<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NOVOSTE CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 5047 59-2787476
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4350-C INTERNATIONAL BLVD.
NORCROSS, GEORGIA 30093
(770) 717-0904
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
THOMAS D. WELDON
NOVOSTE CORPORATION
4350-C INTERNATIONAL BLVD.
NORCROSS, GEORGIA 30093
(770) 717-0904
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<C> <C>
SETH I. TRUWIT, ESQ. LAWRENCE S. WITTENBERG, ESQ.
EPSTEIN BECKER & GREEN, P.C. TESTA, HURWITZ & THIBEAULT, LLP
250 PARK AVENUE HIGH STREET TOWER
NEW YORK, NEW YORK 10177 125 HIGH STREET
(212) 351-4500 BOSTON, MASSACHUSETTS 02110
(617) 248-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... 2,300,000 $18.75 $43,125,000 $14,871
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</TABLE>
(1) Includes 300,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee, based
upon the average of the high and low sales prices of the Common Stock on the
Nasdaq National Market on October 21, 1997, pursuant to Rule 457(c) under
the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
PROSPECTUS
dated , 1997
2,000,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 1,600,000 shares are
being issued and sold by Novoste Corporation ("Novoste" or the "Company") and
400,000 shares are being offered by certain shareholders of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the shares being sold by the Selling
Shareholders.
The Common Stock is traded on The Nasdaq National Market under the symbol
"NOVT." On October 21, 1997, the last sale price of the Common Stock on The
Nasdaq National Market was $18.625 per share. See "Price Range of Common Stock."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$350,000.
(3) The Company and two Selling Shareholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 300,000 shares of Common
Stock solely to cover over-allotments, if any, at the Price to Public less
the Underwriting Discount. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1997.
PIPER JAFFRAY INC.
COWEN & COMPANY
NATIONSBANC MONTGOMERY SECURITIES, INC.
, 1997
<PAGE> 3
[A/H diagram of Beta-Cath System device with a description of its anticipated
benefits and its component parts. Also includes a rendering of a human heart
with a close-up view of the Beta-Cath System catheter inside a coronary artery.]
The Company's Beta-Cath System is an investigational device and has not
been approved by the FDA for commercial sale in the United States. The Beta-Cath
System is in the early stage of clinical testing and clinical data obtained to
date are insufficient to demonstrate safety and efficacy. There can be no
assurance that the Beta-Cath System will receive FDA approval if such approval
is sought.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
Novoste(TM), Beta-Cath(TM) and the Novoste(TM) logo are trademarks of the
Company.
2
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected, without charge, and copies may be obtained upon
payment of the fees prescribed by the Commission, from the Public Reference
Section of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information of registrants that file electronically with the Commission pursuant
to the EDGAR system. The address of the Commission's Web site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-3 under the Securities
Act with respect to the Common Stock offered by this Prospectus (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information,
reference is made to the Registration Statement and the exhibits thereto.
Statements made in this Prospectus as to the contents of any contract or any
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained, upon payment of the fees prescribed by the Commission,
from the Public Reference Rooms of the Commission's offices in Washington, D.C.,
Chicago and New York at the addresses set forth above, or may be examined
without charge at those offices of the Commission. The Registration Statement,
including the exhibits and schedules thereto, can also be accessed through the
Commission's Web site at http://www.sec.gov.
---------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 and (iii) Definitive Proxy
Statement for the June 20, 1997 Annual Meeting of Shareholders, heretofore filed
with the Commission, are incorporated in this Prospectus by reference. All
reports and proxy statements filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of this Offering shall likewise be
deemed to be incorporated in this Prospectus by reference from the respective
dates of filing of such documents.
Any statements contained herein or in a 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. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Upon oral or written request, the Company will provide without charge a
copy of any document incorporated in this Prospectus, exclusive of exhibits, to
each person to whom this Prospectus is delivered. Requests for such documents
should be directed to Cheryl Johnson, Vice President, Investors Relations and
Business Development at the corporate headquarters of the Company, 4350-C
International Blvd., Norcross, Georgia 30093 (telephone no. 770-717-0904).
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<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in the Prospectus assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Novoste Corporation ("Novoste" or the "Company") is developing the
Beta-Cath System, an intraluminal beta radiation catheter delivery system
designed to reduce the frequency of restenosis subsequent to percutaneous
transluminal coronary angioplasty ("PTCA"). The Beta-Cath System applies
localized beta radiation to the site of the vascular injury caused by a PTCA
procedure and is designed to inhibit long-term cell proliferation
("hyperplasia") and vascular remodeling, each primary causes of restenosis.
The Company has conducted feasibility trials at two U.S. medical centers
under an Investigational Device Exemption ("IDE") granted by the U.S. Food and
Drug Administration ("FDA") and at a Canadian and a European site. As of October
21, 1997, a total of 80 patients had been enrolled in these studies. Of the 35
patients which, as of September 25, 1997, had received six-month follow-up and
analysis, 11% (four patients) were reported restenotic. This data suggests a 70%
reduction in the rate of restenosis in patients who received treatment with the
Beta-Cath System, when compared to a historical control group which received
PTCA only. Of these 35 patients, treated arteries on average maintained 100% of
the enlargement achieved with PTCA (a late loss index of 0%). Using data from
these feasibility trials, the Company intends to submit by the end of the first
quarter of 1998 an application for a CE mark to commence marketing of the
Beta-Cath System in Europe.
On July 31, 1997, the Company initiated a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial under an IDE granted by the
FDA to determine the clinical safety and efficacy of the Beta-Cath System for
use in coronary arteries. The Company expects to enroll approximately 1,100
patients in the trial at 27 medical sites principally located in the United
States. As of October 21, 1997, a total of 34 patients had been enrolled at 10
medical centers. Following eight-month follow-up patient evaluation, which the
Company anticipates will be completed in the first half of 1999, the Company
intends to submit an application to the FDA for pre-market approval ("PMA") for
commercial sale of its Beta-Cath System in the United States.
More than 13 million people in the United States currently suffer from
coronary artery disease, the leading cause of death in the United States.
Coronary artery disease is characterized by the progressive accumulation of
plaque, which narrows the coronary artery and reduces blood flow to the heart
muscle. Coronary artery bypass graft surgery ("CABG"), in which blood-vessel
grafts are used to bypass the site of a blocked artery, has been shown to be
highly effective in treating coronary artery disease. However, CABG is a highly
invasive, traumatic and expensive surgical procedure. PTCA, in which a small
balloon catheter is inflated in the narrowed section of a coronary artery,
emerged as a highly effective, less invasive alternative to CABG. In 1996,
approximately 400,000 CABG and approximately 500,000 PTCA procedures were
performed in the United States.
The principal limitation of PTCA is a high rate of restenosis, a
renarrowing of the treated artery often requiring reintervention. Studies have
shown restenosis to affect between 25% to 45% of patients within six months
after a PTCA procedure. The use of coronary stents (expandable, implantable
metal devices) to reduce the rate of restenosis has grown rapidly as an
adjunctive therapy to PTCA. Studies have concluded that the rate of restenosis
in patients who receive coronary stents following PTCA is approximately 30%
lower than in patients treated only by PTCA. Restenosis can occur shortly after
a PTCA procedure due to elastic recoil, or over a longer period of time due to
hyperplasia or vascular remodeling of the arterial segment. Stents appear to be
effective in reducing the frequency of restenosis resulting from elastic recoil,
and appear to limit vascular remodeling, but increase, rather than decrease,
hyperplasia.
4
<PAGE> 6
The Beta-Cath System targets the primary causes of restenosis by attempting
to prevent or inhibit hyperplasia and long-term vascular remodeling by applying
localized beta radiation to the treated site in the coronary artery immediately
following PTCA. Radiation has been used therapeutically in medicine for more
than 50 years and is used extensively for the treatment of proliferative cell
diseases, such as cancer. The Beta-Cath System has been designed to use beta
rather than gamma radiation because the Company believes it is better suited for
intraluminal use following PTCA, where the objective is to treat the wall of an
artery with minimal radiation exposure to adjacent tissue. The Beta-Cath System
is designed to be safe and to fit well with techniques currently employed by
interventional cardiologists in the cardiac catheterization lab. The Company
expects that the Beta-Cath System will provide significant cost savings, to the
extent that it (i) reduces the need for reintervention often required following
PTCA and coronary stenting and (ii) replaces coronary stents as a primary
therapy.
The Company's objective is to become the leader in the commercialization of
intravascular radiation devices for the treatment of restenosis. Key elements of
the Company's strategy include (i) achieving first-to-market position in the
United States for an intracoronary beta radiation device, (ii) establishing beta
radiation therapy as the standard therapy to reduce the frequency of restenosis
following PTCA, (iii) seeking early commercialization in countries with
favorable regulatory and market environments, and (iv) leveraging the Company's
core catheter and radioactive isotope technologies to expand its product
offerings to include peripheral angioplasty and other potential applications.
Novoste, a development stage company with minimal revenues to date, was
incorporated in Florida in January 1987 and was capitalized and commenced
operations in May 1992. The Company's executive offices are located at 4350-C
International Blvd., Norcross, Georgia 30093.
5
<PAGE> 7
THE OFFERING
Common Stock offered by the
Company............................. 1,600,000 shares
Common Stock offered by Selling
Shareholders........................ 400,000 shares
Common Stock to be outstanding after
the Offering........................ 10,129,925 shares (1)
Use of proceeds..................... To fund human clinical trials, to
expand sales and marketing
capabilities, to expand manufacturing
activities, to conduct further research
and development projects and for
general corporate purposes, including
working capital. See "Use of Proceeds."
Nasdaq National Market symbol....... NOVT.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
NINE MONTHS ENDED (MAY 22, 1992)
SEPTEMBER 30, YEAR ENDED DECEMBER 31, THROUGH
------------------ --------------------------- SEPTEMBER 30,
1997 1996 1996 1995 1994 1997
-------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 29 $ -- $ -- $ 17 $ 73 $ 320
Costs and expenses:
Research and development................ 8,619 2,799 4,647 2,089 1,404 17,506
General and administrative.............. 1,342 1,092 1,575 466 526 5,430
Marketing............................... 575 341 581 659 292 2,107
-------- ------- ------- ------- ------- --------
Loss from operations...................... (10,507) (4,232) (6,803) (3,197) (2,149) (24,723)
Net interest income (expense)............. 940 472 864 (21) (47) 1,750
-------- ------- ------- ------- ------- --------
Net loss.................................. $ (9,567) $(3,760) $(5,939) $(3,218) $(2,196) $(22,973)
======== ======= ======= ======= ======= ========
Net loss per share(1)..................... $ (1.14) $ (0.60) $ (0.88) $ (0.69) $ (0.54)
======== ======= ======= ======= =======
Shares used to compute net loss per
share(2)................................ 8,376 6,275 6,748 4,671 4,031
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $18,066 $ 45,728
Total assets.............................................. 21,274 48,936
Deficit accumulated during development stage.............. (22,973) (22,973)
Total shareholders' equity................................ 19,493 47,155
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding on October 22,
1997. Excludes 1,648,200 shares of Common Stock issuable upon exercise of
outstanding options on such date, which had a weighted average exercise
price of $3.28 per share.
(2) See Note 1 to the Financial Statements for an explanation of the method used
to determine net loss per share.
(3) Gives effect to the sale of the 1,600,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $18.625 per share
and the application of the estimated net proceeds therefrom, after deducting
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
6
<PAGE> 8
SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain qualifying, forward-looking statements. Certain information
included in this Prospectus and other materials filed or to be filed by the
Company with the Securities and Exchange Commission (as well as certain
information included in oral statements or other written statements made or to
be made by the Company) may contain statements that are forward-looking, such as
statements relating to projected financial items and results, safety and
efficacy of the Beta-Cath System, receipt and timing of regulatory approvals and
availability and market acceptance of the Beta-Cath System. Such forward-looking
information involves important risks and uncertainties that could significantly
impact anticipated results in the future and, accordingly, such results may
differ materially from those expressed in any forward-looking statements by or
on behalf of the Company. These risks and uncertainties include, but are not
limited to, those described under "Risk Factors," below.
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully.
