<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-31161
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEARTPORT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
DELAWARE 94-3222307
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
</TABLE>
200 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 94063
(415) 306-7900
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
WESLEY D. STERMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HEARTPORT, INC.
200 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 94063
(415) 306-7900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
JAY K. HACHIGIAN, ESQ.
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 321-2400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
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: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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<PAGE>
[LOGO]
$86,250,000 7 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004
2,978,452 SHARES OF COMMON STOCK
This Prospectus relates to $86,250,000 aggregate principal amount of 7 1/4%
Convertible Subordinated Notes due 2004 (the "Notes") of Heartport, Inc. a
Delaware Corporation ("Heartport" or the "Company"), and 2,978,452 shares of
common stock, par value $.001 per share (the "Common Stock"), of the Company
which are initially issuable upon conversion of the Notes plus such additional
number of shares of Common Stock as may become issuable upon conversion of the
Notes as a result of adjustments to the conversion price (all such shares of
Common Stock collectively referred to herein as the "Shares"). The Notes and the
Shares that are being registered hereby are to be offered for the account of the
holders thereof (the "Selling Securityholders"). The Notes were initially
acquired from the Company by Morgan, Stanley & Co. Incorporated, Goldman, Sachs
& Co., and Cowen & Company (the "Initial Purchasers") in April and May, 1997 in
connection with a private offering. See "Description of Notes."
The Notes are convertible into Common Stock of the Company at any time prior
to maturity, unless previously redeemed, at a conversion price of $28.958 per
share, subject to adjustments in certain events. On April 22, 1998, the closing
price of the Common Stock on the Nasdaq National Market was $11.125 per share.
The Common Stock is traded under the symbol "HPRT."
The Notes do not provide for a sinking fund. The Notes are redeemable at the
option of the Company on at least 30 days notice, in whole or in part, at the
redemption prices set forth in this Prospectus, together with accrued interest,
except that no redemption may be made prior to May 4, 2000. Upon a Fundamental
Change (as defined herein), each holder of Notes shall have the right, at the
holder's option, to require the Company to redeem such holder's Notes at
declining redemption prices, subject to adjustments in certain events as
described herein, together with accrued interest. See "Description of
Notes--Optional Redemption by the Company" and "--Redemption at Option of the
Holder."
The Notes are unsecured obligations of the Company and are subordinated to
all present and future Senior Indebtedness (as defined herein) of the Company
and will be effectively subordinated to all indebtedness and liabilities of
subsidiaries of the Company. The Indenture (as defined herein) does not restrict
the incurrence of any other indebtedness or liabilities by the Company or its
subsidiaries. See "Description of Notes--Subordination of Notes."
The Notes have been designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. For a description of
certain income tax consequences to holders of the Notes, see "Certain Federal
Income Tax Considerations." The Initial Purchasers have advised the Company that
they intend to make a market in the Notes. The Initial Purchasers, however, are
not obligated to do so and any such market making may be discontinued at any
time without notice, in the sole discretion of the Initial Purchasers. No
assurance can be given that any market for the Notes will develop or be
maintained.
The Notes and the Shares are being registered to permit public secondary
trading of the Notes and, upon conversion, the underlying Common Stock, by the
holders thereof from time to time after the date of this Prospectus. The Company
has agreed, among other things, to bear all expenses (other than underwriting
discounts and commissions and fees and expenses of counsel and other advisors to
the holders of the Notes or the underlying Common Stock) in connection with the
registration and sale of the Notes and the underlying Common Stock covered by
this Prospectus.
The Company will not receive any of the proceeds from sales of Notes or the
Shares by the Selling Securityholders. The Notes and the Shares may be offered
in negotiated transactions or otherwise, at market prices prevailing at the time
of sale or at negotiated prices. See "Plan of Distribution." The Selling
Securityholders may be deemed to be "underwriters" as defined in the Securities
Act of 1933, as amended (the "Securities Act"). If any broker-dealers are used
by the Selling Securityholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any Notes or Shares as principals, any profits received
by such broker-dealers on the resale of the Notes or Shares may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders may be deemed to be underwriting
commissions.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 23, 1998
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
THE COMPANY................................................................................................ 4
RISK FACTORS............................................................................................... 4
USE OF PROCEEDS............................................................................................ 14
DIVIDEND POLICY............................................................................................ 15
RATIO OF EARNINGS TO FIXED CHARGES......................................................................... 15
DESCRIPTION OF NOTES....................................................................................... 15
DESCRIPTION OF CAPITAL STOCK............................................................................... 25
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 30
SELLING SECURITYHOLDERS.................................................................................... 33
PLAN OF DISTRIBUTION....................................................................................... 34
LEGAL MATTERS.............................................................................................. 35
EXPERTS.................................................................................................... 35
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------------------------
Heartport and the Heartport logo are registered trademarks of the Company.
Port-Access, EndoCPB, Endoaortic Clamp, Endovenous Drainage, Endoarterial
Return, Endopulmonary Vent, and Endocoronary Sinus are trademarks of the
Company. Port-Access Partnership is a service mark of the Company. All other
trademarks or trade names referred to herein are the property of their
respective owners.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's following Regional
Offices: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. Reports, proxy
and information statements and other information filed electronically by the
Company with the Commission are available at the Commission's world wide web
site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Registration Statement on Form S-1 (File No. 333-1906) and the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 filed
with the Securities and Exchange Commission (the "Commission"), are hereby
incorporated by reference in this Prospectus except as superseded or modified
herein. All documents filed with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in any document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement.
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<PAGE>
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person, including any beneficial owner, to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Such requests
should be directed to Investor Relations, Heartport, Inc., 200 Chesapeake Drive,
Redwood City, CA 94063, (415) 306-7900.
3
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THE COMPANY
Heartport, Inc. ("Heartport" or the "Company") has developed and is
marketing proprietary systems and novel procedures that enable cardiac surgeons
to perform a wide range of heart surgeries in a minimally invasive manner
through small incisions, or "ports" between the ribs, without the need to crack
open the chest as is required in conventional heart surgery. The Company was
incorporated under the laws of California in May, 1991, and was reincorporated
under the laws of Delaware in April, 1995. The Company's principal executive
offices are located at 200 Chesapeake Drive, Redwood City, CA 94063. Its
telephone number is (415) 306-7900.
See "Risk Factors" for information that should be considered by prospective
investors.
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION
PRESENTED IN THIS PROSPECTUS.
EARLY STAGE OF UTILIZATION; NO ASSURANCE OF SAFETY AND EFFICACY
The Company's EndoCPB System, Port-Access coronary artery bypass grafting
("CABG") System, and Port-Access mitral valve repair and replacement ("MVR")
System and related devices are at an early stage of clinical utilization, and
there can be no assurance as to their clinical safety and efficacy. Port-Access
minimally invasive cardiac surgery has many of the risks of open-chest heart
surgery, including bleeding from the wound or internal organs, irregular
heartbeat, formation of blood clots and related complications, infection, heart
attack, heart failure, stroke, and death. Port-Access minimally invasive cardiac
surgery also has additional risks compared to open-chest surgery, including
tearing or splitting of major blood vessels, damage to blood vessels in the
groin, and groin pain. Although there can be no assurance in this regard, the
Company believes, based on the limited clinical experience to date, that
mortality and morbidity rates associated with Port-Access surgical procedures
are comparable to mortality and morbidity rates experienced with conventional
open-chest procedures. If, with further experience, any of the Company's systems
do not prove to be safe and effective or if the Company is otherwise unable to
commercialize them successfully, the Company's business, financial condition,
and results of operations will be materially adversely affected and the
Company's business could cease.
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that the Company's EndoCPB and Port-Access systems
will gain any significant degree of market acceptance among physicians,
patients, and health care payors. The Company believes that physicians'
acceptance and healthcare payors' reimbursement of Port-Access procedures will
be essential for market acceptance of its systems, and there can be no assurance
that any such recommendations or approvals will be obtained. Physicians will not
recommend Port-Access procedures unless they conclude, based on clinical data,
ease of use, operative time and other factors, that Port-Access procedures are
an attractive alternative to other treatments for cardiovascular disease. Most
patients with cardiovascular disease first consult with a cardiologist, who may
treat the patient with pharmaceuticals or non-surgical interventions such as
percutaneous transluminal coronary angioplasty ("PTCA") and intravascular
stents, or may refer the patient to a cardiac surgeon for open-chest surgery.
Cardiologists may not recommend Port-Access procedures until such time, if any,
as Port-Access procedures can be successfully demonstrated to be as safe and
cost-effective as other accepted treatments. In addition, cardiac surgeons may
elect not to recommend Port-Access procedures until such time, if any, as the
efficacy of the Company's Port-Access procedures can be successfully
demonstrated as compared to conventional, open-chest surgery methods,
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which have become widely adopted by cardiac surgeons since the initial use of
such surgery in the mid-1950s. Even if the clinical efficacy of Port-Access
procedures is established, cardiologists, cardiac surgeons, and other physicians
may elect not to recommend the procedures for any number of other reasons. The
Company believes that procedure volume by trained cardiac surgery teams has been
negatively impacted by ease of use issues, the significant physician learning
curve, and longer procedure times associated with Port-Access surgery. Although
the Company has recently re-focused its training and sales efforts on addressing
these issues, there can be no assurance that it will be successful in increasing
procedure volume or that the products will obtain any significant degree of
market acceptance. Failure of the Company to increase procedural volume by
trained teams or failure of the Company's products to achieve significant market
acceptance would have a material adverse effect on the Company's business,
financial condition, and results of operations.
FLUCTUATIONS IN OPERATING RESULTS
Results of operations may vary significantly from quarter to quarter and
year to year depending upon numerous factors, including the following: demand
for the Company's products; the number of cardiac surgery teams trained in the
use of the Company's systems and the number of procedures performed by those
teams; the number of hospitals that begin using the Company's products; the
ability of the Company to manufacture, test and deliver its products in
commercial volumes; health care reform and reimbursement policies; delays
associated with the FDA and other regulatory approval processes; changes in
pricing policies by the Company or its competitors; the number, timing, and
significance of product enhancements and new product announcements by the
Company and its competitors; the ability of the Company to develop, introduce,
and market new and enhanced versions of the Company's products on a timely
basis; customer order deferrals in anticipation of enhancements or new products
offered by the Company or its competitors; product quality problems; personnel
changes; and the level of international sales. In addition, the Company's
operating results are affected by seasonality (principally during each fourth
quarter due to fewer operating days and fewer elective cardiovascular surgeries
scheduled over the holidays). Furthermore, the Company is continuing to develop
its direct sales force. The timing of such development and the rate at which new
sales people become productive could also cause material fluctuations in the
Company's quarterly operating results.
