$750,000 CUPERTINO, CA
August 16, 1996
FOR VALUE RECEIVED, Richard M. Ferrari promises to pay to CardioThoracic
Systems, Inc., a Delaware corporation (the "Company"), or order, the principal
sum of Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000), together with
Principal shall be due and payable on the earlier of (a) August 16, 2000,
and (b) the date which is 120 days after the date when the undersigned shall
cease to be an employee or consultant of the Company. Should the undersigned
fail to make full payment of principal for a period of 10 days or more after the
due date thereof, the whole unpaid balance on this Note of principal shall
become immediately due at the option of the holder of this Note. Payments of
principal shall be made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal
This Note is secured in part by a pledge of the company's common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Notes shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee or consultant of
the company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal shall be due
and payable on the date which is 120 days after the date on which the
undersigned ceased to be an employee or consultant of the company.,
Should any action be instituted for the collection of this Note, the
reasonable cost and attorneys' fees therein of the holder shall be paid by the
/s/ Richard M. Ferrari
Richard M. Ferrari
This Security Agreement is made as of August 16, 1996 between
CardioThoracic Systems, Inc., a Delaware corporation ("Pledgee"), and Richard M.
Pursuant to Pledgor's Note date and given to Pledgee on the date hereof
(the "Note"), Pledgor has borrowed $750,000 form Pledgee and wishes to secure
repayment of the Note with shares of Pledge's Common Stock (the "Shares").
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of
the loan of $750,000 to Pledgor under the Note, Pledgor, pursuant to the
California Commercial Code, hereby pledges 75,000 Shares (herein sometimes
referred to as the "Collateral") represented by certificate number ______, duly
endorsed in blank or with executed stock powers, and herewith delivers said
certificate to the Secretary of Pledgee ()"Pledgeholder"), who shall hold said
certificate subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, executed by Pledgor, and the Pledgeholder shall not encumber dispose of
such Shares except in accordance with provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon substitution, references to "Shares"
in this Security Agreement shall include the substituted shares of capital stock
of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of 10 days after written notice thereof from
In the case of an event of default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. WITHDRAWAL OR SUBMISSION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all of any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions in the case of default.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that
the enforceability of invalidity of any provisions or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the laws of the State o California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" By: /s/ Richard M. Ferrari
Richard M. Ferrari
Address: 19575 Three Oaks Way
Saratoga, Ca. 95070
"PLEDGEE" CARDIOTHORACIC SYSTEMS, INC.,
a Delaware corporation
By: /s/ Steve Van Dick
"PLEDGEHOLDER" /s/ J. Casey McGlynn
J. Casey McGlynn
CardioThoracic Systems, Inc.