DEPENDENCE ON BETA-CATH SYSTEM
The Company, which has not yet commercialized any of its products,
anticipates that for the foreseeable future it will be solely dependent on the
successful development and commercialization of the Beta-Cath System. The
Beta-Cath System will require further development, as well as regulatory
clearance or approval, before it can be marketed in the United States or
internationally. There can be no assurance that the Company's development
efforts will be successful or that the Beta-Cath System will be shown to be safe
or effective, capable of being manufactured in commercial quantities at
acceptable costs, cleared or approved by regulatory authorities or successfully
marketed. In addition, there can be no assurance that demand for the Beta-Cath
System will be sufficient to allow profitable operations. Failure of the
Beta-Cath System to be successfully commercialized would have a materially
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- The Beta-Cath System," " -- Sales and Marketing,"
" -- Manufacturing" and " -- Government Regulation."
ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
Novoste has earned minimal revenues and experienced significant losses in
each year since its inception in May 1992. The Company's losses are due
primarily to substantial expenditures related to the development of its
Beta-Cath System. At September 30, 1997, the Company had an accumulated deficit
of approximately $23.0 million since its inception. The Company will incur
significant additional operating losses through at least 1999 as the Company
continues to expand its research and development, clinical trials, and marketing
and sales efforts. The Company's ability to achieve profitable operations is
dependent solely on successfully commercializing its Beta-Cath System. There can
be no assurance that the Company will ever commercialize the Beta-Cath System or
any of its other products or achieve profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
EARLY STAGE OF CLINICAL TESTING; NO ASSURANCE OF SAFETY AND EFFICACY
The Beta-Cath System is in an early stage of clinical testing, and there
can be no assurance as to when, if ever, its safety and efficacy in reducing the
frequency of restenosis will be demonstrated. The Company has commenced a
randomized, triple-masked, placebo-controlled, multicenter, human clinical trial
under an Investigational Device Exemption ("IDE") granted by the U.S. Food and
Drug Administration ("FDA") to determine the clinical safety and efficacy of the
Beta-Cath System for use in coronary arteries. As of October 21, 1997, the
Company had commenced enrollment of patients at 10 of the 27 medical sites
expected to participate in the trial. Various factors, including difficulties in
enrolling patients or physicians, and problems in producing the number of
Beta-Cath Systems required to conduct the trial, could delay the start of
7
<PAGE> 9
the trial at the balance of the sites for an indeterminate amount of time. The
multicenter trial will require the treatment of a statistically significant
number of patients, and clinical follow-ups with such patients after eight
months. It is only after completion of these trials that the Company would apply
for the regulatory approvals required to commence marketing of the Beta-Cath
System in the United States. Moreover, even if FDA approval is granted to market
the Beta-Cath System, subsequent experience may uncover unforeseen problems with
the therapy which could require removal of the product from the market or
additional testing. There can be no assurance that the Beta-Cath System or any
of the Company's other products will prove to be safe and effective in clinical
trials or ultimately will be approved for marketing by United States or foreign
regulatory authorities. The Company does not expect to submit an application for
pre-market approval ("PMA") for its Beta-Cath System for at least one year, and
there can be no assurance that the Company will ever submit a PMA or that, if
submitted, such PMA will be approved by the FDA. If the Beta-Cath System does
not prove to be safe and effective in clinical trials, the Company's business,
financial condition and results of operations will be materially adversely
affected and could result in cessation of the Company's business. In addition,
the clinical trials may identify significant technical or other obstacles to be
overcome prior to obtaining necessary regulatory approvals. Even if such
obstacles are identified and overcome, commercialization of the Beta-Cath System
may be delayed. See "Business -- Clinical Status" and " -- Government
Regulation."
NO ASSURANCE OF TIMELY REGULATORY APPROVAL; GOVERNMENT REGULATION
The Company will not be able to commence marketing or commercial sales of
the Beta-Cath System in the United States until it receives approval from the
FDA of a PMA application for the Beta-Cath System. The Company commenced the
multicenter clinical trial necessary to support a PMA application in July 1997.
The Company does not expect to file a PMA application until the end of the first
half of 1999, and does not anticipate receiving approval for at least one year
after a PMA application is accepted for filing, if at all. Even if the Company's
PMA application is accepted for filing, there can be no assurance that the FDA
will approve the PMA application. Accordingly, there can be no assurance as to
when, or if, the Company will complete clinical trials of the Beta-Cath System,
or that data from such trials, if completed, will be adequate to support
approval of a PMA for the Beta-Cath System. Furthermore, there can be no
assurance that the Company will be able to obtain approval of its PMA
application on a timely basis, if at all, and delays in the receipt of or
failure to receive such approvals would have a material adverse effect on the
Company's business, financial condition and results of operations, and could
result in cessation of the Company's business.
Sales of the Beta-Cath System outside the United States will be subject to
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 required for FDA approval, and the requirements may differ. In
addition, there may be foreign regulatory barriers other than PMA approval, and
the export of medical devices must be in compliance with FDA regulations. In
Europe, commencing in 1998 the Company will be required to obtain certifications
necessary to enable the CE mark to be affixed to the Beta-Cath System to market
devices throughout the European Union. Additionally, the Company may choose to
maintain ISO 9001 and is required to maintain EN 460001 certification, subject
to periodic surveillance audits. The Company may be required to spend
significant capital and time to respond to requests for additional information
by the FDA or foreign regulatory bodies, or may otherwise be required to spend
significant amounts of capital and time to obtain FDA and foreign regulatory
approvals. Any such events could substantially delay or preclude the Company
from marketing the Beta-Cath System in the United States or foreign countries.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies and foreign regulatory authorities. Foreign
and domestic regulatory approvals, if granted, may include significant
limitations on the indicated uses for which the product may be marketed. FDA
enforcement policy strictly prohibits the promotion and/or marketing of approved
medical devices for unapproved uses. In addition, product approvals could be
withdrawn for failure to comply with regulatory standards or the occurrence of
unforeseen problems following the initial marketing. In addition, the FDA and
certain state and foreign regulatory authorities impose numerous other
requirements with which medical device manufacturers must comply. The Company
8
<PAGE> 10
is also required to adhere to applicable FDA regulations set forth in current
Good Manufacturing Practices ("GMP") requirements, which include testing,
control and documentation requirements. Ongoing compliance with GMP and other
applicable regulatory requirements are monitored through periodic inspections by
state and federal agencies, including the FDA, and by comparable agencies in
other countries. Failure to comply with applicable regulatory requirements,
including marketing products for unapproved uses, could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to clear pre-market notification or grant approval of the Company's
PMA application for the Company's products, withdrawal of approvals and criminal
prosecution. Changes in existing regulations or adoption of new regulations or
policies could prevent the Company from obtaining, or affect the timing of,
future regulatory approvals or clearances.
Because the Beta-Cath System utilizes radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, in addition to PMA
approval, approval by the U.S. Nuclear Regulatory Commission ("NRC"), or an
equivalent state agency, of the Company's radiation sources for certain medical
uses will be required to distribute commercially the radiation sources to
licensed recipients in the United States. Comparable, or perhaps more stringent,
radiation regulatory requirements and/or approvals are required in markets
outside the United States, including approvals prior to marketing the Beta-Cath
System in Europe, or even after affixing the CE mark for marketing the device in
Europe. In addition, the Company and/or its supplier of radiation sources must
obtain a license from the NRC to distribute commercially such radiation sources
as well as to comply with all applicable regulations. The Company and/or its
supplier of radiation sources must also comply with NRC and U.S. Department of
Transportation regulations on the labeling and packaging requirements for
shipment of radiation sources to hospitals or other users of the Beta-Cath
System. In addition, hospitals may be required to obtain or expand their
licenses to use and handle beta radiation prior to receiving radiation sources
for use in the Beta-Cath System. If any of the foregoing approvals are
significantly delayed or not obtained, the Company's business, financial
condition and results of operations could be materially adversely affected. See
"Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE
There can be no assurance that the Beta-Cath System will gain any
significant market acceptance among physicians, patients and health care payors,
even if required regulatory approvals are obtained. The Company believes that
achieving market acceptance will depend heavily on the results of clinical
trials and the Company's ability to demonstrate, through such trials, a
significant reduction in restenosis rates using the Beta-Cath System. There can
be no assurance that the Company's clinical trials will achieve such results.
Market acceptance of the Beta-Cath System may also depend on educating
physicians regarding the use of a new procedure, overcoming physician objections
to the use of radiation in the cardiac catheterization laboratory ("cath lab")
and convincing health care payors and health care providers that the benefits of
using the Beta-Cath System outweigh its cost. There can be no assurance that the
Company will be successful in achieving these goals. See "Business -- Sales and
Marketing, " -- Government Regulation" and " -- Third-Party Reimbursement."
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company has received a Notice of Allowance with respect to one United
States patent application on the Beta-Cath System. The Company also has filed a
related United States continuation-in-part application, and has a related United
States continuation application and another United States application pending
covering aspects of the Beta-Cath System. With respect to the allowed
application, Novoste has counterpart applications pending in the European Patent
Office and certain other countries. With respect to the continuation-in-part and
other applications, Novoste has filed counterpart applications under the Patent
Cooperation Treaty, preserving the Company's right to file applications in the
European Patent Office and certain other countries. There can be no assurance
that a United States patent, with respect to the application in which a notice
of allowance has been received, will be issued or if issued, will offer any
protection to the
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<PAGE> 11
Company or that it will not be reexamined, invalidated or circumvented. In
addition, there can be no assurance that any claims under the other pending
applications will be allowed, or if allowed, will offer any protection or that
they will not be rejected, challenged, reexamined, invalidated or circumvented.
In addition, there can be no assurance that competitors will not obtain patents
that will prevent, limit or interfere with the Company's ability to make, use or
sell its products in either the United States or international markets.
The Company received a letter from NeoCardia, L.L.C. ("NeoCardia") dated
July 7, 1995, in which NeoCardia notified the Company that NeoCardia is the
exclusive licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and
requested that the Company confirm that its products did not infringe the claims
of the Dake Patent. The Company has concluded based upon advice of patent
counsel that the Company's Beta-Cath System would not infringe any valid claim
of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent
counsel responded that the Company did not infringe the Dake Patent.
In June 1997, the United States Patent and Trademark Office ("USPTO")
issued a final Office Action with respect to two consolidated reexamination
requests relating to the Dake Patent. In the final Office Action, the patent
examiner upheld the patentability of some of the original claims and certain new
claims for the Dake Patent but rejected other claims. In August 1997, the holder
of the Dake Patent filed an amendment in response to the final Office Action
seeking, among other things, to add certain additional new claims, which appear
to have been written in an attempt to cover the Beta-Cath System. In October
1997, the USPTO rejected these particular new claims, because they improperly
attempted to broaden the scope of the Dake Patent and were inconsistent with the
original patent claims. The holder of the Dake Patent has the right to appeal
any final rejection of any claims presented. The validity of patent claims which
survive a reexamination procedure may be more difficult to challenge in a later
dispute than claims which have never been reexamined to the extent that the same
prior art is relied upon. The Company continues to believe based upon advice of
counsel that the Beta-Cath System would not infringe any valid claim of the Dake
Patent. However, there can be no assurance that the Company's products will not
infringe any original, amended or new claims of the Dake Patent which survive
the reexamination proceeding.
In May 1997, Guidant Corporation ("Guidant") acquired NeoCardia together
with the rights under the Dake Patent. Guidant is a New York Stock
Exchange-listed, medical device company which has significantly greater capital
resources than the Company. There can be no assurance that Guidant will not sue
the Company for patent infringement and obtain damages from the Company and/or
injunctive relief restraining the Company from commercializing the Beta-Cath
System in the U.S., or that the Company will not be required to obtain a license
from Guidant to market the Beta-Cath System in the U.S., any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations, or could result in cessation of the Company's business.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly and
time-consuming. Litigation 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. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or require the Company to redesign its
products or processes to avoid infringement or prevent the Company from selling
its products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all, or that the
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<PAGE> 12
Company could redesign its products or processes to avoid infringement. Any
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.
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. Accordingly, there can be no assurance that
current and potential competitors or other third parties have not filed or will
not file applications for, or have not received or will not receive, patents and
will not obtain additional proprietary rights relating to products made, used or
sold or processes used or proposed to be used by the Company.
The Company has developed certain of its patent and proprietary rights
relating to the Beta-Cath System in conjunction with Emory University ("Emory").
To obtain the exclusive rights to commercialize the Beta-Cath System for the
treatment of restenosis, the Company entered into a license agreement with Emory
under which Emory will be entitled to royalty payments based upon net sales of
the Beta-Cath System. If the agreement were terminated by Emory as a result of
the Company's failure to pay such royalties or any other breach of its
obligations under such agreement, the Company's rights to use jointly owned
patents (including any patent issuing from the continuation-in-part application
which has been filed) would become non-exclusive, the Company would have no
rights to practice future patents owned exclusively by Emory and the Company
could be required by Emory to cooperate in licensing the pending U.S. patent
application and its foreign counterparts to third parties so that they would be
able to commercialize and sell the Beta-Cath System.