Operating results have been and will continue to be difficult to forecast.
Future revenue, if any, is also difficult to forecast because the market for
minimally invasive cardiac surgery systems is rapidly evolving, because of the
inherent risks associated with new medical device technology, and due to the
uncertainty as to whether the Company's efforts to increase procedure volume by
trained cardiac surgery teams will be successful. Accordingly, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as indications of future
performance. Failure by the Company, for any reason, to increase revenue from
sales of its products would have a material adverse effect on the Company's
business, operating results, and financial condition. Due to the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected.
CUSTOMER CONCENTRATION
Approximately 36% of the Company's net sales in 1997 were derived from sales
to 20 customers. However, the Company believes that these customers actually
performed a substantially higher percentage of the Port-Access procedures
performed during 1997. The Company believes that during 1998 this customer
concentration will continue as the Company focuses on strengthening its
relationships with active, higher volume customers. There can be no assurance
that the Company's principal customers will continue to purchase products from
the Company at current levels, if at all. The loss of, or a significant
5
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adverse change in, the relationship between the Company and any major customer
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH NEW SURGICAL PROCEDURE; EXTENSIVE TRAINING REQUIREMENTS
Use of the Company's EndoCPB System, Port-Access CABG System, and
Port-Access MVR System to date has shown that, as with any novel surgical
procedure, there is a substantial learning process involved for surgeons and
other members of the cardiac surgery team. Typically, a significant amount of
time and effort spent in training as well as completion of a number of
Port-Access procedures is required before a cardiac surgery team becomes
proficient with the Company's products. In addition, certain patients requiring
heart surgery cannot be treated with the present Port-Access systems, depending
upon their anatomy, what kind of condition they have and how severe it is. These
patients include people with severe peripheral vascular disease
(arteriosclerosis), a poorly functioning aortic valve, an enlarged heart, or
certain types of chest scarring. Broad use of the Company's systems will require
extensive training of numerous physicians, and the time required to begin and
complete such training could adversely affect market acceptance. There can be no
assurance that the Company will be able to rapidly train physicians in numbers
sufficient to generate adequate demand for the Company's products and systems.
Any delay in training or delay in trained surgical teams' ability to become
proficient with the Company's products would have a material adverse effect on
the demand for the Company's products and systems and, therefore, a material
adverse effect on its business, financial condition, and results of operations.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON KEY SUPPLIERS
To meet anticipated demand, the Company must increase the rate by which it
manufactures its products. To date, the Company's manufacturing activities have
consisted primarily of manufacturing low volume quantities for initial
commercial sales. The manufacture of the Company's products is complex,
involving a number of separate processes and components. The Company does not
have experience in manufacturing its products in higher volume commercial
quantities. Although the Company is scaling up its capability to produce
products in higher volume, there can be no assurance that it will be able to
successfully scale-up its production to meet commercial demand for its products
in a timely manner. In addition, the Company believes that cost reductions in
its manufacturing operations will be required for it to commercialize its
systems on a profitable basis. Certain manufacturing processes are
labor-intensive, and achieving significant cost reductions will depend, in part,
upon reducing the time required to complete these processes. Medical device
manufacturers often encounter difficulties in scaling up manufacturing of new
products, including problems involving product yields, quality control and
assurance, component and service availability, adequacy of control policies and
procedures, lack of qualified personnel, compliance with FDA regulations, and
the need for further FDA approval of new manufacturing processes and facilities.
To date, the Company has experienced variable yields in scaling up manufacturing
of certain of its product components, and there can be no assurance that such
variability will not continue or will not adversely impact the Company's ability
to meet demand for its products. The Company has considered and will continue to
consider as appropriate the internal manufacture of components currently
provided by third parties, as well as the implementation of new production
processes. There can be no assurance that manufacturing yields or costs will not
be adversely affected by the transition to in-house production or to new
production processes when such efforts are undertaken, and that such a
transition would not materially and adversely affect the Company's business,
financial condition, and results of operations. Although the Company has
received ISO 9001 certification, to date, the FDA has not inspected the
Company's compliance with GMP requirements, which include testing, control, and
documentation requirements, although the Company expects such inspections to be
made in the near future. There can be no assurance that FDA GMP requirements
will be met.
The Company uses or relies on a number of components and services used in
its devices that are provided by sole source suppliers. Although the Company is
in the process of identifying alternative
6
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sources for certain of such components and services, the qualification of
additional or replacement vendors for certain components or services is a
lengthy process. Any significant supply interruption would have a material
adverse effect on the Company's ability to manufacture its products and,
therefore, a material adverse effect on its business, financial condition, and
results of operations.
The Company manufactures its products based on forecasted product orders,
and purchases subassemblies and components prior to receipt of purchase orders
from customers. Lead times for materials and components ordered by the Company
vary significantly, and depend on factors such as the business practices of the
specific supplier, contract terms, and general demand for a component at a given
time. Certain components used in the Company's products have long lead times or
must be ordered on non-cancelable terms. As a result, there is a risk of excess
or inadequate inventory if orders do not match forecasts, as well as potential
costs from non-cancelable orders.
The Company plans to move its present Redwood City, California operations,
including its manufacturing operations, to a new Redwood City facility in late
1998. Although the Company is preparing to make this move in a manner designed
to mitigate the impact on its manufacturing operations, there can be no
assurance that it will be able to successfully transition its manufacturing
process to the new facility in a manner that does not materially and adversely
affect its business, financial condition, and results of operations.
SIGNIFICANT COMPETITION; RAPID TECHNOLOGICAL CHANGE
The Company expects that the market for minimally invasive cardiac surgery,
which is currently in the early stages of development, will be intensely
competitive. Competitors are likely to include a variety of different companies
that currently specialize in devices for conventional cardiac surgery, as well
as those that specialize in non-cardiac minimally invasive surgery. The Company
believes that a number of large companies, including Baxter International Inc.,
the Ethicon Endosurgery division of Johnson & Johnson, Genzyme Corporation,
Guidant Corporation, Medtronic, Inc., United States Surgical Corporation and
others with significantly greater financial, manufacturing, marketing,
distribution, and technical resources and experience than the Company, may be
focusing on the development of minimally invasive cardiac surgery technology. In
addition, new companies have been and will continue to be formed to pursue
opportunities in this market. Several companies have announced interest in and
development of products for the minimally invasive cardiac surgery field. For
example, there are companies pursuing minimally invasive cardiac surgery on a
beating heart, which, if successful, could materially adversely affect the
Company's ability to establish a market for its technology.
Cardiovascular diseases that can be treated with the Company's Port-Access
systems can also be treated by pharmaceuticals or other medical devices and
procedures including PTCA, intravascular stents, atherectomy catheters and
lasers. Many 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 heart disease such as drugs or future innovations in
cardiac surgery techniques could make such other therapies more effective or
lower in cost than the Company's Port-Access procedures and could render the
Company's technology obsolete. There can be no assurance that physicians will
use Port-Access procedures to replace or supplement established treatments, such
as conventional open-chest heart surgery, PTCA, or intravascular stents, or that
the Company's Port-Access systems will be competitive with current or future
technologies. Such competition could have a material adverse effect on the
Company's business, financial condition, and results of operations.
The Company's current products and any future products developed by the
Company that gain regulatory clearance or approval will have to compete for
market acceptance and market share. An important factor in such competition may
be the timing of market introduction of competitive products. Accordingly, the
relative speeds with which the Company can develop products, complete clinical
testing and regulatory approval processes, train physicians in the use of its
products, gain reimbursement
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acceptance, and supply commercial quantities of the product to the market are
expected to be important competitive factors. The Company has in the past
experienced delays in completing the development and introduction of new
products, product variations and product features, and there can be no assurance
that such delays will not continue or recur in the future. Such delays could
result in a loss of market acceptance and market share. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors. Failure to do so would have a material adverse effect
upon the Company's business, financial condition, and results of operations. See
"Competition."
SUBSTANTIAL FUTURE LOSSES AND FUTURE CAPITAL REQUIREMENTS
Since its inception in May 1991, the Company has been engaged in the
research and development of minimally invasive cardiac surgery systems and
related technology. In December 1996, the Company commercially introduced its
Port-Access systems and is now engaged in extensive physician training and
selling activities. Through its Port-Access Partnership program, the Company has
adopted a sales model in which the Company trains a center's surgical team,
supplies patient and referring physician educational materials, supports local
market media efforts and furnishes proprietary reusable devices for Port-Access
procedures in exchange for a purchase order for Port-Access disposable products
necessary to perform Port-Access cardiac surgery.
The Company has only generated revenue from the sale of products since
December 1996, and it has been unprofitable since inception. There can be no
assurance that the Company will achieve or sustain profitability in the future.
Failure to achieve significant commercial revenues or profitability would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
The Company believes that it may require additional debt and/or equity
financing. The Company's future liquidity and capital requirements will depend
upon numerous factors, including but not limited to the following: the extent to
which the Company's products gain market acceptance; the timing and costs of
future product introductions; the extent of the Company's ongoing research and
development programs; the costs of training physicians to become proficient in
the use of the Company's products and procedures; the costs of expanding
manufacturing capacity; the costs of developing marketing and distribution
capabilities; the progress and scope of clinical trails required for any future
products; the timing and costs of filing future regulatory submissions; the
timing and costs required to receive both domestic and international
governmental approvals for any future products; and the costs of protecting and
defending its intellectual property. Issuance of additional equity or
convertible debt securities could result in dilution to stockholders. There can
be no assurance that additional financing will be available on terms acceptable
to the Company, or at all. The Company's inability to fund its capital
requirements would have a material adverse effect on the Company's business,
financial condition, and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF
FUTURE LITIGATION
The Company believes that its competitive position will be dependent in
significant part on its ability to protect its intellectual property. The
Company's policy is to seek to protect its proprietary position by, among other
methods, filing United States and foreign patent applications related to its
technology, inventions, and improvements that are important to the development
of its business. There can be no assurance that the Company's issued patents, or
any patents that may be issued in the future, will effectively protect the
Company's technology or provide a competitive advantage. There can be no
assurance that any of the Company's patents or patent applications will not be
challenged, invalidated, or circumvented in the future. In addition, there can
be no assurance that competitors, many of which have substantially more
resources than the Company and have made substantial investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit, or interfere with the Company's ability to make, use, or sell its
products either in the United States or internationally.
