluding choice-of-law principles.
IN WITNESS WHEREOF , the Company has caused this Note to be duly executed as of the 19 th day of August, 2003.
COMPANY:
CARDICA, INC.
By: /s/ Bernard Hausen
Bernard Hausen, M.D.
President & Chief Executive Officer
Attest :
By: /s/ Robert Newell
Robert Newell
Chief Financial Officer
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CARDICA, INC.
8.75% Note
No. N-2 |
Redwood City, CA |
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$5,250,000 |
February 25, 2004 |
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Cardica, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the Company ), for value received, hereby promises to pay to Guidant Investment Corporation, a California corporation ( Guidant ), the principal sum of Five Million Two Hundred Fifty Thousand Dollars ($5,250,000) on the Maturity Date (as defined in the Agreement referred to below), and to pay interest (computed on the basis of the actual number of days elapsed and a year of 365 days) on the unpaid principal balance thereof from the date of this Note at the rate of eight and three quarters percent (8.75%) per annum from the date hereof, payable in arrears on the Maturity Date.
The interest and principal payments payable with respect to this Note, on the Maturity Date, regardless of whether by declaration, acceleration or otherwise, pursuant to the Agreement (as defined herein), shall be paid to Guidant in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Such interest and principal payments shall be made to Guidant in accordance with the provisions of the Note Agreement.
This Note is one of the Notes of the Company issued in an aggregate principal amount of up to Ten Million Two Hundred Fifty Thousand Dollars ($10,250,000) pursuant to the Agreement, dated August 19, 2003, by and between the Company and Guidant (the Agreement ). Guidant is entitled to the benefits of the Agreement, and may enforce the Agreement and exercise the remedies provided for thereby or otherwise available in respect thereof
This Note may not be transferred or assigned by Guidant to any Person other than to its Affiliates.
In the case of an Event of Default (as defined in the Agreement), the principal of this Note in certain circumstances may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived.
The Indebtedness evidenced by this Note is, to the extent provided in the Agreement, subordinate and subject in right of payment to the Senior Indebtedness (as defined in the Agreement), and this Note is issued subject to the provisions of the Agreement with respect thereto.
No reference herein to the Agreement and no provision of this Note or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
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All terms used in this Note that are defined in the Agreement shall have the meanings assigned to them in the Agreement.
This Note has been delivered to Guidant in Santa Clara, California, and the Note and the Credit Agreement are governed by and shall be construed and enforced in accordance with and the rights of the parties shall be governed by the law of the State of California excluding choice-of-law principles.
IN WITNESS WHEREOF , the Company has caused this Note to be duly executed as of the 25th day of February, 2004.
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COMPANY: CARDICA, INC.
By : /s/ Bernard Hausen Bernard Hausen, M.D. President & Chief Executive Officer
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Attest:
By: /s/ Robert Newell Robert Newell Chief Financial Officer
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Exhibit 10.12
ALLEN & COMPANY LLC
711 FIFTH AVENUE - NEW YORK, N.Y. 10022 (212) 832-8000
September 12, 2005
Cardica, Inc.
900 Saginaw Drive
Redwood City, California 94063
(650) 364-9975
Attn: |
Bernard Hausen |
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Chief Executive Officer |
Gentlemen:
You have advised us that Cardica, Inc. (the Company) proposes to effect an initial public offering of its Common Stock (the Shares) sufficient to raise gross proceeds of approximately $40 million. Based upon our discussions of the Companys plans and its business and financial condition, hut subject to our continuing due diligence inquiry and review, Allen & Company LLC and A.G. Edwards & Sons, Inc. would be prepared to manage, on a firm commitment basis, an underwritten initial public offering of the Shares.
The public offering price of the Shares and the underwriting discount will be determined by mutual agreement immediately prior to the public distribution of the Shares. In negotiating the offering price of the Shares, it is understood that we will consider the market prices of securities of comparable publicly traded life-science technology companies, the anticipated demand for the Shares and market conditions in general at the time of the proposed distribution. While the underwriting discount will depend upon various factors, including the amount of institutional versus retail demand for the securities and the overall market reception for the offering, it is our present belief that the offering could be effectively marketed with an underwriting discount of approximately 7%. Based upon the expression of intention set forth herein,. the Company agrees to take such action as may be reasonably necessary to register the Shares under the Securities Act of 1933. as amended (the Act). In connection with such registration, the Company will carefully prepare and file with the Securities and Exchange Commission (the Commission) a registration statement (the Registration Statement), including financial statements and schedules for such periods, and in such form, as required, in all material respects, by the Act and the rules and regulations of the Commission thereunder.
Our offering of the Shares would be pursuant to an underwriting agreement that would provide, among other matters, the following:
1. We would purchase the Shares from the Company on a firm commitment basis at the offering price less underwriting discounts and commissions which shall be mutually acceptable to the Company and us. We may associate with other underwriters (collectively, with us, the Underwriters) who shall be members in good standing of the National Association of Securities Dealers, Inc. (the NASD) and who, acting severally, would agree to purchase a
Cardica, Inc.
September 12, 2005
Page 2
portion of the Shares directly from the Company. on a firm commitment basis, subject to all the terms of an underwriting agreement.