The Company typically obtains confidentiality and invention assignment
agreements in connection with employment, consulting and advisory relationships.
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. See
"Business -- Patents and Proprietary Technology."
DEPENDENCE ON A KEY SUPPLIER
To date, the Company has obtained all of its beta isotope requirements
under an agreement, as amended (the "Supply Agreement"), with a single supplier,
Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation (the
"Supplier"). The Supply Agreement has an initial term ending in the year 2000
and renews automatically on a calendar year basis, unless notice of termination
is given six months prior to the end of each calendar year. Under the Supply
Agreement, the Company has agreed not to purchase more than 30% of its annual
requirements for beta isotopes of a type similar to that manufactured by the
supplier for use in restenosis therapy from any third party or parties other
than the Supplier. Although the Supply Agreement permits the Company to use an
alternative source for 30% of its annual beta isotope requirements or during any
period in which the Supplier is unable to provide beta isotopes, the Company
believes that because of the technical expertise and capital investment required
to manufacture the isotopes, it would be extremely difficult to find an
alternate source of supply in the event that the Supplier is unable to perform.
In addition, portions of the process used to manufacture the materials may be
proprietary to the Supplier. The Supplier has no obligation to make any of its
know-how or technology available to any alternate source of supply. Although the
Company has an option to purchase all of the Supplier's assets relating to the
supply of beta isotopes, the exercise of such option and the transfer of the
required technology and expertise to the Company or an alternative source would
be costly, time consuming, and uncertain of success. Any inability of the
Supplier to provide beta isotopes would limit the Company's ability to increase
its business beyond its then existing inventory of beta isotopes. As a result of
these factors, any failure or disruption in the ability of the Supplier to
provide beta isotopes could have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business -- Manufacturing."
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<PAGE> 13
COMPETITION
Competition in the medical device industry, and specifically the markets
for cardiovascular devices and devices to improve the outcome of coronary
revascularization procedures, is intense. Several companies are developing
devices to improve the outcome of coronary revascularization procedures,
including several that have various radiation therapy products under development
to reduce the frequency of restenosis. The radiation therapy devices under
development by Novoste's competitors include intracoronary radiation therapy
delivered through a variety of means including (i) a radioactive tipped
guidewire, (ii) a radioactive stent or (iii) a radioactive fluid-filled balloon.
These other devices (some of which use gamma and others beta radiation) are in
varying stages of development or clinical trials. There can be no assurance that
the Beta-Cath System, if approved by the FDA for marketing, will be the first
device to be marketed in the U.S. as an intracoronary beta or gamma radiation
device. In addition, there can be no assurance that the Beta-Cath System will
prove more cost-effective and efficacious than the devices currently under
development by Novoste's competitors. Many of the Company's competitors and
potential competitors have substantially greater capital resources than does the
Company, and also have greater resources and expertise in the areas of research
and development, obtaining regulatory approvals, manufacturing and marketing.
There can be no assurance that the Company's competitors and potential
competitors will not succeed in developing, marketing and distributing
technologies and products that are more effective than those developed and
marketed by the Company, or that would render the Company's technology and
products obsolete or noncompetitive. Additionally, there is no assurance that
the Company will be able to compete effectively against such competitors and
potential competitors in terms of manufacturing, marketing and sales.
Any product developed by the Company that gains 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 speed with which the Company can
develop products, gain regulatory approval and reimbursement acceptance and
supply commercial quantities of the product to the market are expected to be
important competitive factors. In addition, the Company believes that the
primary competitive factors for products addressing restenosis include safety,
efficacy, ease of use, reliability, suitability for use in cath labs, service
and price. The Company also believes that physician relationships, especially
relationships with leaders in the interventional cardiology community, are
important competitive factors. There can be no assurance that the Company will
be first to market such a system in the United States or to market such a system
effectively. See "Business -- Competition."
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The Beta-Cath System, if approved for commercial sale, will be purchased
primarily by hospitals. Hospitals and physicians bill various third-party
payors, such as government health programs, private health insurance plans,
managed care organizations and other similar programs, for the health care
services provided to their patients. The FDA has classified the Beta-Cath System
as an experimental device and accordingly its use in the human clinical trials
will not be reimbursable under the Medicare program or by private insurers until
after the PMA application is approved, if ever. The classification of the
Beta-Cath System as experimental materially increases the costs of conducting
clinical trials in the United States, and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations. Even if the Beta-Cath System were to receive approval for marketing
by the FDA, there can be no assurance that third-party payors will cover
procedures using the Beta-Cath System, or, if covered, that third-party payors
will not place certain restrictions on the circumstances in which coverage will
be available. In addition, payors may deny reimbursement if they determine that
a product was not used in accordance with established payor protocol regarding
cost-effective treatment methods, or was used for an unapproved indication.
Third-party payors are also increasingly challenging the prices charged for
medical products and services and, in some instances, have put pressure on
medical device suppliers and health care providers to lower their prices. The
Company is unable to predict what changes will be made in the reimbursement
methods used by third-party health care payors. There can be no assurance that
the Beta-Cath System will be considered cost effective by third-party payors or
health care providers, that reimbursement for the Beta-Cath System will be
available or, if available, that payors' reimbursement levels will not adversely
affect the Company's ability to
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<PAGE> 14
sell the Beta-Cath System on a profitable basis. In addition, the cost of health
care has risen significantly over the past decade, and there have been and may
continue to be proposals by legislators, regulators, third-party payors and
health care providers to curb these costs. Failure by hospitals and physicians
to obtain reimbursement from third-party payors, changes in third-party payors'
policies toward reimbursement for the Beta-Cath System or legislative action
could have a material adverse effect on the Company's business, financial
condition and results of operations. Reimbursement systems in international
markets vary significantly by country and by region within some countries, and
reimbursement approvals must be obtained on a country-by-country basis. Many
international markets have government managed health care systems that control
reimbursement for new devices and procedures. In most markets there are private
insurance systems as well as government managed systems. There can be no
assurance that reimbursement for the Company's products will be available in
international markets under either government or private reimbursement systems.
See "Business -- Third-Party Reimbursement."
LIMITED SALES AND MARKETING RESOURCES; RELIANCE ON DISTRIBUTORS AND CORPORATE
PARTNERS
At present, the Company has no sales and limited sales and marketing
resources. The Company intends to sell its products in the United States
directly and outside the United States through international distributors and
corporate partners. There can be no assurance that the Company will be able to
recruit and train adequate sales and marketing personnel to commercialize
successfully the Beta-Cath System in the United States. The inability to recruit
or retain suitable international distributors or corporate partners could also
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company also intends to select one or more
established market leaders in the radiation isotope business to inventory and
deliver the radiation sources and provide related training, testing and support
services to hospitals in both the United States and international markets. The
inability to recruit or retain one or more such entities for this purpose could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Sales and Marketing."
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK
To date, the Company has not yet commercialized any of its products, and
its manufacturing activities have consisted of producing small quantities of its
products for use in pre-clinical studies and clinical trials. To achieve
profitability, the Company's products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
Production in commercial quantities will require the Company to expand its
manufacturing capabilities and to hire and train additional personnel. The
Company has no experience in manufacturing its products in commercial
quantities. Manufacturers often encounter difficulties in scaling up production
of new products, including problems involving production yields, quality control
and assurance, component supply and shortages of qualified personnel.
Difficulties encountered by Novoste in manufacturing scale-up could have a
material adverse effect on its business, financial condition and results of
operations. There can be no assurance that future manufacturing difficulties,
which could have a material adverse effect on the Company's business, financial
condition and results of operations, will not occur. See
"Business -- Manufacturing."
ADDITIONAL CAPITAL REQUIREMENTS
The Company has expended and will continue to expend substantial funds on
research, development and clinical trials of its products, the establishment of
commercial-scale manufacturing facilities and sales and marketing of the
Beta-Cath System in the United States and internationally. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company's future liquidity and capital requirements will depend upon numerous
factors, including the progress and costs of clinical trials, the potential
requirement and the potential costs for product modifications, the timing and
costs of various U.S. and foreign regulatory filings, and the timing or
availability of various U.S. and foreign governmental approvals. If regulatory
approvals are received, the Company's future liquidity and capital requirements
will depend upon other factors, including the timing and extent to which the
Company's products gain market acceptance, the timing and costs of product
introduction, and the costs of developing marketing, servicing and
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<PAGE> 15
distribution capabilities. The Company may require additional funds which it
would seek to raise through equity or debt financings, arrangements with
corporate partners or from other sources. Issuance of additional equity
securities could result in dilution of ownership and control to the then
existing shareholders of the Company. There can be no assurance that any such
funds will be available to the Company on acceptable terms, if at all. If
adequate funds are not available from operations or additional sources of
financing, the Company's business could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EXPOSURE TO PRODUCT LIABILITY CLAIMS; LIMITED INSURANCE COVERAGE
The use of the Company's products entails an inherent risk of adverse
effects which could result in product liability claims against the Company.
There can be no assurance that the Company would have sufficient resources to
satisfy any liability resulting from such claims, that the Company's $4 million
of insurance coverage would be adequate to cover the Company against potential
liabilities, that any such insurance will continue to be available at acceptable
costs, if at all, or that a product liability claim would not materially
adversely affect the business or financial condition of the Company. See
"Business -- Product Liability and Insurance."
DEPENDENCE ON KEY PERSONNEL
The Company's business and future operating results depend in significant
part upon the continued contributions of its key technical personnel and senior
management, many of whom would be difficult to replace. 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, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of key employees, the failure
of any key employee to perform adequately 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. See
"Management -- Executive Officers and Directors."
CONCENTRATION OF OWNERSHIP AND CONTROL
Following completion of this offering, the Company's executive officers,
directors and shareholders presently owning more than 5% of the outstanding
shares of Common Stock, collectively, will beneficially own approximately 45% of
the outstanding Common Stock. See "Principal and Selling Shareholders."
Accordingly, such persons, if acting together, would have significant voting
power to influence the outcome of matters (including the election of a majority
of the Board of Directors, and any merger, consolidation or sale of all or
substantially all of the Company's assets) submitted to the shareholders for
approval. As a result of such voting power, certain transactions may not be
possible without the approval of such shareholders. These transactions include
proxy contests, mergers involving the Company, tender offers, open-market
purchase programs or other purchases of Common Stock that could give
shareholders of the Company the opportunity to realize a premium over the then
prevailing market price for their shares of Common Stock. See "Principal and
Selling Shareholders."
EFFECT OF ANTI-TAKEOVER PROVISIONS
Under the Company's Amended and Restated Articles of Incorporation (the
"Amended and Restated Articles of Incorporation"), the Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the Company's shareholders. 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 shares of Preferred Stock that may be
issued in the future.
In October 1996, the Company's Board of Directors authorized 1,000,000
shares of Series A Participating Preferred Stock of the Company in connection
with its adoption of a Shareholder Rights Plan, under which
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<PAGE> 16
rights to purchase Series A Preferred Stock were issued to holders of the Common
Stock. Upon certain triggering events, such rights become exercisable to
purchase Common Stock at a price substantially discounted from the then current
market price of the Common Stock. The Shareholder Rights Plan could generally
discourage a merger or tender offer involving the securities of the Company that
is not approved by the Company's Board of Directors by increasing the cost of
effecting any such transaction and, accordingly, could have an adverse impact on
shareholders who might want to vote in favor of such merger or participate in
such tender offer.
While the Company has no present intention to authorize any additional
series of Preferred Stock, such issuance, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
also have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, and may have other
rights, including economic rights senior to the Common Stock, and, as a result,
the issuance thereof could have a material adverse effect on the market value of
the Common Stock.
The Amended and Restated Articles of Incorporation provides for a
classified Board of Directors. Furthermore, the Company is subject to the
anti-takeover provisions of the Florida Business Corporation Act, the
application of which would also have the effect of delaying or preventing a
merger, takeover or other change of control of the Company and therefore could
discourage attempts to acquire the Company.
SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution of approximately $13.96 per share in net tangible book
value from the public offering price. Additional dilution is likely to occur
upon the exercise of outstanding options. See "Dilution."