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The Company also relies upon trade secrets, technical know-how, and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants, and
advisors to execute confidentiality and assignment of inventions agreements in
connection with their employment, consulting, or advisory relationships with the
Company. There can be no assurance, however, that these agreements will not be
breached or that the Company 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 the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. 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 or processes used or proposed to be used by the Company. The Company is
aware of patents issued to third parties that contain subject matter related to
the Company's technology. Based, in part, on advice of its patent counsel, the
Company believes that the technologies employed by the Company in its devices
and systems do not infringe the claims of any such patents. There can be no
assurance, however, that third parties will not seek to assert that the
Company's devices and systems infringe their patents or seek to expand their
patent claims to cover aspects of the Company's technology.
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 competition and litigation regarding patent
and other intellectual property rights. Any such claims, whether with or without
merit, could be time-consuming and expensive to respond to and could divert the
Company's technical and management personnel. The Company may be involved in
litigation to defend against claims of infringement by other patent holders, to
enforce patents issued to the Company, or to protect trade secrets of the
Company. If any relevant claims of third-party patents are upheld as valid and
enforceable in any litigation or administrative proceeding, the Company 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 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 the Company or that the Company would be
successful in any attempt to redesign its products or processes to avoid
infringement. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition, and
results of operations. The Company intends to vigorously protect and defend its
intellectual property. Costly and time-consuming litigation brought by the
Company may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, or to determine the
enforceability, scope, and validity of the proprietary rights of others. There
can be no assurance that such litigation if commenced by the Company, would be
successful.
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RELIANCE ON STRATEGIC RELATIONSHIPS
The Company intends to pursue strategic relationships with corporations and
research institutions with respect to the research, development, regulatory
approval, and marketing of certain of its potential products and procedures. The
Company's future success may depend, in part, on its relationships with third
parties, including, for example, the Company's relationships with St. Jude
Medical, Inc. and Getz Bros. Co., Ltd., their strategic interest in the
potential products or procedures under development and, eventually, their
success in marketing such products or procedures or willingness to purchase any
such products. The Company anticipates that these third parties may have the
unilateral right to terminate any such relationship without significant penalty.
There can be no assurance that the Company will be successful in establishing or
maintaining any such strategic relationships in the future or that any such
relationships will be successful.
RISK OF PRODUCT LIABILITY
The Company faces an inherent and significant business risk of exposure to
product liability claims in the event that the use of its products results in
personal injury or death and there can be no assurance that the Company will not
experience any material product liability losses in the future. Also, in the
event that any of the Company's products prove to be defective, the Company may
be required to recall or redesign such products. The Company maintains limited
insurance against certain product liability claims, but there can be no
assurance that such coverage will continue to be available on terms acceptable
to the Company or that such coverage will be adequate for any liabilities
actually incurred. A successful claim brought against the Company in excess of
available insurance coverage, or any claim or product recall that results in
significant adverse publicity against the Company, may have a material adverse
effect on the Company's business, financial condition, and results of
operations.
LIMITED SALES, MARKETING, AND DISTRIBUTION EXPERIENCE
The Company currently has a limited sales and marketing organization in the
United States and Europe and believes that it must expand its direct sales force
to effectively market its products. Establishment of a sales force capable of
effectively commercializing the Company's EndoCPB and Port-Access systems will
require substantial efforts and require significant management and financial
resources. There can be no assurance that the Company will be able to establish
and maintain such a sales capability on a timely basis.
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part upon the continued contributions of its key technical and senior management
personnel, many of whom would be difficult to replace and certain of whom
perform important functions for the Company beyond those functions suggested by
their respective job titles or descriptions. The Company's business and future
operating results also depend in significant part upon its ability to attract
and retain qualified management, manufacturing, technical, marketing, and sales
and support personnel for its operations. Competition for such personnel is
intense, particularly in the geographic region of California where the Company's
principal office is located, and there can be no assurance that the Company will
be successful in attracting or retaining such personnel. The loss of any key
employee, the failure of any key employee to perform in his or her current
position, or the Company's inability to attract and retain skilled employees, as
needed, could materially adversely affect the Company's business, financial
condition, and results of operations.
NO ASSURANCE OF REGULATORY CLEARANCE OR APPROVAL; SIGNIFICANT DOMESTIC AND
INTERNATIONAL REGULATION
The Company's individual devices are subject to regulatory clearances or
approvals by the FDA. The Company believes that most of its devices and systems
will be subject to United States regulatory clearance
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through the 510(k) premarket notification process rather than a more extensive
pre-market approval ("PMA") submission. Although the Company has received
clearance from the FDA to market the EndoCPB System and several proprietary
Class II disposable surgical devices for its Port-Access CABG and MVR surgery
systems in the United States, securing FDA approvals and clearances for
additional Port-Access devices and other products under development by the
Company will require submission to the FDA of extensive technical information
and may require submission of extensive clinical data. There can be no assurance
that the FDA will act favorably or quickly on the Company's 510(k) or other
submissions, and significant difficulties and costs may be encountered by the
Company in its efforts to obtain FDA clearance that could delay or preclude the
Company from marketing and selling its products in the United States.
Furthermore, there can be no assurance that the FDA will not request additional
data, require that the Company conduct further clinical studies, or require a
more extensive PMA submission, causing the Company to incur substantial costs
and delays. The Company's business, financial condition, and results of
operations are critically dependent upon FDA clearance or approval of the
Company's systems. Failure to obtain such clearances or approvals, or to obtain
such clearances or approvals on a timely basis, would have a material adverse
effect on the Company's business, financial condition, and results of
operations, and could result in postponement of the commercialization of the
Company's products or even cessation of the Company's business in the United
States.
Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approval for sale in foreign countries may be longer or
shorter than that required for FDA clearance or approval, and the requirements
may differ. Although the Company's EndoCPB System and Port-Access CABG and MVR
Systems bear the CE Mark under the European Community medical device directive,
some European countries may impose additional requirements for commercialization
of those products. Other products under development by the Company will require
additional approvals or assessments, and there can be no assurance that these
approvals or assessments will be received on a timely basis, if at all. Most
other countries in which the Company intends to operate either do not currently
regulate medical systems or have minimal regulatory requirements, although these
countries may adopt more extensive regulations in the future that could impact
the Company's ability to market its systems. In addition, significant costs and
requests for additional information may be encountered by the Company in its
efforts to obtain regulatory approvals. Any such events could substantially
delay or preclude the Company from marketing its systems internationally.
In addition, the FDA and certain foreign regulatory authorities impose
numerous other requirements with which medical device manufacturers must comply.
Product approvals can be withdrawn for failure to comply with regulatory
standards or because of the occurrence of unforeseen problems following initial
marketing. The Company will also be required to adhere to applicable FDA
regulations setting forth current GMP requirements, which include testing,
control, and documentation requirements. Ongoing compliance with GMP and other
applicable regulatory requirements is monitored through periodic inspections by
state and federal agencies, including the FDA, and by comparable agencies in
other countries. To date, the FDA has not inspected the Company's compliance
with GMP requirements, although the Company expects such inspections to be made
in the near future. Failure to comply with applicable regulatory requirements
can result in fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, denial or withdrawal of
premarket clearance or premarket approval for devices, and criminal prosecution.
Furthermore, changes in existing regulations or adoption of new regulations or
policies could delay or even prevent the Company from obtaining future
regulatory approvals or clearances. For example, the FDA is currently
implementing new quality system regulations, that, among other things, require
design controls and maintenance of service records, and will likely increase the
cost of complying with GMP requirements. Such revisions could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
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LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The Company expects that sales volumes and prices of the Company's products
will be heavily dependent on the availability of reimbursement from third-party
payors and that individuals seldom, if ever, will be willing or able to pay
directly for the costs associated with the use of the Company's products. The
Company's products are typically purchased by clinics, hospitals, and other
users, which bill various third-party payors, such as governmental programs and
private insurance plans, for the healthcare services provided to their patients.
Third-party payors carefully review and increasingly challenge the prices
charged for medical products and services. Reimbursement rates from private
companies vary depending on the procedure performed, the third-party payor, the
insurance plan, and other factors. Medicare reimburses hospitals a prospectively
determined fixed amount for the costs associated with an in-patient
hospitalization based on the patient's discharge diagnosis, and reimburses
physicians a prospectively determined fixed amount based on the procedure
performed, regardless of the actual costs incurred by the hospital or physician
in furnishing the care and unrelated to the specific devices used in that
procedure. Medicare and other third-party payors are increasingly scrutinizing
whether to cover new products and the level of reimbursement for covered
products.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans, and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have an adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets. The Company believes that the overall escalating cost of
medical products and services has led to and will continue to lead to increased
pressures on the health care industry, both foreign and domestic, to reduce the
cost of products and services, including products offered by the Company. There
can be no assurance as to either United States or foreign markets that
third-party reimbursement and coverage will be available or adequate, that
current reimbursement amounts will not be decreased in the future or that future
legislation, regulation, or reimbursement policies of third-party payors will
not otherwise adversely affect the demand for the Company's products or its
ability to sell its products on a profitable basis, particularly if the
Company's systems are more expensive than competing cardiac surgery procedures.
If third-party payor coverage or reimbursement is unavailable or inadequate, the
Company's business, financial condition, and results of operations could be
materially adversely affected.
POSSIBLE ACQUISITIONS
The Company may make acquisitions of complementary businesses, products and
technology in the future, and regularly evaluates such opportunities. Product
and technology acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations and products, diversion of management's
attention to other business concerns, amortization of acquired intangible assets
and potential loss of key employees of acquired companies. The Company's
management has had limited experience in assimilating acquired organizations and
products into the Company's operations. No assurance can be given as to the
ability of the Company to integrate successfully any operations, personnel or
products that might be acquired in the future, and the failure of the Company to
do so could have a material adverse effect on the Company's results of
operations.
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SUBORDINATION
The Notes are unsecured and subordinated in right of payment in full to all
existing and future Senior Indebtedness of the Company. As a result of such
subordination, in the event of bankruptcy, liquidation or reorganization of the
Company or upon acceleration of the Notes due to an Event of Default under the
Indenture and in certain other events, the assets of the Company will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The Notes also will be
effectively subordinated to the liabilities, including trade payables, of any
subsidiary of the Company. The Indenture does not prohibit or limit the
incurrence of Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by the Company or any subsidiary of the Company, and the
incurrence of additional indebtedness and other liabilities by the Company or
any subsidiary of the Company could adversely affect the Company's ability to
pay its obligations on the Notes. The Company anticipates that from time to time
it will incur additional indebtedness, including Senior Indebtedness, and that
it will, and subsidiaries of the Company may, from time to time incur other
additional indebtedness and liabilities. See "Description of
Notes--Subordination of Notes."