2. Except as provided in the next sentence, the Company will represent and warrant, in customary form, as to the accuracy of the Registration Statement and prospectus incorporated therein (the Prospectus), and the Company will indemnify the Underwriters against any liability under the Act or otherwise for material misstatements or omissions in the Registration Statement or Prospectus, except for material misstatements or omissions with respect to information furnished by any of the Underwriters for use in the Underwriting section of the prospectus for which no representation shall be made by the Company. The Underwriters will represent and warrant to the Company, and the Underwriters will indemnify the Company for any liability under the Act or otherwise for material misstatements or omissions in the Registration Statement and Prospectus with respect to information furnished by the Underwriters for use in the Underwriting section of the prospectus.
3. All proceedings in connection with the issuance, registration and delivery of the Shares will be subject to, among other matters, (a) the approval of agreements, opinions and certificates called for in the Underwriting Agreement to the reasonable satisfaction of Underwriters counsel, (b) the delivery of certificates of representation of the Company at the closing stating that there are no material adverse changes in the business, properties or financial condition of the Company, (c) the absence of any general financial or economic calamity, (d) the receipt of comfort letters of the Companys regularly retained certified public accountants and opinions of the Companys legal counsel in form and substance to our satisfaction and (e) other customary conditions.
4. The Company shall bear and be responsible for all expenses incurred in connection with proposed financing including, but not limited to, the costs of preparing, printing and filing with the Commission the Registration Statement and amendments, post-effective amendments and supplements thereto; preparing, printing and delivering all underwriting and selling documents and stock certificates; initial transfer tax charges, if any; the Commissions registration fee, the NASD filing fees and any other filing fees and disbursements; the fees and disbursements of the transfer agent; the filing fees, legal fees and other expenses of registering or qualifying the Shares for offer and sale under the securities or blue sky laws of the various states in which the Underwriters intend to offer and sell the Shares (including the legal fees and disbursements of Underwriters counsel serving in such capacity); and the Companys expenses incurred in connection with roadshows and other meetings or presentations relating to the offering. The Company shall provide to the Underwriters an initial payment of $25,000 as an advance against actual out-of-pocket expenses incurred in connection with the offering, including legal and other expenses of the Underwriters. In addition, if the proposed offering is terminated or the parties determine not to pursue the financing for any reason, the Company shall reimburse the Underwriters, for their actual and documented out-of-pocket expenses, including the fees and disbursements of counsel to the Underwriters incurred in connection with the offering up to a maximum of $100,000 (including the initial $25,000 payment). In the event of any inconsistency between the terms hereof and the terms of an executed Underwriting Agreement, the Underwriting Agreement shall control.
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Cardica, Inc.
September 12, 2005
Page 3
5. If requested by the Underwriters, the Company shall grant to the Underwriters the option, exercisable for a period of 30 days from the date of the Underwriting Agreement, for the purpose of covering overallotment, to acquire up to such number of shares of Common Stock of the Company as shall be equal to 15% of the Shares, at the same price at which the Shares are being purchased.
6. All officers and directors of the Company and those holders of more than 1% of the outstanding shares of the Companys Common Stock requested by the Underwriters will agree not to sell, offer to sell, contract for sale or otherwise transfer (except by gift or other disposition not for value subject to the donees or other transferees entering into the same agreement, or by the laws of descent and distribution), without the prior written consent of the managing Underwriter, any such shares for 180 days following the commencement of the distribution of the Shares, or such other shorter time period as shall be determined by the managing Underwriter.
The foregoing is only a brief outline of the proposed financing and each of the foregoing terms must be interpreted in the form in which it finally appears in the proposed underwriting agreement and related document. While it is the intention of the parties hereto that upon satisfaction of the conditions set forth in this letter, subject as well to market conditions at the time, a public offering of the Shares be made, this letter cannot be construed as a commitment by the Underwriters to purchase the Shares or to make such public offering nor as a commitment by the Company in any respect. Our obligation to purchase and sell the Shares shall be conditioned upon completion to our satisfaction of a comprehensive review of your business operations and future prospects as well as the negotiation, execution and delivery of a satisfactory underwriting agreement between the Company and the Underwriters (and this letter is not to be construed as such an agreement nor as a contract to enter into such an agreement) to he entered into immediately prior to the time of the public offering and shall be conditioned further upon compliance by the Company with all of the terms, conditions, covenants and representations and warranties contained in this letter and in such underwriting agreement.
3
Cardica, Inc.
September 12, 2005
Page 4
Please indicate your intention to proceed with the proposed offering on the terms set forth above by signing and returning to us the enclosed copy of this letter.
Very truly yours.
ALLEN & COMPANY LLC
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By: |
/s/ Kim M. Wieland |
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Name: |
Kim M. Wieland |
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Title: |
Managing Director & CFO |
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A. G. EDWARDS & SONS, INC.
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By: |
/s/ Richard Giles |
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Name: |
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Title: |
Managing Director |
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Accepted and agreed to
As of the date first above written:
CARDICA, INC.
By: |
/s/ Bernard Hausen |
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Name: |
Bernard Hausen |
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Title: |
President & CEO |
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4
Exhibit 21.1
Subsidiaries of the Registrant
None
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption Experts and to the use of our report dated September 8, 2005 (except for Note 12, as to which the date is October 28, 2005), in the Registration Statement (Form S-1) and related Prospectus of Cardica, Inc. for the registration of $40,000,000 of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
November 3, 2005