STOCK PRICE VOLATILITY
There can be no assurance that the market price of the Common Stock will
not decline below the public offering price. The trading price of the Company's
Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory action, developments with respect to patents or
proprietary rights, general conditions in the medical device or
cardiovascular-device industries, changes in earnings estimates by securities
analysts, or other events or factors, many of which are beyond the Company's
control. In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many medical
device companies and which have often been unrelated to the operating
performance of such companies. The Company's revenue or operating results in
future quarters may be below the expectations of securities analysts and
investors. In such event, the price of the Company's Common Stock would likely
decline, perhaps substantially. These Company-specific factors or broad market
fluctuations may materially adversely affect the market price of the Company's
Common Stock. See "Underwriting."
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends and does not presently intend
to pay cash dividends. It is not likely that any cash dividends will be paid in
the foreseeable future. See "Dividend Policy."
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<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by it hereby are estimated to be approximately $27,662,000 ($30,638,000
if the Underwriters' over-allotment option is exercised in full) after deducting
underwriting discount and estimated expenses of this Offering.
The Company intends to use the net proceeds of this Offering to fund human
clinical trials, to expand sales and marketing capabilities, to expand
manufacturing activities and to conduct further research and development
projects. The balance of the net proceeds of this Offering will be added to
working capital. Exact allocation of the proceeds and the timing of such
expenditures will depend on various factors, including the timing of the
Company's regulatory applications and its clinical trials.
A portion of the net proceeds of this Offering may also be used for
investments in or acquisitions of complementary businesses, products or
technologies, although no such transactions are currently under negotiation.
Pending the use of the net proceeds of this Offering, the Company will invest
the funds in short-term, interest-bearing, investment-grade securities.
PRICE RANGE OF THE COMMON STOCK
The Common Stock is quoted on The Nasdaq National Market under the symbol
"NOVT." The following table sets forth the high and low closing sale prices of
the Common Stock, as reported by The Nasdaq National Market, for the calendar
quarters indicated from May 23, 1996, the date of the Company's initial public
offering.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
Second Quarter (from May 23)................................ $15 1/2 $8 3/4
Third Quarter............................................... $14 3/4 $ 7
Fourth Quarter.............................................. $19 1/4 $11 7/8
1997:
First Quarter............................................... $19 $13
Second Quarter.............................................. $17 1/4 $13 1/4
Third Quarter............................................... $18 1/8 $14 7/8
Fourth Quarter (through October 21)......................... $19 3/8 $16
</TABLE>
For a recent closing sale price for the Common Stock, see the cover page of
this Prospectus.
On October 21, 1997, there were approximately 144 holders of Common Stock,
excluding beneficial owners of shares registered in nominee or street name.
DIVIDEND POLICY
While the Company has made a distribution of the Rights described in Note 6
to the Financial Statements, the Company has never declared or paid any cash
dividends on its capital stock. The Board of Directors currently intends to
retain all future earnings, if any, to fund the growth and development of the
Company's business, and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE> 18
DILUTION
The net tangible book value of the Company at September 30, 1997 was
$19,493,000, or $2.29 per share. Net tangible book value per share is equal to
the Company's total tangible assets less its total liabilities, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of the shares of Common Stock offered by the Company hereby and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company at September 30, 1997 would have been approximately
$47,155,000, or $4.67 per share. This represents an immediate increase in net
tangible book value of $2.38 per share to existing shareholders and an immediate
dilution in net tangible book value of $13.96 per share to purchasers of Common
Stock in this Offering. The foregoing assumes no exercise of outstanding stock
options. In the event the 1,679,975 shares subject to options to purchase shares
of Common Stock outstanding as of September 30, 1997 at a weighted average
exercise price of $3.29 per share, were exercised for cash and included in the
foregoing calculations, the net tangible book value per share before the
offering would be $2.46, the pro forma net tangible book value after the
offering would be $4.47 per share, and the dilution to new investors would be
$14.16.
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of the Common Stock after this Offering
would be $4.88 per share, which would result in dilution to new investors in
this offering of $13.75 per share.
CAPITALIZATION
The following table sets forth the Company's capitalization as of September
30, 1997, and as adjusted after giving effect to the sale of the 1,600,000
shares of Common Stock offered by the Company hereby at an assumed public
offering price of $18.625 per share and the application of the estimated net
proceeds therefrom after deducting underwriting discounts and commissions and
estimated offering expenses. The information should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
ACTUAL AS ADJUSTED(1)
------------ -----------------
<S> <C> <C>
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding.............. $ -- $ --
Common Stock, $.01 par value; 25,000,000 shares authorized,
8,502,930 shares issued, and 10,102,930 shares issued as
adjusted.................................................. 85,029 101,029
Additional paid-in capital.................................. 42,405,272 70,051,272
Deficit accumulated during the development stage............ (22,973,164) (22,973,164)
------------ ------------
19,517,137 47,179,137
Less treasury stock, 5,780 shares, at cost.................. (23,840) (23,840)
------------ ------------
Total shareholders' equity (deficit)........................ $ 19,493,297 $ 47,155,297
============ ============
</TABLE>
- ---------------
(1) Excludes 1,679,975 shares of Common Stock subject to outstanding stock
options under the Company's Stock Option Plans, as of September 30, 1997,
which had a weighted average exercise price of $3.29 per share.
17
<PAGE> 19
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of the Company. The
selected financial data in the table as of and for the periods ended December
31, 1992, 1993, 1994, 1995 and 1996 are derived from the financial statements of
the Company, which have been audited by Ernst & Young LLP, independent auditors,
as indicated in their report included elsewhere in this Prospectus.
The selected financial data presented below for the nine-month periods
ended September 30, 1997 and 1996, and the period from inception (May 22, 1992)
to September 30, 1997 and as of September 30, 1997, are derived from the
unaudited condensed financial statements of the Company included elsewhere in
this Prospectus. In the opinion of management, such unaudited condensed
financial statements reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
such periods. Results of interim periods are not necessarily indicative of
results to be expected for the full fiscal year. The data should be read in
conjunction with the Financial Statements and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NINE MONTHS INCEPTION INCEPTION
ENDED (MAY 22, 1992) (MAY 22, 1992)
SEPTEMBER 30, YEAR ENDED DECEMBER 31, THROUGH THROUGH
----------------- ------------------------------------- DECEMBER 31, SEPTEMBER 30,
1997 1996 1996 1995 1994 1993 1992 1997
------- ------- ------- ------- ------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $ 29 $ -- $ -- $ 17 $ 73 $ -- $ 201 $ 320
Costs and expenses:
Research and
Development....... 8,619 2,799 4,647 2,089 1,404 545 202 17,506
General and
Administrative.... 1,342 1,092 1,575 466 526 785 736 5,430
Marketing........... 575 341 581 659 292 -- -- 2,107
------- ------- ------- ------- ------- ------- ------ --------
Loss from
operations.......... (10,507) (4,232) (6,803) (3,197) (2,149) (1,330) (737) (24,723)
Net interest income
(expense)........... 940 472 864 (21) (47) 5 9 1,750
------- ------- ------- ------- ------- ------- ------ --------
Net loss.............. $(9,567) $(3,760) $(5,939) $(3,218) $(2,196) $(1,325) $ (728) $(22,973)
======= ======= ======= ======= ======= ======= ====== ========
Net loss per
share(1)............ $ (1.14) $ (0.60) $ (0.88) $ (0.69) $ (0.54) $ (0.38) $(0.24)
======= ======= ======= ======= ======= ======= ======
Shares used to compute
net loss per
share(1)............ 8,376 6,275 6,748 4,671 4,031 3,443 3,030
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 18,066 $26,849 $ (906) $(1,267) $ (149) $ 455
Total assets.................................... 21,274 29,255 2,057 982 1,583 1,157
Total liabilities............................... 1,781 821 1,739 1,396 976 306
Deficit accumulated during the development
stage......................................... (22,973) (13,406) (7,467) (4,249) (2,053) (728)
Total shareholders' equity...................... 19,493 28,434 318 (413) 608 851
</TABLE>
- ---------------
(1) See Note 1 to the Financial Statements for an explanation of the method used
to determine net loss per share.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Novoste commenced operations as a medical device company in May 1992.
Commencing in 1994, the Company has devoted substantially all of its efforts to
developing the Beta-Cath System, an intraluminal beta radiation catheter
delivery system designed to reduce the frequency of restenosis subsequent to
percutaneous transluminal coronary angioplasty ("PTCA").
For the period since its capitalization through September 30, 1997 the
Company has earned minimal non-recurring revenues and experienced significant
losses in each period. At September 30, 1997 the Company had an accumulated
deficit of approximately $23.0 million. Novoste expects to continue to incur
significant operating losses through at least 1999 as the Company continues
research and development projects, conducts its clinical trials in the United
States, Canada and Europe, seeks regulatory approval or clearance for its
products, expands its sales and marketing efforts in contemplation of product
introduction and market development, and increases its administrative activities
to support growth of the Company.
There can be no assurance that the Company's research and development
efforts will be successfully completed. There can be no assurance that clinical
trials will demonstrate the safety and efficacy of the Beta-Cath System.
Additionally, there can be no assurance that the Beta-Cath System will be
approved by the FDA or any domestic or foreign governmental agency, or that the
Beta-Cath System or any other product developed by Novoste will be successfully
introduced or attain any significant level of market acceptance. There can be no
assurance that the Company will ever achieve either significant revenues from
sales of its Beta-Cath System or ever achieve or sustain profitability. See
"Risk Factors -- Early Stage of Clinical Testing; No Assurance of Safety and
Efficacy," "-- No Assurance of Timely Regulatory Approval; Government
Regulation," "-- Uncertainty of Market Acceptance" and "-- Dependence on
Beta-Cath System."
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996
Net loss for the nine months ended September 30, 1997 was $9,567,000, or
($1.14) per share, as compared to $3,760,000 or ($0.60) per share for the year
earlier period. The increase in net loss for the nine months ended September 30,
1997, compared to the year earlier period, was due primarily to increased
spending for research and development as well as increased marketing, general
and administrative expenses related to the Company's development of its
Beta-Cath System, offset by increased interest income earned from the investment
of the net proceeds from the initial public offering in May 1996.
Revenues. Miscellaneous revenues were $29,000 for the nine months ended
September 30, 1997. No revenue was earned in the same period in 1996. This
increase was due to the sale of a product line (see Note 5 to the Unaudited
Condensed Financial Statements).
Research and Development Expenses. Research and development expenses
increased 208%, to $8,619,000, for the nine months ended September 30, 1997,
from $2,799,000 for the same period in 1996. These increases were primarily a
result of (a) the cost of manufacturing the Beta-Cath System, (b) a milestone
payment of 617,000 DM ($360,000) in June 1997 to the Company's
radioactive-isotope supplier upon meeting delivery requirements, (c) monthly
reimbursement of approximately $65,000, to the same supplier of costs to
increase production capacity, (d) the increased size of the Company's research
and development staff and (e) services provided by outside consultants in the
development of the Beta-Cath System. The Company expects research and
development expenses to continue to increase in the immediate future as the
Company conducts additional clinical trials of its Beta-Cath System in both the
U.S. and selected foreign countries, and it continues the development and design
of the Beta-Cath System and component parts.
General and Administrative Expenses. General and administrative expenses
increased 23% to $1,342,000 for the nine months ended September 30, 1997, from
$1,092,000 for the same period in 1996. This
19
<PAGE> 21
increase for the nine-month period was primarily a result of additional
personnel, higher salaries and increased costs associated with being a public
company such as directors' and officers' liability insurance, legal and
accounting fees. The Company expects general and administrative expenses to
increase in the future, in support of a higher level of operations.
Marketing Expenses. Marketing expenses increased 69% to $575,000 for the
nine months ended September 30, 1997, from $341,000 for the same period in 1996.
These increases were primarily the result of increased trade show costs,
consulting fees and higher salaries. The Company expects marketing expenses to
significantly increase in the future as the Company prepares for marketing of
the Beta-Cath System in the U.S. and other countries.
Interest Income. Net interest income increased 99% to $940,000 for the
nine months ended September 30, 1997, from $472,000 for the same period in 1996.
The increase in interest income was primarily due to larger cash equivalents and
short-term investment balances after the Company's initial public offering in
May 1996.
Comparison of Years Ended December 31, 1996 and 1995
Net loss for the year ended December 31, 1996 was $5,939,000, or ($0.88)
per share, as compared to $3,218,000, or ($0.69) per share, for the year ended
December 31, 1995. The increase in net loss in the year ended December 31, 1996,
compared to the year earlier, was due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System, offset by increased interest income earned
from the investment of the net proceeds of the initial public offering in May
1996.