LIMITATIONS ON REDEMPTION OF NOTES UPON FUNDAMENTAL CHANGE
Upon a Fundamental Change (as defined), each holder of Notes will have
certain rights, at the holder's option, to require the Company to redeem all or
a portion of such holder's Notes. If a Fundamental Change were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
redemption price for all Notes tendered by the holders thereof. In addition, the
terms of the Company's existing credit facility may prohibit the Company from
purchasing or redeeming any Notes and also provide that a Fundamental Change
would constitute an event of default thereunder. Any future credit agreements or
other agreements relating to other indebtedness (including other Senior
Indebtedness) to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Fundamental Change occurs at a time
when the Company is prohibited from purchasing or redeeming Notes, the Company
could seek the consent of its lenders to the purchase of Notes or could attempt
to refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company would remain
prohibited from purchasing or redeeming Notes. In such case, the Company's
failure to redeem tendered Notes would constitute an Event of Default under the
Indenture, which would, in turn, constitute a further default under the
Company's existing credit facility and may constitute a default under the terms
of other indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. The term "Fundamental Change" is
limited to certain specified transactions and may not include other events that
might adversely affect the financial condition of the Company, nor would the
requirement that the Company offer to repurchase the Notes upon a Fundamental
Change necessarily afford holders of the Notes protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving the Company. See "Description of Notes-- Redemption at Option of
Holders."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
Prior to this offering, there has been no public trading market for the
Notes, although the Notes have been eligible for trading through the PORTAL
market. Although the Initial Purchasers have advised the Company that they
currently intend to make a market in the Notes, they are not obligated to do so
and may discontinue such market making at any time without notice. In addition,
such market making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act. Accordingly, there can be no assurance that
any market for the Notes will develop or, if one does develop, that it will be
maintained. If an active market for the Notes fails to develop or be sustained,
the trading price of such Notes could be materially adversely affected.
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POSSIBLE PRICE VOLATILITY OF NOTES AND COMMON STOCK
The market prices for securities of medical device technology companies have
been highly volatile. The market price of the Notes and the shares of Common
Stock into which the Notes are convertible may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents or proprietary rights, conditions and trends in the medical device and
other technology industries, adoption of new accounting standards affecting the
medical device industry, changes in financial estimates by securities analysts,
general market conditions, and other factors. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market price for many high technology companies and that have often
been unrelated to the operating performance of these companies. The Company's
stock price has been, and is likely to continue to be, highly volatile. The
market price of the Company's Common Stock has fluctuated substantially in
recent periods. These broad market fluctuations may adversely affect the market
price of the Notes and the Common Stock into which the Notes are convertible. In
the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. Such litigation, if brought against the Company, could
result in substantial costs and a diversion of management's attention and
resources.
INFLUENCE OF PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
The present directors, executive officers, and principal stockholders of the
Company and their affiliates beneficially own a significant percentage of the
outstanding Common Stock. As a result, these stockholders will be able to
continue to exert significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF RIGHTS PLAN,
CERTIFICATE OF INCORPORATION, BYLAWS, AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 20,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting and conversion rights of such
shares, without any further vote or action by the Company's stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock could have the effect of making
it more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Other than the Series A Preferred Stock issuable
under the stockholder rights plan, the Company has no current plans to issue
shares of Preferred Stock. In addition, the Company's Certificate of
Incorporation provides for a classified Board of Directors such that
approximately only one-third of the members of the Board are elected at each
annual meeting of stockholders. Classified Boards may have the effect of
delaying, deferring, or discouraging changes in control of the Company. Further,
the Company has adopted a stockholder rights plan that, in conjunction with
certain provisions of the Company's Certificate of Incorporation and Bylaws and
of Delaware law, could delay or make more difficult a merger, tender offer, or
proxy contest involving the Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of the Notes or
the Shares by the Selling Securityholders.
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DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and currently does not anticipate paying cash dividends in the foreseeable
future. In addition, the Company's credit facility restricts the Company's
ability to pay cash dividends.
RATIO OF EARNINGS TO FIXED CHARGES
For the years ended December 31, 1997, 1996, 1995, 1994, 1993 and 1992,
earnings were insufficient to cover fixed charges by approximately $51.3
million, $34.1 million, $9.4 million, $4.8 million, $1.8 million, $.6 million
and $26.6 million respectively. For purposes of calculating ratio of earnings to
fixed charges (i) earnings consist of income before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred and the
estimated portion of rental expense deemed by the Company to be representative
of the interest factor of rental payments under operating leases.
DESCRIPTION OF NOTES
The Notes were issued under an indenture, dated as of April 15, 1997 (the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). A copy of the form of Indenture and Registration Rights Agreement
(as defined below) is available from the Trustee upon request by a registered
holder of the Notes. The following summaries of certain provisions of the Notes,
the Indenture and the Registration Rights Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Notes, the Indenture and the Registration Rights
Agreement, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or defined
terms of the Indenture (or of the Form of Note which is a part thereof) or the
Registration Rights Agreement are referred to, such provisions or defined terms
are incorporated herein by reference.
GENERAL
The Notes represent unsecured general obligations of the Company subordinate
in right of payment to certain other obligations of the Company as described
under "Subordination of Notes" and convertible into Common Stock as described
under "Conversion of Notes." The Notes are limited to $86,250,000 aggregate
principal amount, are issuable only in denominations of $1,000 or any multiple
thereof and will mature on May 1, 2004 unless earlier redeemed at the option of
the Company or at the option of the holder upon a Fundamental Change (as
defined).
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness (as defined
below under "Subordination of Notes") or the issuance or repurchase of
securities of the Company. The Indenture contains no covenants or other
provisions to afford protection to holders of the Notes in the event of a highly
leveraged transaction or a change in control of the Company except to the extent
described below under "Redemption at Option of the Holder."
The Notes bear interest at the annual rate set forth on the cover page
hereof from April 18, 1997 payable semi-annually on May 1 and November 1,
commencing on November 1, 1997, to holders of record at the close of business on
the preceding April 15 and October 15, respectively (subject to certain
exceptions in the case of conversion of the Notes or redemption of the Notes at
the option of the Company or at the option of the holder upon a Fundamental
Change prior to the applicable interest payment date). Interest may, at the
Company's option, be paid either (i) by check mailed to the address of the
person entitled thereto as it appears in the Note register (provided that the
holder of Notes with an aggregate principal amount in excess of $2,000,000
shall, at the election of such holder, be paid by wire transfer in immediately
available funds) or (ii) by transfer to an account maintained by such person
located in the United States; provided, however, that payments to The Depository
Trust Company, New York, New York
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("DTC") will be made by wire transfer of immediately available funds to the
account of DTC or its nominee. Interest will be computed on the basis of a
360-day year composed of twelve 30-day months.
FORM, DENOMINATION AND REGISTRATION
GLOBAL NOTE, BOOK-ENTRY FORM. Notes are issuable in fully registered form,
without coupons, in denominations of $1,000 principal amount and multiples
thereof. Notes sold by the Selling Securityholders pursuant to the Registration
Statement of which this Prospectus forms a part will be represented by a global
Note (the "Registered Global Note"), except as set forth below under
"Certificated Notes." The Registered Global Note will be deposited with, or on
behalf of, DTC and registered in the name of Cede & Co. ("Cede") as DTC's
nominee. Beneficial interests in the Registered Global Note will be exchangeable
for definitive certificated Notes only in accordance with the terms of the
Indenture.
Purchasers of the Notes may hold their interests in the Registered Global
Note directly through DTC or indirectly through organizations which are
participants in DTC (the "Participants"). Transfers between Participants will be
effected in the ordinary way in accordance with DTC rules and will be settled in
clearing house funds.
Persons who are not Participants may beneficially own interests in the
Registered Global Note held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered owner of the Registered Global Note, Cede for all purposes will
be considered the sole holder of the Registered Global Note. Except as provided
below, owners of beneficial interests in the Registered Global Note will not be
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form, and
will not be considered the holders thereof.
Payment of interest on and the redemption price of the Registered Global
Note will be made to Cede, the nominee for DTC, as the registered owner of the
Registered Global Note by wire transfer of immediately available funds on each
interest payment date or the redemption or repurchase date, as the case may be.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Registered
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, the Registered Global Note, DTC's
practice is to credit Participants' accounts on the payment date therefor with
payments in amounts proportionate to their respective beneficial interests in
the principal amount represented by the Registered Global Note as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants to owners of beneficial
interests in the principal amount represented by the Registered Global Note held
through such Participants will be the responsibility of such Participants, as is
now the case with securities held for the accounts of customers registered in
"street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the
Registered Global Note to pledge such interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the
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direction of one or more Participants to whose account with DTC interests in the
Registered Global Note are credited, and only in respect of the principal amount
of the Notes represented by the Registered Global Note as to which such
Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchasers. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with, a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause Notes to be issued in
definitive form in exchange for the Registered Global Note.
CERTIFICATED NOTES. Holders of Notes may request that certificated Notes be
issued in exchange for Notes represented by the Registered Global Note.
Furthermore, certificated Notes may be issued in exchange for Notes represented
by the Registered Global Note if no successor depositary is appointed by the
Company as set forth above under "Global Note, Book-Entry Form."
CONVERSION OF NOTES
The holders of Notes will be entitled at any time through the close of
business on the final maturity date of the Notes, subject to prior redemption,
to convert any Notes or portions thereof (in denominations of $1,000 or
multiples thereof) into Common Stock of the Company, at the conversion price set
forth on the cover page of this Prospectus, subject to adjustment as described
below. Except as described below, no payment or other adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued. If any Notes not called for redemption are converted after
a record date for the payment of interest and prior to the next succeeding
interest payment date, such Notes must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted. The Company is not required to issue fractional shares of
Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of Common Stock on the last business day
prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the business day
preceding the day fixed for redemption unless the Company defaults in the
payment of the redemption price. A Note in respect of which a holder is
exercising its option to require redemption upon a Fundamental Change may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Indenture.