Revenues. No revenues were earned in the year ended December 31, 1996, as
compared to $17,000 of miscellaneous sales in the year ended December 31, 1995.
Research and Development Expense. Research and development expenses
increased 122% to $4,647,000 for the year ended December 31, 1996, from
$2,089,000 for the year ended December 31, 1995. These increases were primarily
a result of continued product development and the Company's Phase I clinical
trials of the Beta-Cath System, which were initiated in 1996.
General and Administrative Expenses. General and administrative expenses
increased 238% to $1,575,000 for the year ended December 31, 1996, from $466,000
for the year ended December 31, 1995. These increases were primarily a result of
increased personnel, higher salaries, accrued severance and increased costs
associated with being a public company, such as directors' and officers'
liability insurance.
Marketing Expenses. Marketing expenses decreased 12% to $581,000 for the
year ended December 31, 1996, from $659,000 for the year ended December 31,
1995, due to a start-up bonus and relocation allowance paid in 1995 to a new
management employee.
Interest Income and Expense. Net interest income was $864,000 for the year
ended December 31, 1996, whereas net interest expense of $21,000 was incurred
during the year ended December 31, 1995. The increase in interest income were
primarily due to investing the proceeds of the Company's initial public offering
in cash equivalents and short-term investments.
Comparison of Years Ended December 31, 1995 and 1994
Net loss for the year ended December 31, 1995 was $3,218,000, or ($0.69)
per share, as compared to $2,196,000, or ($0.54) per share, for the year ended
December 31, 1994. The increase in net loss in the year ended December 31, 1995,
compared to the year earlier, was due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System.
Revenues. Revenues decreased to $17,000 in 1995 from $73,000 in 1994 as
the Company did not receive any contract or license fee revenue in 1995.
20
<PAGE> 22
Research and Development Expenses. Research and development expenses
increased 49%, to $2,089,000, for the year ended December 31, 1995 from
$1,404,000 for the year ended December 31, 1994. This increase in expenses was
due to the hiring of additional personnel, an increase in outside consulting and
services attributable to the development of the Beta-Cath System, and the
support of pre-clinical studies.
General and Administrative Expenses. General and administrative expenses
decreased 11%, to $466,000, for the year ended December 31, 1995, from $526,000
for the year ended December 31, 1994. There were no significant changes in any
one expense category.
Marketing Expenses. Marketing expenses increased 126% to $659,000 for the
year ended December 31, 1995 from $292,000 for the year ended December 31, 1994
due to additions to the Company's management to support increased marketing
efforts.
Interest Income and Expense. Net interest expense decreased 55% to $21,000
for the year ended December 31, 1995 from $47,000 for the year ended December
31, 1994. This was due to increased interest income during the year ended
December 31, 1995 from amounts invested in money market accounts and certain
government securities arising from additional equity financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its activities since inception up to May 23, 1996, the
date of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
September 30, 1997, the Company obtained funds aggregating approximately $38.7
million in net proceeds from the issuance of Common Stock and Class B Common
Stock (including approximately $30.6 million in net proceeds from its initial
public offering), and approximately $1.8 million in net proceeds from the
issuance of convertible promissory notes.
During the nine months ended September 30, 1997 and 1996 the Company used
cash to fund operations of $8.0 million and $3.3 million, respectively. Cash
used to fund operations since inception was approximately $18.8 million. The
increase in cash used in operations was due primarily to higher expenses
associated with increased research and development activities and general and
administrative expenses to support increased operations. The Company's
expenditures for equipment and improvements have aggregated $1.9 million since
inception. Future cash needs for operating activities are anticipated to be
higher than historical levels because of the development, manufacturing scale-up
and commercialization of the Beta-Cath System, subject to the factors discussed
in "Risk Factors."
The Company's principal source of liquidity at September 30, 1997 consisted
of cash, cash equivalents and short-term investments of $19.7 million. The
Company did not have any established credit lines or outstanding borrowings at
September 30, 1997.
The Company anticipates that its operating losses will continue through
1999 as it expends substantial resources in funding clinical trials in support
of regulatory approvals, and continues to expand research and development and
marketing activities. Novoste believes that the net proceeds from this Offering,
together with the current cash balances and short-term investments, and the
interest thereon, will be sufficient to meet the Company's operating and capital
requirements through 2000. However, the Company's future liquidity and capital
requirements will depend upon numerous factors, including: the progress of the
Company's clinical research and product-development programs; the receipt of and
the time required to obtain regulatory clearances and approvals; the resources
required to gain approvals; the resources the Company devotes to the
development, manufacture and marketing of its products; the resources required
to hire and develop a direct sales force in the United States, to develop
distributors internationally, and to expand manufacturing capacity; market
acceptance and demand for its products; and other factors. Novoste may in the
future seek to raise additional funds through bank facilities, debt or equity
offerings or other sources of capital. There can be no assurance that additional
financing, if required, will be available on satisfactory terms, or at all.
21
<PAGE> 23
BUSINESS
Novoste Corporation ("Novoste" or the "Company") is developing the
Beta-Cath System, an intraluminal beta radiation catheter delivery system
designed to reduce the frequency of restenosis subsequent to percutaneous
transluminal coronary angioplasty ("PTCA"). The Beta-Cath System applies
localized beta radiation to the site of the vascular injury caused by a PTCA
procedure and is designed to inhibit long-term cell proliferation
("hyperplasia") and vascular remodeling, each primary causes of restenosis.
The Company has conducted feasibility trials at two U.S. medical centers
under an Investigational Device Exemption ("IDE") granted by the U.S. Food and
Drug Administration ("FDA") and at a Canadian and a European site. As of October
21, 1997, a total of 80 patients had been enrolled in these studies. Of the 35
patients which, as of September 25, 1997, had received six-month follow-up and
analysis, 11% (four patients) were reported restenotic. This data suggests a 70%
reduction in the rate of restenosis in patients who received treatment with the
Beta-Cath System, when compared to a historical control group which received
PTCA only. Of these 35 patients, treated arteries on average maintained 100% of
the enlargement achieved with PTCA (a late loss index of 0%). Using data from
these feasibility trials, the Company intends to submit by the end of the first
quarter of 1998 an application for a CE mark to commence marketing of the
Beta-Cath System in Europe.
On July 31, 1997, the Company initiated a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial under an IDE granted by the
FDA to determine the clinical safety and efficacy of the Beta-Cath System for
use in coronary arteries. The Company expects to enroll approximately 1,100
patients in the trial at 27 medical sites principally located in the United
States. As of October 21, 1997, a total of 34 patients had been enrolled at 10
medical centers. Following eight-month follow-up patient evaluation, which the
Company anticipates will be completed in the first half of 1999, the Company
intends to submit an application to the FDA for pre-market approval ("PMA") for
commercial sale of its Beta-Cath System in the United States.
INDUSTRY OVERVIEW
Coronary Artery Disease. Coronary artery disease is the leading cause of
death in the United States. More than 13 million people in the United States
currently suffer from coronary artery disease, which is generally characterized
by the progressive accumulation of plaque as a result of the deposit of
cholesterol and other fatty materials on the walls of the arteries. The
accumulation of plaque leads to a narrowing of the interior passage, or lumen,
of the arteries, reducing blood flow to the heart muscle. When blood flow to the
heart muscle becomes insufficient, oxygen supply is restricted and a heart
attack and death may result. Each year more than 1 million revascularization
procedures are performed in the United States, and approximately 1.8 million of
such procedures are performed worldwide, to treat coronary artery disease to
increase blood flow to the heart muscle.
Coronary Artery Bypass Graft. Coronary artery bypass graft ("CABG")
surgery was introduced as a treatment for coronary artery disease in the 1950s.
CABG is a highly invasive, open surgical procedure in which blood vessel grafts
are used to bypass the site of a blocked artery, thereby restoring blood flow.
CABG, still considered the most effective and long-lasting treatment for
coronary artery disease, is generally the primary treatment for severe coronary
artery disease involving multiple vessels. In addition, CABG is often a
treatment of last resort for patients who have undergone other less invasive
procedures but require reintervention. However, CABG has significant
limitations, including medical complications such as stroke, multiple organ
dysfunction, inflammatory response, respiratory failure and post-operative
bleeding, each of which may result in death. In addition, CABG is a very
expensive procedure, and requires a long recovery period. In the United States,
the average cost of undergoing CABG is approximately $36,000, the average
postoperative hospital stay following CABG is approximately five to seven days
and the average recuperation period following discharge from the hospital is
approximately six to eight weeks. In 1995, approximately 400,000 CABG procedures
were performed in the United States. Several new minimally invasive surgical
22
<PAGE> 24
techniques have been commercialized which attempt to lessen the cost and trauma
of CABG procedures while maintaining efficacy.
PTCA. Since its introduction in the late 1970s, PTCA has emerged as the
principal less invasive alternative to CABG. PTCA is a procedure performed in a
cath lab by an interventional cardiologist. During PTCA, a guidewire is inserted
into a blood vessel through a puncture in the leg (or arm, in some cases) and
guided through the vasculature to a diseased site in the coronary artery. A
balloon-tipped catheter is then guided over the wire to the deposit of plaque
("lesion") occluding the artery. Once the balloon is positioned across the
lesion inside the vessel, the balloon is inflated and deflated several times.
Frequently, successively larger balloons are inflated at the lesion site,
requiring the use of multiple balloon catheters. The inflation of the balloon
cracks or reshapes the plaque and the arterial wall, thereby expanding the
arterial lumen. Though injury to the arterial wall often occurs under balloon
pressure, PTCA typically results in increased blood flow. In 1996, it is
estimated that more than 500,000 PTCA procedures were performed in the United
States and approximately another 450,000 procedures were performed outside the
United States. The average cost of each PTCA procedure in the United States is
approximately $15,000, or less than one-half of the average cost of CABG, and
the length of stay and recuperation period are substantially less than those
required for CABG.
Though PTCA has grown rapidly as a highly effective, less invasive therapy
to treat coronary artery disease, the principal limitation of PTCA is the high
rate of restenosis, a re-narrowing of a treated artery, which often requires
reintervention. Due to the effects of restenosis, the long-term
cost-effectiveness of PTCA has not proven greater than that of CABG for
multi-vessel diseases. Studies have indicated that, within six months after
PTCA, between 25% and 45% of PTCA patients experience restenosis. In addition,
45% of patients with multi-vessel coronary artery disease who received PTCA have
been shown to require reintervention within three years of treatment. Finally,
although the average cost of PTCA is less than one-half of that of CABG, a study
indicated that three years after the procedure, PTCA has no cost advantage over
CABG due to the need for subsequent interventional treatment.
Pathology of Restenosis. Restenosis is typically defined as a renarrowing
of a coronary artery within six months of a revascularization treatment to less
than 50% of its original size. Restenosis is a vascular response to arterial
injury and occurs frequently after a revascularization procedure, which
stretches coronary arteries or otherwise damages the treated segment of the
artery. Due to multiple mechanisms controlling vascular repair, restenosis may
occur within a short period after a revascularization procedure or may develop
over the course of months or years. Restenosis that occurs shortly after a
revascularization procedure is usually attributed to elastic recoil (acute loss
of lumen diameter) of the artery.
Longer term, restenosis may result from excessive proliferation of cells at
the treatment site ("hyperplasia"), or from a generalized geometric remodeling
of the arterial segment, the causes of which are not well understood.
Hyperplasia is a physiological response to injury, similar to scarring, which
occurs in wound healing. In response to an arterial injury from
revascularization, the body sets off a biochemical response to repair the injury
site and protect it from further harm. This response will include a signal to
adjacent cells of the arterial wall to multiply. Often this cell proliferation
goes unchecked, resulting in a much thicker and inelastic arterial wall and in
reduced blood flow. Hyperplasia and vascular remodeling are responsible for a
large portion of the overall effect of restenosis.
Coronary Stenting and Other Catheter-Based Technologies. Coronary stents
are expandable, implantable metal devices permanently deployed at a lesion site.
Stents maintain increased lumen diameter by mechanically supporting the diseased
site in a coronary artery. Of all the non-surgical treatments which have sought
to improve upon PTCA, stents have demonstrated the best results in reducing the
rate of restenosis. In a typical stent procedure, the artery is pre-dilated at
the lesion site with a balloon catheter and the stent is delivered to the site
of the lesion and deployed with the use of a second balloon catheter, which
expands the stent and firmly positions it in place. This positioning is often
followed by a third dilatation, using a high pressure balloon to fully expand
and secure the stent. Once placed, stents exert radial force against the walls
of the coronary artery to enable the artery to remain open and functional.
23
<PAGE> 25
Studies have concluded that the rate of restenosis in patients who receive
coronary stents following PTCA is approximately 30% lower than in patients
treated only by PTCA. Additional clinical studies with new stent designs may
show a greater reduction in the rate of restenosis than stents which are
currently available. Stents appear to be effective in reducing the frequency of
restenosis resulting from elastic recoil and vascular remodeling, but they
increase hyperplasia.
The use of stents has grown rapidly since commercial introduction in the
United States in 1994, and it is estimated that they were utilized in
approximately 45% of the approximately 950,000 PTCA procedures performed
worldwide in 1996. Despite their rapid adoption, stents have certain drawbacks.
Not only are they permanent implants which may result in unforeseen, long-term
adverse effects, but they cannot be used in cases where the coronary arteries
are too tortuous or too narrow. In addition, the use of stents significantly
increases the cost of a PTCA procedure, especially as is often the case when two
or more stents are used. Further, restenosis may still occur and reintervention
options for stent patients are limited.
A variety of other catheter-based, minimally invasive, interventional
devices for coronary artery disease have been developed in an attempt to reduce
the frequency of restenosis following PTCA. These devices include atherectomy
devices (catheter devices that cut and remove plaque from the arterial wall),
rotational ablation devices (catheter devices which use a rotating burr to
remove plaque), and laser catheter devices (devices that use laser energy to
reduce plaque in arteries). Although these new approaches to coronary artery
disease have been found to be effective in certain lesion types and in certain
locations in the coronary arteries, like PTCA they also exhibit high rates of
restenosis.
THE NOVOSTE SOLUTION
The Company's Beta-Cath System is designed to reduce the frequency of
restenosis following PTCA by applying localized beta radiation to the treatment
site in the coronary artery. The Beta-Cath System is designed to be safe and
cost-effective and to fit well with techniques currently used by interventional
cardiologists in the cardiac catheterization lab. The Beta-Cath System targets
the primary causes of restenosis by attempting to prevent or inhibit hyperplasia
and long-term vascular remodeling. The Beta-Cath System, which delivers
localized beta radiation, can be handled with little risk to the health care
workers or to the patients because the penetration of electrons associated with
beta radiation is quite limited and easily shielded by the device. The Company
expects that the Beta-Cath System will provide significant cost savings, to the
extent that it (i) reduces the need for reintervention often required following
PTCA and coronary stenting and (ii) replaces coronary stents as a primary
therapy.
The Beta-Cath System is founded on the Company's belief, based on recent
clinical and pre-clinical studies, that localized beta radiation is likely to
reduce coronary artery restenosis rates by inhibiting cell proliferation which
occurs in response to PTCA. Radiation has been used therapeutically in medicine
for more than 50 years, and is extensively used for the treatment of
proliferative cell diseases, such as cancer. Cancer therapy has primarily
involved the use of gamma radiation, which is highly penetrating and may be
dangerous unless handled and used with great care. The Company has designed the
Beta-Cath System to use beta radiation, which is much less penetrating and thus
easier to use and control than gamma radiation. Beta radiation has been used
less frequently in medicine (primarily in a topical application to treat certain
skin and eye disorders) because of its more limited depth of penetration, but is
viewed by the Company as well-suited for intraluminal use following PTCA, where
the objective is to treat the small diameter coronary artery with minimal
exposure to adjacent tissues.
CLINICAL TRIAL AND REGULATORY STATUS
The Company has conducted a feasibility trial of the Beta-Cath System at
Emory University Hospital in Atlanta and Rhode Island Hospital in Providence
under an IDE granted by the FDA. A total of 23 patients were enrolled from
January through October 1996, each of whom had a single-vessel de novo
(previously untreated) lesion. The patients were treated with standard PTCA and
immediately thereafter with intracoronary beta radiation using the Beta-Cath
System. To examine the safety of different dosing parameters, patients received
dosage ranging from 12 Gy to 16 Gy for vessels ranging from at least 2.5 to 3.5
24
<PAGE> 26
millimeters. A follow-up review of the patients 30 days after treatment and a
follow-up angiogram six months after the initial treatment were performed to
observe the treated artery. During 1997, the Company also performed two
isolated, demonstration cases at two other medical centers in the U.S. using the
same IDE protocol utilized in the trials at Emory University Hospital and Rhode
Island Hospital.
In February 1997, the Company commenced a similar 30-patient feasibility
study in Canada, enrollment for which was completed in June 1997. In April 1997,
another similar 30-patient feasibility study was initiated in The Netherlands
and as of October 21, 1997, 25 patients had been enrolled in that study.
As of October 21, 1997, a total of 80 patients had been enrolled in the
U.S. and international feasibility studies. Of the 35 patients which, as of
September 25, 1997, had received six-month angiographic follow-up analyzed in a
core lab, 11% (four patients) were reported restenotic. This data suggests a 70%
reduction in the rate of restenosis in patients who received treatment with the
Beta-Cath System, when compared to a historical control group (the Lovastatin
Restenosis Trial) which received PTCA only and had been selected based upon
inclusion and exclusion criteria similar to those utilized by the Company. Of
these 35 patients, treated arteries on average maintained 100% of the
enlargement achieved with PTCA (a "late loss index" of 0%). The following table
compares the Company's data on the 35 patients to the historical control group:
<TABLE>
<CAPTION>
NOVOSTE
FEASIBILITY LOVASTATIN
STUDIES PLACEBO GROUP
----------- -------------
<S> <C> <C>
No. of Treated Patients................................... 35 161
Restenosis Rate........................................... 11% 42%
Late Loss Index........................................... 0% 43%
</TABLE>
Using data from these feasibility trials, the Company intends to submit by the
end of the first quarter of 1998 an application for a CE mark to commence
marketing of the Beta-Cath System in Europe.
On July 31, 1997, the Company initiated a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial under an IDE granted by the
FDA to determine the clinical safety and efficacy of the Beta-Cath System for
use in coronary arteries. The Company expects to enroll approximately 1,100
patients in the trial at 27 medical sites principally located in the United
States. The patients will be divided into two approximately equal subgroups, one
for PTCA alone and one with coronary stenting. Each subgroup of the trial will
be randomized to a placebo control. In both subgroups, patients who receive the
beta radiation will receive dosages of 14Gy for vessels ranging from at least
2.7 to 3.35 millimeters and with 18Gy for vessels ranging from 3.35 to 4.0
millimeters. A follow-up review of patients 30 days after treatment and a
follow-up angiogram eight months after the initial treatment will be performed
to observe the treated artery. The angiograms will be analyzed to determine
whether there has been an incidence of restenosis and to measure the late loss
index (the extent of the loss in the enlargement of lumen achieved with PTCA).
As of October 21, 1997, a total of 34 patients had been enrolled at 10 medical
centers.
The trials are administered by the Company's clinical and regulatory staff
of eight people. The Company uses consultants to monitor the clinical sites and
to assist in training. The Company also has engaged an independent contract
research organization to compile data from the trial and to perform statistical
analysis.
Following completion of the multicenter trial, the Company intends to
submit an application to the FDA for pre-market approval ("PMA") for commercial
sale of its Beta-Cath System in the United States.
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<PAGE> 27
THE BETA-CATH SYSTEM
The Beta-Cath System depicted below is currently being used in the
multicenter trial. The Company anticipates that the design of the system to be
commercialized in Europe, if and when pre-market approvals are obtained, will be
substantially similar.
[A drawing of the Beta-Cath System with its component parts labeled.]
The primary components of the Beta-Cath System are:
Radiation Source Train. The beta radiation administered by the
Beta-Cath System emanates from a "train" of several miniature cylindrical
sealed sources ("radiation sources") containing Strontium 90
(Strontium/Yttrium), a beta-emitting radioisotope. The use of beta, rather
than gamma, radiation is intended to make the Beta-Cath System safer, less
penetrating and easier to use in the cath lab environment. The activity of
the Company's radiation sources has been validated by the U.S. Department
of Commerce National Institute of Standards and Technology, enabling a
physician to accurately determine appropriate dosing levels. In addition,
due to the long half-life (approximately 28 years) of Strontium 90, and
because the source train will not come into contact with a patient's blood
or tissue, the radiation sources are expected to be reused for numerous
patients. Beta radiation from the Strontium 90 source can be easily
shielded from health care workers by the use of approximately
one-half-inch-thick quartz in the transfer device.
Transfer Device. The transfer device is a multiple-use, hand-held
instrument used to deliver and then store the radiation sources when not in
use. The transfer device (i) transfers the radiation sources to and from
the delivery catheter via a hydraulic delivery system, (ii) contains a
switching device that uses a mechanical gating system to contain and then
release the radiation sources and (iii) completely shields the beta
radiation energy from health care workers when the radiation source train
is housed inside it.
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Delivery Catheter. The delivery catheter is a single-use, disposable,
multi-lumen catheter that provides a pathway for the radiation sources to
be rapidly delivered and retrieved from the coronary arterial segment to be
treated. The delivery catheter is positioned by advancing it over the same
guidewire used during the immediately preceding PTCA procedure. The
radiation sources are delivered and retrieved through a dual-lumen closed
hydraulic circuit, which uses a standard syringe.
The Beta-Cath System is intended to be used in a cath lab by an
interventional cardiologist immediately after a PTCA procedure. The cardiologist
uses a previously positioned guidewire used in the PTCA procedure to direct the
delivery catheter into the vasculature of the patient until the treatment zone
of the delivery catheter reaches the targeted site. A radiation oncologist then
delivers the radiation sources hydraulically from the transfer device to the
target site, in a matter of seconds, through the radiation source train lumen of
the delivery catheter. The radiation sources remain at the targeted site for
less than five minutes to deliver a predetermined dose of radiation. They are
then returned, through the same lumen, by the use of positive hydraulic pressure
applied through the delivery catheter's fluid lumen. Upon completion of each
procedure, the train of radiation sources is stored safely inside the transfer
device. At the end of the day, the transfer device is delivered to a designated
radiation storage site within the hospital for safekeeping. While the need for a
cardiologist and a radiation oncologist is expected to result in higher
physician fees, the Company believes the Beta-Cath System will be
cost-effective, principally by reducing the need for reinterventional
procedures.
The Company believes the Beta-Cath System, when fully developed and tested,
will have the following advantages:
- Non-implantable, Site-specific Therapy. The Beta-Cath System was
designed to treat accurately only the area required to prevent restenosis,
without leaving a permanent implant in the body.
- Short Procedure Times. The Beta-Cath System was designed to enhance
patient safety and comfort, as well as to promote efficiency in the cath
lab, by delivering the recommended dosage in less than five minutes of
radiation exposure time per lesion.
- Utilization of Existing PTCA Techniques. Although intracoronary
radiation is a new concept in coronary artery disease treatment, the
hand-held Beta-Cath System was designed to be easily adopted and used by
the cardiologist. The delivery catheter is very similar to a balloon
angioplasty catheter, and it is positioned by advancing it over the
guidewire already in place from the previous PTCA procedure.
- Flexibility. The cylinders that make up the Beta-Cath System's
radiation-source train, as well as the Beta-Cath System's delivery
catheter material, are designed to be very flexible, giving the Beta-Cath
System a very tight radius of curvature and the capability of navigating
tortuous coronary anatomies.
- Multiple-Use System. The radiation source train can be reused for
numerous patients, due to the long half-life of the isotope and because
the source train does not come into contact with the patient's blood. As a
result, inventory planning will be very straightforward, procedure costs
will be attractive and last minute treatment decisions can be made.
- Ease and Accuracy of Dosing. Because of the long half-life of the
Company's radiation sources, prescribed treatment times will remain stable
over the approved shelf life of the isotope. Intracoronary radiation
systems that utilize short half-life isotopes are likely to require
complex case-by-case dose calculations based on the current decay state of
the isotope.
- Designed for Safety. The Beta-Cath System utilizes localized beta
radiation, which results in total body radiation exposure significantly
less than that received during routine x-ray during PTCA. Other safety
mechanisms include: a closed-source train lumen, special locking
mechanisms to connect the delivery catheter to the transfer device and
sufficient shielding in the transfer device to protect health care workers
from radiation exposure.
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<PAGE> 29
THE NOVOSTE BUSINESS STRATEGY
The Company's objective is to become the leader in the commercialization of
intravascular radiation devices for the treatment of restenosis. Elements of the
Company's strategy include:
- Achieve First-to-Market Position in the United States. Novoste intends
to be the first to market in the United States an intracoronary beta
radiation device to treat coronary restenosis.