The initial conversion price of $28.958 per share of Common Stock is subject
to adjustment under formulae as set forth in the Indenture in certain events,
including:
(i) the issuance of Common Stock of the Company as a dividend or
distribution on the Common Stock;
(ii) certain subdivisions and combinations of the Common Stock;
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<PAGE>
(iii) the issuance to all holders of Common Stock of certain rights or
warrants to purchase Common Stock;
(iv) the distribution to all holders of Common Stock of capital stock
(other than Common Stock) or evidences of indebtedness of the Company or of
assets (including securities, but excluding those rights, warrants,
dividends and distributions referred to above or paid in cash);
(v) distributions consisting of cash, excluding any quarterly cash
dividend on the Common Stock to the extent that the aggregate cash dividend
per share of Common Stock in any quarter does not exceed the greater of (x)
the amount per share of Common Stock of the next preceding quarterly cash
dividend on the Common Stock to the extent that such preceding quarterly
dividend did not require an adjustment of the conversion price pursuant to
this clause (v) (as adjusted to reflect subdivisions or combinations of the
Common Stock), and (y) 3.75 percent of the average of the last reported
sales price of the Common Stock during the ten trading days immediately
prior to the date of declaration of such dividend, and excluding any
dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company. If an adjustment is required to be made as set
forth in this clause (v) as a result of a distribution that is a quarterly
dividend, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend permitted to
be excluded pursuant to this clause (v). If an adjustment is required to be
made as set forth in this clause (v) as a result of a distribution that is
not a quarterly dividend, such adjustment would be based upon the full
amount of the distribution;
(vi) payment in respect of a tender offer or exchange offer by the
Company or any subsidiary of the Company for the Common Stock to the extent
that the cash and value of any other consideration included in such payment
per share of Common Stock exceeds the Current Market Price (as defined in
the Indenture) per share of Common Stock on the trading day next succeeding
the last date on which tenders or exchanges may be made pursuant to such
tender or exchange offer;
(vii) payment in respect of a tender offer or exchange offer by a person
other than the Company or any subsidiary of the Company in which, as of the
closing date of the offer, the Board of Directors is not recommending
rejection of the offer. The adjustment referred to in this clause (vii) will
only be made if the tender offer or exchange offer is for an amount which
increases the offeror's ownership of Common Stock to more than 25% of the
total shares of Common Stock outstanding, and if the cash and value of any
other consideration included in such payment per share of Common Stock
exceeds the Current Market Price per share of Common Stock on the business
day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer. The adjustment referred to in
this clause (vii) will generally not be made, however, if, as of the closing
of the offer, the offering documents with respect to such offer disclose a
plan or an intention to cause the Company to engage in a consolidation or
merger of the Company or a sale of all or substantially all of the Company's
assets; and
(viii) the issuance of Common Stock or securities convertible into, or
exchangeable for, Common Stock at a price per share (or having a conversion
or exchange price per share) that is less than the then Current Market Price
of the Common Stock (but excluding, among other things, issuances: (a)
pursuant to any bona fide plan for the benefit of employees, directors or
consultants of the Company now or hereafter in effect; (b) to acquire all or
any portion of a business in an arm's-length transaction between the Company
and an unaffiliated third party including, if applicable, issuances upon
exercise of options or warrants assumed in connection with such an
acquisition; (c) in a bona fide public offering pursuant to a firm
commitment underwriting or sales at the market pursuant to a continuous
offering stock program; (d) pursuant to the exercise of warrants, rights
(including, without limitation, earnout rights) or options, or upon the
conversion of convertible securities, which are issued and outstanding on
the date hereof, or which may be issued in the future at fair value and with
an exercise price or conversion price at least equal to the Current Market
Price of the Common Stock
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<PAGE>
at the time of issuance of such warrant, right, option or convertible
security; and (e) pursuant to a dividend reinvestment plan or other plan
hereafter adopted for the reinvestment of dividends or interest provided
that such Common Stock is issued at a price at least equal to 95% of the
market price of the Common Stock at the time of such issuance).
Under the terms of the Rights Agreement (as defined), upon conversion of any
Notes prior to the redemption or expiration of the Rights, the holders of such
Notes will receive, subject to certain limited conditions, an appropriate number
of Rights with respect to the shares of Common Stock issued upon such
conversion. In addition, the Indenture will provide that if the Company amends
the Rights Agreement or implements a replacement or successor stockholder's
rights plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification of the Common Stock, or (ii) a
consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will generally be
entitled thereafter to convert such Notes into the kind and amount of shares of
stock, other securities or other property or assets which they would have owned
or been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, consolidation, merger,
combination, sale or conveyance assuming that a holder of Notes would not have
exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring conversion price adjustments, the holders
of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations" below.
The Company from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
the Company shall give at least 15 days' notice of such reduction, if the Board
of Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after May
4, 2000, the Notes will be redeemable at the Company's option on at least 30
days' notice as a whole or, from time to time, in part at the following prices
(expressed as percentages of the principal amount), together with accrued
interest to, but excluding, the date fixed for redemption.
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If redeemed during the 12-month period beginning May 1 (beginning May 4,
2000 and ending on April 30, 2001, in the case of the first such period):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2000............................................................................. 104.143%
2001............................................................................. 103.107
2002............................................................................. 102.071
2003............................................................................. 101.036
</TABLE>
and 100% at May 1, 2004; provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
record on the relevant record date of the Notes being redeemed.
If less than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, PRO RATA or by another method the Trustee considers
fair and appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be of the portion selected for redemption.
REDEMPTION AT OPTION OF THE HOLDER
If a Fundamental Change (as defined) occurs at any time prior to May 1,
2004, each holder of Notes shall have the right, at the holder's option, to
require the Company to redeem any or all of such holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date of the Company's notice of
such Fundamental Change. The Notes will be redeemable in multiples of $1,000
principal amount.
The Company shall redeem such Notes at a price (expressed as a percentage of
the principal amount) equal to (i) 107.250% if the Repurchase Date is during the
12-month period beginning May 1, 1997; (ii) 106.214% if the Repurchase Date is
during the 12-month period beginning May 1, 1998; (iii) 105.179% if the
Repurchase Date is during the 12-month period beginning May 1, 1999 and (iv)
thereafter at the redemption price set forth above under "Optional Redemption by
the Company" which would be applicable to a redemption at the option of the
Company on the Repurchase Date; provided that, if the Applicable Price (as
defined) is less than the Reference Market Price (as defined), the Company shall
redeem such Notes at a price equal to the foregoing redemption price multiplied
by the fraction obtained by dividing the Applicable Price by the Reference
Market Price. In each case, the Company shall also pay accrued interest on the
redeemed Notes to, but excluding, the Repurchase Date; provided that, if such
Repurchase Date is an interest payment date, then the interest payable on such
date shall be paid to the holder of record of the Notes on the relevant record
date.
The Company is required to mail to all holders of record of the Notes a
notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result thereof on or before the tenth day after the occurrence of
such Fundamental Change. The Company is also required to deliver the Trustee a
copy of such notice. To exercise the redemption right, a holder of Notes must
deliver, on or before the 30th day after the date of the Company's notice of a
Fundamental Change (the "Fundamental Change Expiration Time"), written notice of
the holder's exercise of such right, together with the Notes to be so redeemed,
duly endorsed for transfer, to the Company (or an agent designated by the
Company for such purpose). Payment for Notes surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made promptly
following the Repurchase Date.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute the right to receive
consideration which is not all or substantially all common stock listed (or,
upon consummation of or immediately following such transaction or event, which
will be listed) on a
20
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United States national securities exchange or approved for quotation on the
Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise). The term "Applicable Price"
means (i) in the event of a Fundamental Change in which the holders of the
Common Stock receive only cash, the amount of cash received by the holder of one
share of Common Stock and (ii) in the event of any other Fundamental Change, the
average of the last reported sale price for the Common Stock during the ten
trading days prior to the record date for the determination of the holders of
Common Stock entitled to receive cash, securities, property or other assets in
connection with such Fundamental Change, or, if there is no such record date,
the date upon which the holders of the Common Stock shall have the right to
receive such cash, securities, property or other assets in connection with the
Fundamental Change. The term "Reference Market Price" shall initially mean
$16.50 and in the event of any adjustment to the conversion price described
above pursuant to the provisions of the Indenture, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such adjustment shall always be the
same as the ratio of $16.50 to $28.958.
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act which may then be applicable in
connection with the redemption rights of the holders of Notes in the event of a
Fundamental Change. The redemption rights of the holders of Notes could
discourage a potential acquiror of the Company. The Fundamental Change
redemption feature, however, is not the result of management's knowledge of any
specific effort to obtain control of the Company by means of a merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions.
The Company could, in the future, enter into certain transactions, including
certain recapitalizations of the Company, that would not constitute a
Fundamental Change, but that would increase the amount of Senior Indebtedness
outstanding at such time. Further, the payment of the Fundamental Change
redemption price on the Notes is subordinated to the prior payment of Senior
Indebtedness as described under "Subordination of Notes" below. The terms of the
Company's existing credit facility may prohibit the Company from purchasing or
redeeming any Notes and also provide that a Fundamental Change, as well as
certain change-of-control events with respect to the Company, would constitute
an event of default thereunder. Any future credit agreements or other agreements
relating to other indebtedness (including Senior Indebtedness) to which the
Company becomes a party may contain similar restrictions and provisions. In
addition, if a Fundamental Change were to occur, there can be no assurance that
the Company would have sufficient funds to pay the Fundamental Change redemption
price for all Notes tendered by the holders thereof. A default by the Company on
its obligations to pay the Fundamental Change redemption price could result in
acceleration of the payment of other indebtedness of the Company at the time
outstanding pursuant to cross-default provisions. See "Risk Factors--Limitations
on Redemption of Notes upon Fundamental Change."
SUBORDINATION OF NOTES
The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest (including liquidated damages, if
any) on the Notes is to be subordinated to the extent provided in the Indenture
in right of payment to the prior payment in full in cash of all Senior
Indebtedness. In the event of any acceleration of the Notes because of an Event
of Default (as defined in the Indenture), the holders of any Senior Indebtedness
then outstanding would be entitled to payment in full in cash of all obligations
in respect of such Senior Indebtedness before the holders of the Notes are
entitled to receive any payment or distribution in respect thereof. The
Indenture will require that the
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<PAGE>
Company promptly notify holders of Senior Indebtedness if payment of the Notes
is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest
(including liquidated damages, if any), rent or other obligations in respect of
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness (as defined) that permits holders of the
Designated Senior Indebtedness as to which such default relates to accelerate
its maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or other person permitted to give such notice
under the Indenture. Payments on the Notes may and shall be resumed (a) in case
of a payment default, upon the date on which such default is cured or waived and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced pursuant to a Payment Blockage Notice unless and until
(i) 365 days have elapsed since the initial effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due have been paid in
full in cash. During any period of payment blockage, any payment that otherwise
would have been made during such period will accrue interest, to the extent
legally permissible, at the annual rate set forth on the cover page hereof from
the date on which such payment was required under the terms of the Indenture
until the date of payment. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or shall be made, the basis for a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined below) of the Company,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or expressly provides that such
Indebtedness is PARI PASSU or junior to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any subsidiary of the Company, a majority of the voting stock of
which is owned, directly or indirectly, by the Company.
The term "Indebtedness" means, with respect to any Person (as defined in the
Indenture), and without duplication:
(a) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or similar instruments
(whether or not the recourse of the lender is to the whole of the assets of
such Person or to only a portion thereof), other than any account payable or
other accrued current liability or obligation incurred in the ordinary
course of business in connection with the obtaining of materials or
services,
22
<PAGE>
(b) all reimbursement obligations and other liabilities (contingent or
otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances,
(c) all obligations and liabilities (contingent or otherwise) in respect
of leases of such Person required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease obligations
on the balance sheet of such Person and all obligations and other
liabilities (contingent or otherwise) under any lease or related document
(including a purchase agreement) in connection with the lease of real
property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the lessor and
the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property,
(d) all obligations of such Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations or
liabilities of another Person of the kind described in clauses (a) through
(d),
(f) any indebtedness or other obligations described in clauses (a)
through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have been
assumed by such Person, and
(g) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (f).
The term "Designated Senior Indebtedness" means the Company's credit
facility and any particular Senior Indebtedness in which the instrument creating
or evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides that
such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes
of the Indenture (provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Indebtedness to
exercise the rights of Designated Senior Indebtedness).
The Indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company can create, incur, assume or
guarantee, nor will the Indenture limit the amount of indebtedness which any
subsidiary can create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of the Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against certain losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will generally be senior to those of holders
of the Notes in respect of all funds collected or held by the Trustee.
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<PAGE>
EVENTS OF DEFAULT; NOTICE AND WAIVER
An Event of Default is defined in the Indenture as being: default in payment
of the principal of, or premium, if any, on the Notes; default for 30 days in
payment of any installment of interest on the Notes; default by the Company for
60 days after notice in the observance or performance of any other covenants in
the Indenture; or certain events involving bankruptcy, insolvency or
reorganization of the Company. The Indenture provides that the Trustee may
withhold notice to the holders of the Notes of any default (except in payment of
principal or premium, if any, or interest with respect to the Notes) if the
Trustee considers it in the interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately. In the case of certain
events of bankruptcy or insolvency, the principal of, premium, if any, and
interest on the Notes shall automatically become and be immediately due and
payable. However, if the Company shall cure all defaults (except the nonpayment
of principal of, premium, if any, and interest on any of the Notes which shall
have become due by acceleration) and certain other conditions are met, with
certain exceptions, such declaration may be canceled and past defaults may be
waived by the holders of a majority of the principal amount of the Notes then
outstanding.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time for payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to redeem any Note upon
the happening of any Fundamental Change in a manner adverse to holders of Notes,
impair the right of a holder to institute suit for the payment thereof, change
the currency in which the Notes are payable, impair the right to convert the
Notes into Common Stock subject to the terms set forth in the Indenture, or
modify the provisions of the Indenture with respect to the subordination of the
Notes in a manner adverse to the holders of the Notes in any material respect,
without the consent of each holder of a Note so affected, or (ii) reduce the
aforesaid percentage of Notes whose holders are required to consent to any such
supplemental indenture, without the consent of the holders of all of the Notes
then outstanding. The Indenture also provides for certain modifications of its
terms without the consent of holders of the Notes.
REGISTRATION RIGHTS OF THE NOTEHOLDERS
Pursuant to the terms of the Registration Rights Agreement dated as of April
15, 1997 between the Company and the Initial Purchasers (the "Registration
Rights Agreement"), the Company has filed with the Commission a shelf
registration statement, of which this Prospectus forms a part, covering resales
by holders of the Notes and the Common Stock issuable upon conversion of the
Notes. The Company has agreed to keep the shelf registration statement effective
until the earlier of (i) the sale pursuant to the shelf registration statement
of all the securities registered thereunder and (ii) the expiration of the
holding period applicable to such securities under Rule 144(k) under the
Securities Act, or any successor provision. The Registration Rights Agreement
provides that the Company may suspend the use of this Prospectus for a period
not to exceed 30 days in any three-month period, or not to exceed an aggregate
of 60 days in any 12-month period under certain circumstances relating to
pending corporate developments, public filings
24
<PAGE>
with the Commission and similar events. The Company has agreed to pay
predetermined liquidated damages to those holders of Notes and those holders of
Common Stock issued upon conversion of the Notes who have requested to sell
pursuant to the registration statement if the registration statement is
unavailable for periods in excess of those permitted above. The Company has
further agreed, if such unavailability continues for an additional 30 day
period, to pay predetermined liquidated damages to all holders of Notes and all
holders of Common Stock issued upon conversion of the Notes, whether or not such
holder has requested to sell pursuant to the shelf registration statement. A
holder who sells Common Stock issued upon conversion of the Notes pursuant to
the shelf registration statement generally will be required to be named as a
selling stockholder in the related prospectus, deliver a prospectus to
purchasers and be bound by those provisions of the Registration Rights Agreement
which are applicable to such holder (including indemnification provisions). The
Company will pay all expenses of the shelf registration statement, provide to
each registered holder copies of such prospectus, notify each registered holder
when the shelf registration statement has become effective and take certain
other actions as are required to permit, subject to the foregoing, unrestricted
resales of the Common Stock.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as Trustee under the Indenture, has been appointed by
the Company as paying agent, conversion agent, registrar and custodian with
regard to the Notes.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value, and 20,000,000 shares of Preferred Stock,
$.001 par value.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon conversion of the Notes will be fully
paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 20,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges, and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences, and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. In
connection with the Rights Agreement (described below) adopted by the Company,
the Company has authorized a series of 50,000 shares of Preferred Stock
designated Series A Junior Participating Preferred Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring, or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.
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ANTITAKEOVER EFFECTS OF RIGHTS PLAN, PROVISION OF THE CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
PREFERRED STOCK RIGHTS PLAN
On March 28, 1996, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
Common Stock outstanding on the effective date of the offering (the "Record
Date") to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $0.001 per share (the
"Preferred Shares"), of the Company, at a price of $46.00 per one one-thousandth
of a Preferred Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and The First National Bank of Boston,
as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
Common Stock (following the closing of this offering), or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any entity becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Common Stock
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Stock certificates
outstanding as of the Record Date, by such Common Stock certificate with a
summary of the Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the Distribution
Date (or earlier redemption or expiration of the Rights), new Common Stock
certificates issued after the Record Date or upon transfer or new issuance of
Common Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Stock
outstanding as of the Record Date, even without such notation or a copy of a
summary of the Rights being attached thereto, will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution Date
and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the tenth anniversary of the effective date (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination, or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares, or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or subdivisions,
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consolidations, or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a quarterly dividend
payment of 1000 times the dividend declared per share of Common Stock. In the
event of liquidation, the holders of the Preferred Shares will be entitled to an
aggregate payment of 1000 times the aggregate payment made per share of Common
Stock. Each Preferred Share will have 1000 votes, voting together with the
Common Stock. In the event of any merger, consolidation, or other transaction in
which Common Stock is exchanged, each Preferred Share will be entitled to
receive 1000 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation, and
voting rights, the value of the one one-thousandth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.
From and after the occurrence of an event described in Section 11(a)(ii) of
the Rights Agreement, if the Rights evidenced by the Right Certificate are or
were at any time on or after the earlier of (x) the date of such event and (y)
the Distribution Date acquired or beneficially owned by an Acquiring Person or
an Associate or Affiliate of an Acquiring Person (as such terms are defined in
the Rights Agreement), such Rights shall become void, and any holder of such
Rights shall thereafter have no right to exercise such Rights.
In the event that, at any time after an entity becomes an Acquiring Person,
the Company is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any entity becomes an Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person and its Affiliates and
Associates (which will thereafter be void), will thereafter have the right to
receive upon exercise that number of shares of Common Stock having a market
value of two times the exercise price of the Right. If the Company does not have
a sufficient number of shares of Common Stock to satisfy such obligation to
issue Common Stock, or if the Board of Directors so elects, the Company shall
deliver upon payment of the exercise price of a Right an amount of cash or
securities equivalent in value to the Common Stock issuable upon exercise of a
Right; provided that, if the Company fails to meet such obligation within 30
days following the later of (x) the first occurrence of an event triggering the
right to purchase Common Stock and (y) the date on which the Company's right to
redeem the Rights expires, the Company must deliver, upon exercise of a Right
but without requiring payment of the exercise price then in effect, Common Stock
(to the extent available) and cash equal in value to the difference between the
value of the Common Stock otherwise issuable upon the exercise of a Right and
the exercise price then in effect. The Board of Directors may extend the 30-day
period described above for up to an additional 60 days to permit the taking of
action that may be necessary to authorize sufficient additional shares of Common
Stock to permit the issuance of Common Stock upon the exercise in full of the
Rights.
At any time after any entity becomes an Acquiring Person and prior to the
acquisition by any person or group of a majority of the outstanding shares of
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one share of Common Stock per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share,
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which may, at the election of the Company, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Shares on the last trading day prior to the date of
exercise.
At any time prior to the time any entity becomes an Acquiring Person, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $0.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis, and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights (other than the
Acquiring Person and its Affiliates and Associates).
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed. However, the Rights
should not interfere with any tender offer or merger approved by the Company
because the Rights may be redeemed by the Board of Directors at any time prior
to such time as any entity becomes an Acquiring Person.
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides that the Board of
Directors will be divided into three classes of directors, with each class
serving a staggered three-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as the classification of the Board of
Directors generally increases the difficulty of replacing a majority of the
directors. The Certificate of Incorporation also provides that, effective upon
the closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. Further, provisions of the
Bylaws and the Certificate of Incorporation provide that the stockholders may
amend the Bylaws or certain provisions of the Certificate of Incorporation only
with the affirmative vote of 75% of the Company's capital stock. These
provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--Effect
of Certain Charter Provisions: Antitakeover Effects of Rights Plan, Certificate
of Incorporation, Bylaws, and Delaware Law."
DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business
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combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (x)
by persons who are directors and also officers and (y) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge, or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
Certain holders of Common Stock (the "Registrable Securities") are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of the agreement between the Company and the
holders of such Registrable Securities, if the Company proposed to register any
of its securities under the Securities Act, either for its own account or for
the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to include
shares of such Common Stock therein. Additionally, such holders are also
entitled to certain demand registration rights pursuant to which they may
require the Company to file a registration statement under the Securities Act at
its expense with respect to their shares of Common Stock, and the Company is
required to use its best efforts to effect such registration. Further, the
holders of such demand rights may require the Company to file additional
registration statements on Form S-3. All of these registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and the right of the Company not to effect a requested registration
within six months following an offering of the Company's securities, including
the offering made hereby. These registration rights do not apply to a
registration effected pursuant to the terms of the Registration Rights Agreement
entered into in connection with the sale of the Notes.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
L.P.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary sets forth certain Federal income tax consequences of
acquiring and owning Notes. Tax consequences that result from the tax status or
particular circumstances of the holder are not addressed. Thus, for example, the
summary does not discuss the treatment of holders that are subject to special
tax rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, corporations subject to the alternative minimum tax,
and tax-exempt entities. The summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, court decisions and
Internal Revenue Service rulings now in effect, all of which are subject to
change including changes with retroactive effect. The summary assumes that Notes
will be held as "capital assets" as defined in the Code. Prospective purchasers
are advised to consult their own tax advisors regarding the tax consequences of
acquiring, holding or disposing of Notes in light of their personal investment
circumstances, and the consequences under federal, state, local, and foreign
income, estate, and other tax laws.
NOTES PURCHASED AT A MARKET DISCOUNT
Subject to a de minimis exception, a holder of a Note acquired at a market
discount will generally be required to (i) recognize as ordinary income any gain
realized on the disposition of the Note to the extent of the accrued market
discount on the Note at the time of disposition and (ii) include in gross
income, as ordinary income, any partial principal payment on the Note to the
extent such payment does not exceed the accrued market discount on the Note at
the time of such partial payment. For purposes of clause (i) of the preceding
sentence, (i) subject to certain exceptions, such gain will generally be
recognized notwithstanding that the Note is disposed of in a transaction in
which gain or loss is otherwise not recognized and (ii) in the case of a
disposition other than a sale, exchange or involuntary conversion, the holder of
the Note shall be treated as realizing an amount equal to the fair market value
of the Note. For this purpose, the market discount on a Note will generally be
equal to the amount, if any, by which the stated redemption price at maturity of
the Note immediately after its acquisition exceeds the holder's tax basis in the
Note. In general, market discount on a Note will be treated as accruing on a
straight-line basis over the term of the Note or, at the election of the holder,
under a constant yield method. A holder of a Note acquired at a market discount
may also be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Note until the Note
is disposed of in a taxable transaction. The foregoing rules will not apply if
the holder elects to include accrued market discount in income currently. If a
holder acquires a Note at a market discount and receives Common stock upon
conversion of the Note, the amount of accrued market discount with respect to
the Note through the date of the conversion will be treated, under regulations
to be issued, as ordinary income on the disposition of the Common Stock.
NOTES PURCHASED AT A PREMIUM
A holder that purchases a Note for an amount in excess of its principal
amount may be entitled to elect to treat a portion of such excess as
"amortizable bond premium," which will (i) reduce the amount required to be
included in the holder's income each year as interest on the Note by the amount
of such premium allocable to that year based on the Note's yield to maturity and
(ii) reduce the tax basis of the Note by the amount of such premium allocable to
that year. The amount of amortizable bond premium will not, however, include any
amount attributable to the conversion features of the Note. An election to
amortize bond premium will apply to all bonds (other than tax-exempt bonds) held
by the holder at the beginning of the taxable year to which the election applies
or thereafter acquired by the holder.
REDEMPTION OR SALE OF NOTES
Generally a redemption or sale of the Notes will result in taxable gain or
loss equal to the difference between (i) the amount of cash and the fair market
value of any other property received and (ii) the holder's tax basis in the
Notes. To the extent that the amount received is attributable to accrued
interest,
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however, that amount will be taxed as ordinary income. A holder's tax basis in
Notes generally will equal the cost of the Notes to the holder. Gain or loss on
the disposition of Notes that are held as capital assets will be capital gain or
loss and will be long-term capital gain or loss if the Notes have been held for
more than one year at the time of disposition. Pursuant to the Taxpayer Relief
Bill of 1997, a reduced long-term capital gain tax rate is applicable to long
term capital gain recognized with respect to the disposition of assets that have
been held for more than eighteen months.
CONVERSION OF NOTES INTO COMMON STOCK
No gain or loss will be recognized upon conversion of Notes into Common
Stock, except with respect to any cash paid in lieu of fractional shares of
Common Stock. The tax basis of the Common Stock received upon conversion will be
equal to the tax basis of the Notes converted, less any portion thereof
allocable to a fractional share for which cash is received. The holding period
of the Common Stock received upon conversion will include the holding period of
the Notes converted. However, a holder's tax basis in shares of Common Stock
considered attributable to accrued interest generally will equal the amount of
such accrued interest included in income, and the holding period for such shares
shall begin on the date of conversion. Under the current ruling policy of the
Internal Revenue Service, cash received in lieu of a fractional share of Common
Stock should generally be treated as a payment in exchange for such fractional
share rather than as a dividend. Gain or loss recognized on the receipt of cash
paid in lieu of a fractional share generally will be capital gain or loss if the
Common Stock is held as a capital asset and will equal the difference between
the amount of cash received and the amount of tax basis allocable to the
fractional share.
ADJUSTMENT OF CONVERSION PRICE
Holders of convertible debt instruments such as the Notes may, in certain
circumstances, be deemed to have received constructive distributions where the
conversion ratio of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the Notes will not qualify as being pursuant to a bona fide reasonable
adjustment formula. If such adjustments are made, the holders of Notes might be
deemed to have received constructive distributions taxable as dividends.
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable Treasury
regulations, a holder of Notes or Common Stock may be subject to backup
withholding at the rate of 31% with respect to dividends or interest paid on, or
the proceeds of a sale, exchange or redemption of Notes or Common Stock, unless
(a) such holder is a corporation or comes within certain other exempt categories
and when required demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. The amount of any backup withholding from a payment to a
holder will be allowed as a credit against the holder's Federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS
For purposes of the following discussion, a "United States Alien Holder" is
any holder who, for United States Federal income tax purposes, is a foreign
corporation, a foreign partnership, a nonresident alien individual, an estate,
other than an estate the income of which is includible in income for Federal
income tax purposes regardless of its source, or a trust other than a trust for
which a court within the
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United States is able to exercise primary supervision over the administration of
the trust, and for which one or more United States fiduciaries have the
authority to control all substantial decisions of the trust.
Payments of interest on the Notes to a United States Alien Holder will not
be subject to United States Federal withholding tax provided that (a) the holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the holder is
not a controlled foreign corporation that is related to the Company through
stock ownership and (c) either (1) the beneficial owner of the Note, under
penalties of perjury, provides the Company or its agent with its name and
address and certifies that it is not a United States person or (2) a securities
clearing organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") certifies to the Company or its agent, under penalties
of perjury, that such a statement has been received from the beneficial owner by
it or another financial institution and furnishes to the Company or its agent a
copy thereof.
A United States Alien Holder generally will not be subject to United States
Federal income or withholding tax on gain realized on the sale or exchange of
Notes or Common Stock unless (i) the holder is an individual who was present in
the United States for 183 days or more during the taxable year and to whom such
gain is, under applicable tax rules, considered to be from United States
sources, (ii) the gain is effectively connected with the conduct of a trade or
business of the holder in the United States, or (iii) the Company is or has been
a "United States real property holding corporation" at any time within the
shorter of the five-year period preceding such disposition or such holder's
holding period. The Company does not believe that it is currently a "United
States real property holding corporation," or that it will become one in the
future.
Income received by a United States Alien Holder in the form of interest on
Notes or dividends on Common Stock will be subject to a United States Federal
withholding tax at a 30% rate upon the actual payment of the dividends or
interest (except as described above with respect to the payment of interest) and
except where an applicable tax treaty provides for the reduction or elimination
of such withholding tax. However, a United States Alien Holder generally will be
taxed in the same manner as a United States corporation or resident with respect
to such income if it is effectively connected with the conduct of a trade or
business in the United States. Such effectively connected income received by a
United States Alien Holder which is a corporation may in certain circumstances
be subject to an additional "branch profits tax" at a 30% rate or, if
applicable, a lower treaty rate.
Dividends paid to United States Alien Holders that are subject to the
withholding tax described above will generally be exempt from United States
backup withholding tax but will be subject to certain information reporting.
Backup withholding generally will not apply to payments of interest made to a
United States Alien Holder if the certification described above is received, but
will be subject to certain information reporting. Payment of the proceeds of the
sale of Notes or Common Stock to or through a United States office of a broker
will be subject to information reporting and possible backup withholding at a
rate of 31% unless the owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds of the sale of Notes or Common Stock to or through a foreign office of
a broker generally will not be subject to backup withholding tax. However, in
the case of the payment of proceeds from the disposition of Notes or Common
Stock through a foreign office of a broker that is (i) a United States person,
(ii) a "controlled foreign corporation" for United States Federal income tax
purposes, or (iii) a foreign person 50% or more of whose gross income from all
sources for a specified period is derived from activities that are effectively
connected with the conduct of a United States trade or business, information
reporting is required on the payment unless the broker has documentary evidence
in its files that the owner is a non-United States person and the broker has no
actual knowledge to the contrary. Any amounts withheld under the backup
withholding rules from a payment to a United States Alien Holder will be allowed
as a refund or a credit against such United States Alien Holder's United States
Federal income tax, provided that the required information is furnished to the
Internal Revenue Service.
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Recently issued Treasury Regulations that are generally effective on and
after January 1, 1999 (the "Withholding Regulations") alter the foregoing rules
in certain respects. The Withholding Regulations provide presumptions under
which a United States Alien Holder is subject to backup withholding at the rate
of 31% and information reporting unless the Company receives certification of
the holder's non-U.S. status. Depending on the circumstances, this certification
will need to be provided (i) directly by the holder, (ii) in the case of a
holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the holder.
Prospective investors should generally consult their tax advisors with
respect to the presumptions and procedures that apply in obtaining any
applicable treaty benefits. In this connection, prospective investors should be
aware that the Withholding Regulations will in some cases impose an additional
certification requirement in order to obtain such benefits. Moreover, recently
released Treasury Regulations that are effective for payments made on or after
January 1, 1998, provide special rules for determining whether, for purposes of
determining the applicability of a treaty, dividends paid to a non-U.S. holder
that is an entity should be treated as having been paid to an entity or to those
holding an interest in that entity.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO THE
PARTICULAR UNITED STATES FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND COMMON STOCK OF THE COMPANY.
TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE UNITED STATES ESTATE AND GIFT
TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE NOTES AND COMMON STOCK OF THE COMPANY, AS WELL AS THE
CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
The Treasury department is reviewing the withholding and information
reporting rules described above and has proposed changes to the withholding and
information reporting regulations. No assurance can be given as to when, and in
what form, these regulations will ultimately be adopted.
SELLING SECURITYHOLDERS
The Notes were originally acquired on April 15, 1997 from the Company by the
Initial Purchasers. The Initial Purchasers advised the Company that the Initial
Purchasers have resold the Notes in transactions exempt from the registration
requirements of the Securities Act to "qualified institutional buyers" (as
defined in Rule 144A of the Securities Act) and certain institutional
"accredited investors" (as defined in Rule 501 (a) (1), (2), (3) or (7) under
the Securities Act). These subsequent purchasers, or their transferees,
pledgees, donees or successors, may from time to time offer and sell any or all
of the Notes and/or Shares pursuant to this Prospectus.
The Notes and the Shares have been registered pursuant to the Registration
Rights Agreement which provides that the Company file a registration statement
with regard to the Notes and the Shares within 90 days of the date of original
issuance of the Notes and keep such registration statement effective until the
earlier of (i) the sale pursuant to the registration statement of all the
securities registered thereunder and (ii) the expiration of the holding period
applicable to such securities under Rule 144 (k) under the Securities Act or any
successor provision. The Selling Securityholders may choose to sell the Notes
and/or Shares from time to time upon notice to the Company. See "Plan of
Distribution."
Prior to any use of this Prospectus in connection with an offering of the
Notes and/or the Shares, this Prospectus will be supplemented to set forth the
name and number of shares beneficially owned by the Selling Securityholder
intending to sell such Notes and/or Shares and the number of Notes and/or Shares
to be offered. The Prospectus Supplement will also disclose whether any Selling
Securityholder selling in
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connection with such Prospectus Supplement has held any position or office with,
been employed by or otherwise has had a material relationship with, the Company
or any of its affiliates during the three years prior to the date of the
Prospectus Supplement.
PLAN OF DISTRIBUTION
The Notes and the Shares are being registered to permit public secondary
trading of such securities by the holders thereof from time to time after the
date of this Prospectus. The Company has agreed, among other things, to bear all
expenses (other than underwriting discounts and selling commissions and fees and
expenses of counsel and other advisors to holders of the Notes and the
underlying Common Stock) in connection with the registration and sale of the
Notes and the Shares covered by this Prospectus.
The Company will not receive any of the proceeds from the sale of Notes and
the Shares by the Selling Securityholders. The Selling Securityholders may sell
all or a portion of the Notes and Shares beneficially owned by them and offered
hereby from time to time on any exchange on which the securities are listed on
terms to be determined at the times of such sales. The Selling Securityholders
may also make private sales directly or through a broker or brokers.
Alternatively, any of the Selling Securityholders may from time to time offer
the Notes or Shares of Common Stock beneficially owned by them through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling
Securityholders and the purchasers of the Notes or Shares of Common Stock for
whom they may act as agent. The aggregate proceeds to the Selling
Securityholders from the sale of the Notes or Shares of Common Stock offered by
them hereby will be the purchase price of such Notes or Shares of Common Stock
less discounts and commissions, if any.
The Notes and the Shares may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
The outstanding Common Stock is publicly traded on the Nasdaq National
Market, and the Shares have been approved for trading on the Nasdaq National
Market. The Initial Purchasers have advised the Company that they are making and
currently intend to continue making a market in the Notes; however, they are not
obligated to do so and any such market-making may be discontinued at any time
without notice, in the sole discretion of the Initial Purchasers. The Company
does not intend to apply for listing of the Notes on any securities exchange.
Accordingly, no assurance can be given as to the development or liquidity of any
trading market that may develop for the Notes. See "Risk Factors--Absence of
Public Market for the Notes."
In order to comply with the securities laws of certain states, if
applicable, the Notes and Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Notes and Shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by such broker-dealers,
agents or underwriters and any profits realized by the Selling Securityholders
on the resales of the Notes or the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the Securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this Prospectus. There is
34
<PAGE>
no assurance that any Selling Securityholder will sell any or all of the Notes
or Shares described herein, and any Selling Securityholders may transfer, devise
or gift such securities by other means not described herein.
The Notes were originally sold by the Company to the Initial Purchasers on
April 15, 1997 in a private placement. The Company agreed to indemnify and hold
the Initial Purchasers harmless against certain liabilities under the Securities
Act that could arise in connection with the sale of the Notes by the Initial
Purchasers. The Registration Rights Agreement provides for the Company and the
Selling Securityholders to indemnify each other against certain liabilities
arising under the Securities Act.
The Company has agreed to use reasonable efforts to cause the registration
statement to which this Prospectus relates to become effective as promptly as is
practicable and to keep the registration statement effective until the earlier
of (i) the sale pursuant to the registration statement of all the securities
registered thereunder and (ii) the expiration of the holding period applicable
to such securities under Rule 144(k) under the Securities Act or any successor
provision. The Registration Rights Agreement provides that the Company may
suspend the use of this Prospectus in connection with sales of Notes and Shares
by holders for a period not to exceed 30 days in any three-month period, or not
to exceed an aggregate of 60 days in any 12-month period, under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. Expenses of preparing and filing the
registration statement and all post-effective amendments will be borne by the
Company.
LEGAL MATTERS
The validity of the Notes and the underlying Common Stock has been passed
upon for the Company by Simpson Thacher & Bartlett, New York, New York and
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.
EXPERTS
The consolidated financial statements of Heartport, Inc. appearing in
Heartport, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are, and audited financial statements to
be included in subsequently filed documents will be, incorporated herein in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed with the Securities and
Exchange Commission) given upon the authority of such firm as experts in
accounting and auditing.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM. 14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 26,137
Nasdaq National Market Listing Fee................................ 17,500
Accounting Fees and Expenses...................................... 10,000
Legal Fees and Expenses........................................... 20,000
Blue Sky Fees and Expenses........................................ 5,000
Miscellaneous..................................................... 21,363
---------
Total........................................................... $ 100,000
---------
---------
</TABLE>
ITEM. 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a corporation to indemnify any person who was or
is a party or who is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorney's
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; that
indemnification provided for by Section 145 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and that the corporation is
empowered to purchase and maintain insurance
II-1
<PAGE>
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
Section 145.
The Company also provides liability insurance for its directors and officers
which provides for coverage against loss from claims made against directors and
officers in their capacity as such, including liabilities under the Securities
Act of 1933, as amended.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's 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 DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Article EIGHTH of the Company's Restated Certificate of Incorporation limits the
liability of directors to the fullest extent permitted by Section 102(b)(7).
ITEM. 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.2 Placement Agreement dated April 15, 1997 by and between the Company, Morgan Stanley &
Co. Incorporated, Goldman, Sachs & Co. and Cowen & Company(1).
4.2 Specimen Common Stock certificate(2).
4.5 Indenture dated as of April 15, 1997 between the Company and The Bank of New York(1).
4.6 Registration Rights Agreement dated as of April 15, 1997 between the Company, Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co. and Cowen & Company(1).
4.7 Form of Note (included in Exhibit 4.5).
5.1 Opinion of Simpson Thacher & Bartlett.*
5.2 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.*
12.1 Statement re: calculation of ratio of earnings to fixed charges.
23.1 Consent of Ernst & Young LLP, Independent Auditors(3).
23.2 Consent of Counsel.(Reference is made to Exhibits 5.1 and 5.2).
24.1 Power of Attorney (see page II-4).
25.1 Statement of Eligibility of the Trustee on Form T-1.*
27.1 Financial Data Schedule(3).
</TABLE>
- ------------------------
(1) Filed as an exhibit to the Company's Form 8-K dated April 30, 1997 and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 333-1906) and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference.
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b), if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, PROVIDED, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of this
chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to
II-3
<PAGE>
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
(5) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Redwood City, State of California, on
the 23rd day of April, 1998.
<TABLE>
<S> <C> <C>
HEARTPORT, INC.
By: /s/ WESLEY D. STERMAN, M.D.
-----------------------------------------
Wesley D. Sterman, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
/s/ WESLEY D. STERMAN, M.D.
------------------------------------------- President, Chief Executive Officer, and April 23, 1998
Wesley D. Sterman, M.D. Director
/s/ DAVID B. SINGER*
------------------------------------------- Senior Vice President, Finance and April 23, 1998
David B. Singer Chief Financial Officer
/s/ ROBERT V. GUNDERSON, JR.*
------------------------------------------- Director April 23, 1998
Robert V. Gunderson, Jr.
/s/ JOSEPH S. LACOB*
------------------------------------------- Director April 23, 1998
Joseph S. Lacob
/s/ JOHN H. STEVENS, M.D.*
------------------------------------------- Director April 23, 1998
John H. Stevens, M.D.
/s/ PETRI T. VAINIO, M.D.*
------------------------------------------- Director April 23, 1998
Petri T. Vainio, M.D.
/s/ STEVEN C. WHEELWRIGHT, PH.D.*
------------------------------------------- Director April 23, 1998
Steven C. Wheelwright, Ph.D.
</TABLE>
*By: /s/ WESLEY D. STERMAN,
M.D.
-------------------------
Wesley D. Sterman, M.D.
ATTORNEY-IN-FACT
II-4
<PAGE>
Exhibit 12.1
HEARTPORT, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Net loss $ (1,799) $ (4,821) $ (9,353) $(34,054) $(51,331)
Add:
Interest expense -- -- 189 592 4,910
Portion of net rental expense
representative of interest
factor 39 82 145 320 646
------------------------------------------------------
Total earnings, as adjusted (1,760) (4,739) (9,019) (33,142) (45,775)
Fixed Charges
Interest expense -- -- 189 592 4,910
Portion of net rental expense
representative of interest
factor 39 82 145 320 646
------------------------------------------------------
Total fixed charges 39 82 334 912 5,556
------------------------------------------------------
Insufficiency of earnings to cover
fixed charges $ (1,799) $ (4,821) $ (9,353) $(34,054) $(51,331)
------------------------------------------------------
------------------------------------------------------
</TABLE>