- Establish Beta Radiation Therapy as the Standard Therapy to Prevent
Restenosis. The Company's strategy is to introduce the Beta-Cath System
into the cath lab as standard therapy to reduce the frequency of
restenosis following PTCA, either on a stand-alone basis or in conjunction
with coronary stenting. The Company seeks to establish interventional
cardiologists as the primary providers of this therapy, and plans to
target top-tier medical institutions and leading cardiologists for sale of
the Beta-Cath System. In addition, the Company intends to conduct
intensive physician-training seminars to familiarize the cardiologists
with the use of the Beta-Cath System.
- International Commercialization. The Company intends to seek regulatory
approval to commence marketing the Beta-Cath System in Europe by
submitting an application for a CE mark by the end of the first quarter of
1998. If such approval is obtained, the Company anticipates marketing the
Beta-Cath System in Europe through international distributors or a
corporate partner.
- Establish Radiation Therapy for Peripheral Vascular
Applications. Restenosis is common following angioplasty of the
peripheral arteries. In addition, a similar phenomena frequently occurs in
veins adjacent to an arterial-venous shunt used for patients undergoing
hemodialysis for end-stage renal disease. The Company intends to leverage
its core catheter and localized radiation technologies to expand its
product offerings to other vascular markets where cell proliferation is of
clinical significance.
- Protect and Enhance Proprietary Technology. The Company believes that
its patent position may offer a competitive advantage. The Company has
received a Notice of Allowance stating that the Company's first patent
application covering aspects of the Beta-Cath System has been allowed for
issuance of a United States patent. The Company has also filed a
counterpart application under the Patent Cooperation Treaty, preserving
the Company's right to file applications in the European Patent Office and
certain other countries. The Company intends to obtain further protection
of its proprietary technology and to defend its intellectual property
rights against infringement.
PRODUCT DEVELOPMENT
Research and development activities are performed by a 25-person
product-development team. The Company has also retained consultants to assist in
many research and development activities, including design of the Beta-Cath
System, designing, conducting and monitoring the clinical trials relating to the
Beta-Cath System and advising on key aspects of radiation health physics and
dosimetry. On June 27, 1996 the Company signed an agreement with a medical
engineering, development and design company to provide products and services to
be used in the Company's product development.
The focus of the Company's current development efforts is the design of
future generation components of the Beta-Cath System. The Company would like to
introduce a delivery catheter with a smaller outer diameter so that arteries
smaller than 2.7 millimeters could be treated, thereby expanding the Company's
market opportunity. Likewise, the transfer device will be modified to have a
more ergonomic design and to incorporate additional features. Additional future
development efforts will focus on modifying the Beta-Cath System for use in
peripheral applications, such as arterial-venous shunts and the femoral
arteries. In addition, the capability of modifying the length of the
radiation-source trains to correspond with varying lesion lengths is potentially
a desired feature of future systems. There can be no assurance that the Company
will be successful in developing these or other products.
Research and development expenses for the years ended December 31, 1996,
1995, and 1994 and for the nine months ended September 30, 1997 were
approximately $4.6 million, $2.1 million, $1.4 million and $8.6 million,
respectively.
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In addition to the resources dedicated to the product-development process,
the Company has an internal regulatory affairs and clinical monitoring staff,
which has responsibility for establishing, monitoring, collecting and analyzing
data relating to clinical trials and regulatory approvals for the Beta-Cath
System in the United States and abroad.
MARKETING AND DISTRIBUTION
The Company anticipates marketing the Beta-Cath System through a direct
sales force in the United States and through a combination of international
distributors and corporate marketing partners outside the United States. If
marketing approval is obtained, the Company plans to focus its United States
marketing efforts on a top tier of approximately 200 hospitals, where the
Company believes a vast majority of the PTCA procedures in the United States are
performed, and on leading cardiologists at those institutions. Through this
effort the Company initially aims to identify well-respected clinical supporters
for the Beta-Cath System and to leverage their reputation in the clinical
community to generate wider demand. The Company will also conduct seminars to
educate physicians about the Beta-Cath System. The Company believes that it can
market the Beta-Cath System to these hospitals and cardiologists with a
moderately sized direct-sales organization, initially consisting of the Vice
President of Marketing and Sales and approximately 8 to 10 sales
representatives, augmented by a small number of clinical specialists. The
Company's business and future operating results will depend in significant part
upon its ability to attract and retain skilled sales and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
Company's inability to attract and retain skilled sales and marketing personnel,
as needed, could materially adversely affect the Company's business, financial
condition and results of operations. The Company believes such distribution or
corporate partnering arrangements will be cost-effective, will be implemented
more quickly than a direct-sales force established by the Company in such
countries, and will enable the Company to capitalize on local marketing
expertise in such countries.
The Company intends to select one or more established market leaders in the
radiation-isotope business to inventory and deliver the radiation sources and to
provide related training, delivery, testing and disposal services to the
purchasing hospital. Novoste does not intend to inventory or deliver the
radiation sources housed inside the transfer device of the Beta-Cath System.
There can be no assurance that the Company will be able to secure any
arrangements with international distributors, corporate marketing partners or
radiation isotope providers on satisfactory terms or at all.
MANUFACTURING AND MATERIALS
The Company soon will focus its manufacturing resources on the production
of the Beta-Cath System. The Company anticipates that it will manufacture the
delivery-catheter component of the Beta-Cath System directly and manufacture the
transfer device jointly with third parties. The radiation-source trains are
being supplied by a third party. The Company is in the process of purchasing
equipment and validating its manufacturing processes to commence manufacturing
of its catheter in 1998. The Company intends to manufacture its products at its
25,600-square-foot facility in Norcross, Georgia through the end of 1999. The
Company believes that, if marketing approvals of the Beta-Cath System are
obtained, it will be able to utilize its existing facility and the expertise of
its management to manufacture commercial quantities of the catheter-based
components of the Beta-Cath System at a reasonable cost. However, to date, the
Company has not yet commercialized any of its products, and its manufacturing
activities have consisted of building a small number of prototypes of the
Beta-Cath System for use in pre-clinical and clinical trials, and the Company
does not have experience in manufacturing the Beta-Cath System in commercial
quantities.
The Company currently executes all critical assembly operations in
controlled-environment rooms, in which bacterial and airborne particulate levels
are monitored. The Company believes that its current space will be sufficient to
serve its needs through at least 1998. The Company could rely on some outside
sources for catheter components, and from time to time the Company could
experience shortages of certain supplied materials that could significantly
affect its ability to produce enough product to satisfy market demand. As the
Company grows, it will be required to scale up its production and to increase
its manufacturing capacity.
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<PAGE> 31
Any products of the Company, for which FDA clearances or approvals have
been obtained, must be manufactured and designed in accordance with Good
Manufacturing Practices ("GMP") regulations which would impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing and quality assurance activities. The Company will rely on
independent suppliers for certain components of the Beta-Cath System. Such
components are either standard throughout the industry or will be built to the
Company's specifications. All suppliers of such components also must be in
compliance with GMP regulations.
The Company has obtained all of its requirements of radiation source
materials pursuant to an agreement, as amended (the "Supply Agreement"), with a
single supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German
corporation (the "Supplier"). Under the Supply Agreement, as amended, the
Company agreed to advance the Supplier a monthly investment grant of 100,000 DM
(approximately $65,000) for a period of 15 months from November 1996 through
January 1998, to equip a production site for the exclusive production of
radioactive materials for the Company. As of September 30, 1997, 11 payments
totalling approximately $715,000 have been made. In June 1997 the Company also
made a milestone payment of 617,000 DM (approximately $360,000) to the Supplier
upon its meeting certain delivery requirements. The Company is further obligated
to make a payment of 737,000 DM (approximately $415,000 upon the Supplier
meeting certain production volumes by March 1998. The Supplier has agreed to
manufacture radiation source "trains" at an agreed-upon base price. The Supplier
is required to comply with various regulatory requirements with respect to the
supply of radiation sources.
The Supply Agreement has an initial term ending in the year 2000, and
renews automatically on a calendar year basis unless notice of termination is
given six months prior to the end of each calendar year. Under the Supply
Agreement, the Supplier has agreed not to sell, lease, license or otherwise
transfer radioactive sources of a similar isotope to any other party for use in
the treatment of restenosis. The Company, in turn, has agreed not to purchase,
lease, or otherwise acquire directly or indirectly more than 30% of its annual
requirement for radioactive sources of "like" isotope for use in the treatment
of restenosis from any other party unless the Supplier is unable to provide the
radioactive source materials required by the Company.
Although the Supply Agreement permits the Company to use an alternative
source for 30% of its annual isotope requirements, the Company believes that,
because of the technical expertise and capital investment required to
manufacture the radiation source materials, it would be extremely difficult and
expensive to find an alternate source of supply in the event that the Supplier
is unable to provide the materials. In addition, portions of the process used to
manufacture the materials may be proprietary to the Supplier, who has no
obligation to make any of its know-how or technology available to any
potentially alternate source of supply.
The Company holds an option to purchase those tangible and intangible
assets of the Supplier used or useful in producing the radioactive isotopes sold
to the Company by the Supplier in connection with the Beta-Cath System. The
option is exercisable at any time on or prior to August 22, 2002, for
$5,000,000, 50% of which is payable upon exercise and the balance in 12 equal
consecutive monthly installments following such exercise, and provides that the
$90,000 payment made to obtain the option and the aforementioned aggregate
investment grants of 1.5 million Deutsche Marks, to the extent paid at the time
of exercise, will be credited against the purchase price of the assets. Upon the
exercise of the option, the Supplier is obligated, for a period of up to three
months, to assign personnel to assist the Company in facilitating the transfer
of the assets, both for purposes of technical training and operations and for
administrative and regulatory matters relating to licensing and governmental
approvals. Nevertheless, the exercise of such option and the transfer of the
required technology and expertise to the Company or an alternative source would
be costly, time consuming, and uncertain of success.
While the Company anticipates that the radiation source materials it
purchases from the Supplier will be able to be used for numerous patients, the
inability of the Supplier to provide radiation source materials would limit the
Company's ability to increase its business beyond its then existing inventory of
such radiation source material. As a result of the foregoing, any failure or
disruption in the ability of the Supplier to provide the radiation source
materials could have a material adverse effect on the business, financial
condition and results of operation of the Company.
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<PAGE> 32
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications. On February 25,
1997 the Company received a Notice of Allowance from the U.S. Patent and
Trademark Office ("USPTO"), stating that the Company's first patent application
covering aspects of the Beta-Cath System has been allowed for issuance of a
United States patent. The Company also has filed a related United States
continuation-in-part application, and has a related United States continuation
application and another United States application pending covering aspects of
its Beta-Cath System. With respect to the allowed application, Novoste has
counterpart applications pending in the European Patent Office and certain other
countries. With respect to the continuation-in-part and other applications,
Novoste has filed counterpart applications under the Patent Cooperation Treaty,
preserving the Company's right to file applications in the European Patent
Office and certain other countries.
There can be no assurance that a United States patent, with respect to the
applications in which a notice of allowance or preliminary indication of
allowability has been received, will be issued, or if issued, will offer any
protection to the Company or that it will not be reexamined, invalidated or
circumvented. In addition, there can be no assurance that any claims under the
other pending applications will be allowed, or if allowed, will offer any
protection or that they will not be rejected, challenged, reexamined,
invalidated or circumvented. In addition, there can be no assurance that
competitors will not obtain patents that will prevent, limit or interfere with
the Company's ability to make, use or sell its products in either the United
States or international markets.
The Company received a letter from NeoCardia, L.L.C. ("NeoCardia"), dated
July 7, 1995, in which NeoCardia notified the Company that NeoCardia is the
exclusive licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and
requested that the Company confirm that its products did not infringe the claims
of the Dake Patent. The Company has concluded, based upon advice of patent
counsel, that the Company's Beta-Cath System would not infringe any valid claim
of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent
counsel responded that the Company did not infringe the Dake Patent.
In June 1997 the USPTO issued a final Office Action with respect to two
consolidated reexamination requests relating to the Dake Patent. In the final
Office Action, the patent examiner upheld the patentability of some of the
original claims and certain new claims for the Dake Patent but rejected other
claims. In August 1997 the holder of the Dake Patent filed an amendment in
response to the final Office Action seeking, among other things, to add certain
additional new claims, which appear to have been written in an attempt to cover
the Beta-Cath System. In October 1997 the USPTO, rejected these particular new
claims, because they improperly attempted to broaden the scope of the Dake
Patent and were inconsistent with the original patent claims. The holder of the
Dake Patent has the right to appeal any final rejection of any claims presented.
The validity of patent claims which survive a reexamination procedure may be
more difficult to challenge in a later dispute than claims which have never been
reexamined to the extent that the same prior art is relied upon. The Company
continues to believe, based upon advice of counsel that the Beta-Cath System
would not infringe any valid claim of the Dake Patent. However, there can be no
assurance that the Company's products will not infringe any original, amended or
new claims of the Dake Patent which survive the reexamination proceeding.
In May 1997 Guidant Corporation ("Guidant") acquired NeoCardia together
with the rights under the Dake Patent. Guidant is a New York Stock
Exchange-listed, medical device company, which is a competitor of Novoste.
Guidant has significantly greater capital resources than the Company. There can
be no assurance that Guidant will not sue the Company for patent infringement
and obtain damages from the Company and/or injunctive relief restraining the
Company from commercializing the Beta-Cath System in the U.S., or that the
Company will not be required to obtain a license from Guidant to market the
Beta-Cath System in the U.S., any of which could have a material adverse effect
on the Company's business, financial condition and results of operations, or
could result in cessation of the Company's business.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights and companies in the
medical device industry have employed intellectual property
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<PAGE> 33
litigation to gain a competitive advantage. There can be no assurance that the
Company will not become subject to patent-infringement claims or litigation or
interference proceedings declared by the USPTO to determine the priority of
inventions. The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. Litigation 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. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or require the Company to redesign its
products or processes to avoid infringement or prevent the Company from selling
its products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all, or that the Company could redesign its products
or processes to avoid infringement. Any 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.
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. Accordingly, there can be no assurance that
current and potential competitors or other third parties have not or will not
file applications for, or have not or will not receive, patents and will not
obtain additional proprietary rights relating to products made, used or sold or
processes used or proposed to be used by the Company.
The Company has developed certain of its patent and proprietary rights
relating to the Beta-Cath System in conjunction with Emory University Hospital,
a leader in the use of intravascular radiation therapy. To obtain the exclusive
rights to commercialize the Beta-Cath System for the treatment of restenosis,
the Company entered into a license agreement with Emory, under which Emory
assigned to the Company all of Emory's rights to one pending U.S. patent
application, as to which Emory made no representation or warranty with respect
to its ownership thereof, and licensed other technology thereunder relating to
the Beta-Cath System, but made only limited representations as to the ownership
of such other technology. Under the agreement Emory will be entitled to royalty
payments based upon net sales of the Beta-Cath System. The term of the agreement
runs through the later of (i) the date the last patent covered by the agreement
expires or (ii) January 2016 (unless earlier terminated as provided in the
agreement). Any inventions developed jointly by personnel of the Company and
Emory during the term of the license agreement are owned jointly by the Company
and Emory. If the agreement were terminated by Emory as a result of the
Company's failure to pay such royalties or any other breach of its obligations
under such agreement, the Company's rights to use jointly owned patents
(including any patent issuing from the continuation-in-part application which
has been filed) would become non-exclusive, it would have no rights to use
future patents owned exclusively by Emory, and the Company could be required by
Emory to cooperate in licensing the pending U.S. patent application and its
foreign counterparts to third parties so that they would be able to
commercialize and sell the Beta-Cath System.
All of the physicians on staff at Emory who were involved in the
development of the Beta-Cath System, including Spencer B. King, III M.D., have
assigned their rights in the technology, if any, to Novoste and/or Emory. In
addition, the Company has entered into a license agreement with Dr. King
pursuant to which Dr. King is entitled to receive a royalty on the net sales of
the Beta-Cath System (excluding consideration paid for the radioactive isotope),
subject to a maximum of $5,000,000 to be paid to Dr. King, in exchange for the
right granted thereunder to the Company to use his name in connection with sales
and marketing of the Beta-Cath System.
The Company employs a full time manager of intellectual property to prepare
invention records and to coordinate the prosecution of new intellectual
property. The Company typically obtains confidentiality and
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invention assignment agreements in connection with employment, consulting and
advisory relationships. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship with the Company, is to be kept
confidential and not disclosed to third parties, except in specific
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection or adequate remedies for the Company in the event
of unauthorized use, transfer or disclosure of such information or inventions.
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.
COMPETITION
Competition in the medical device industry, and specifically the markets
for cardiovascular devices and devices to improve the outcome of coronary
revascularization procedures, is intense. Several companies are developing
devices to improve the outcome of coronary revascularization procedures,
including several that have various radiation therapy products under development
to reduce the frequency of restenosis. The radiation therapy devices under
development by Novoste's competitors include intracoronary radiation therapy
delivered through a variety of means, including: (i) a radioactive-tipped
guidewire, (ii) a radioactive stent or (iii) a radioactive fluid-filled balloon.
In addition, the radiation sources being developed by the Company's competition
vary between gamma, beta and x-ray.
Most of the companies developing radioactive guidewires, which may use
either gamma or beta radiation, have also developed specialized computerized
equipment to automatically calculate treatment times, control movement of the
guidewire, and to store the guidewire when not in use (an "afterloader"). This
equipment may be large, complex, and expensive. Guidewires with gamma-emitting
radioactive tips have been used for some time in cancer therapy, and some
researchers have used them in clinical trials to deliver intracoronary radiation
to prevent restenosis. Gamma radiation is more penetrating and therefore more
hazardous than beta radiation. As an example, during administration of gamma
radiation, health care workers must leave the cath lab to ensure their safety by
limiting their ongoing exposure to gamma radiation. Some companies are also
investigating the use of beta-emitting wires, which would be more easily
shielded and safer to use, although these are also used in conjunction with
afterloaders. Companies using the guidewire approach include Neocardia, which is
owned by Guidant, Best Medical, Inc., which is currently conducting a
multicenter clinical trial of a gamma-emitting radioactive guidewire, U.S.
Surgical and Pfizer through its Schneider AG subsidiary.
Novoste is also aware of one company, Isostent, Inc., developing a
beta-emitting stent. In theory, such a stent would address both elastic recoil
and vascular remodeling and inhibit longer-term hyperplasia. However, this
method retains the problems inherent in leaving a permanent implant in the
coronary artery. In addition, this approach might not effectively treat areas of
the artery beyond the ends of the stent, areas which have been known to be
restenotic. Finally, because it is a permanent implant, a radioactive stent
would likely require the use of a radiation source with a short half-life. As a
result, a hospital would have difficulty keeping an inventory of stents that
have sufficient radioactivity at the time of implant.
Another method of delivering intraluminal radiation being investigated by a
number of physicians and companies is a radioactive fluid-filled balloon
catheter. This approach would involve injecting a short half-life radioactive
liquid down a catheter to inflate a balloon. The main disadvantages of this
approach are the risk of balloon rupture and disposal of the catheter and fluid
as radioactive waste.
Many of the Company's competitors and potential competitors have
substantially greater capital resources than does the Company and also have
greater resources and expertise in the areas of research and development,
obtaining regulatory approvals, manufacturing and marketing. There can be no
assurance that the Company's competitors and potential competitors will not
succeed in developing, marketing and distributing technologies and products that
are more effective than those developed and marketed by the Company or that
would render the Company's technology and products obsolete or noncompetitive.
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<PAGE> 35
Additionally, there is no assurance that the Company will be able to compete
effectively against such competitors and potential competitors in terms of
manufacturing, marketing and sales.
Any product developed by the Company that gains 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 speed with which the Company can
develop products, gain regulatory approval and reimbursement acceptance and
supply commercial quantities of the product to the market are expected to be
important competitive factors. In addition, the Company believes that the
primary competitive factors for products addressing restenosis include safety,
efficacy, ease of use, reliability, suitability for use in cath labs, service
and price. The Company also believes that physician relationships, especially
relationships with leaders in the interventional cardiology community, are
important competitive factors. Although the Company believes that it is the
first in the United States to have initiated an FDA-approved human clinical
trial of a radiation system for reducing the frequency of restenosis, there can
be no assurance that the Company will be first to market such a system in the
United States or to market such a system effectively.
GOVERNMENT REGULATION
United States
The Company's Beta-Cath System is regulated in the United States as a
medical device. As such, the Company is subject to extensive regulation by the
FDA and by foreign governments. The FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals,
a recommendation by the FDA that the Company not be permitted to enter into
government contracts, and criminal prosecution. The FDA also has the authority
to request repair, replacement or refund of the cost of any device manufactured
or distributed by the Company.
In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and efficacy. Under FDA regulations
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and Class II devices are subject
to general and special controls (for example, performance standards, patient
registries, and FDA guidelines). Generally, Class III devices are those that
must receive premarket approval by the FDA after evaluation of their safety and
efficacy (for example, life-sustaining, life-supporting and implantable devices,
or new devices that have not been found substantially equivalent to other Class
II legally marketed devices). The Beta-Cath System is a Class III device, which
will require pre-market approval ("PMA") by the FDA prior to its
commercialization.
A PMA application must be supported by valid scientific evidence, which
typically includes extensive data, including preclinical and human clinical
trial data to demonstrate safety and efficacy of the device. If human clinical
trials of a device are required and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) is required to file an IDE application with the FDA prior to commencing
human clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.
The PMA application must also contain the results of all relevant bench
tests, laboratory and animal studies, a complete description of the device and
its components, and a detailed description of the methods, facilities and
controls used to manufacture the device. In addition, the submission should
include the proposed labeling, advertising literature and training methods (if
required). Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit
such substantive review. If the FDA determines that the PMA application is
sufficiently complete to permit a substantive review, the FDA will accept the
application for filing and begin an in-depth review of the PMA
34
<PAGE> 36
application. An FDA review of a PMA application generally takes one to two years
from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information previously
submitted. During the review period an advisory committee, primarily comprised
of clinicians, will likely be convened to review and evaluate the application
and provide recommendations to the FDA as to whether the device should be
approved. The FDA is not bound by those recommendations. During the review
process of the PMA application, the FDA generally will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with the applicable GMP requirements.
If the FDA's evaluations of the PMA application is favorable, the FDA will
either issue an approval letter or an "approvable letter," containing a number
of conditions which must be satisfied in order to secure the final approval of
the PMA application. When and if those conditions have been fulfilled to the
satisfaction of the FDA, the agency will issue a letter approving a PMA
application authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case approval of the PMA application
could be delayed for several years while additional clinical trials are
conducted and submitted in an amendment to the PMA application. The PMA
application process can be expensive, uncertain and lengthy, and a number of
devices for which FDA approval has been sought by other companies have never
been approved for marketing.
On July 19, 1995, 29 days after submission of the application, the Company
obtained an IDE to conduct clinical feasibility trial to collect data necessary
to gain FDA approval to begin the multi center, randomized, prospective clinical
trial needed to support a PMA application. The trial initially commenced at
Emory University Hospital. On April 18, 1996, 31 days after submission of an
application to broaden that IDE, the Company was granted the authority to begin
enrolling patients also at Rhode Island Hospital. Then, in July 1997, 29 days
after submission of the Company's application for an IDE for a multi center
trial using a modified transfer device, the FDA approved an IDE for the multi
center trial currently in progress. There can be no assurance as to when, or if,
the Company will complete clinical trials of its Beta-Cath System or that data
from such trials, if completed, will be adequate to support approval of a PMA
application. Furthermore, there can be no assurance that the Company will be
able to obtain approval of its PMA application on a timely basis, or at all, and
delays in the receipt of, or failure to receive, such approvals would have a
material adverse effect on the Company's business, financial condition and
results of operations, and could result in cessation of the Company's business.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and certain
state agencies, and are subject to periodic inspections by the FDA and those
state agencies. The FDA requires devices to be manufactured in accordance with
GMP regulations, which impose certain procedural and documentation requirements
upon the Company with respect to manufacturing and quality-assurance activities.
Because the Beta-Cath System uses radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, even if approval of a PMA
application is obtained, approval by the U.S. Nuclear Regulatory Commission
("NRC"), or an equivalent state agency, of the Company's radiation sources for
certain medical uses will be required to distribute commercially the radiation
sources to licensed recipients in the United States. In addition, the Company
and/or its supplier of radiation sources must obtain a license from the NRC to
commercially distribute such radiation sources as well as to comply with all
applicable regulations. The Company and/or its supplier of radiation sources
must also comply with NRC and U.S. Department of Transportation regulations on
the labeling and packaging requirements for shipment of radiation sources to
hospitals or other users of the Beta-Cath System. In
35
<PAGE> 37
addition, hospitals may be required to obtain or expand their licenses to use
and handle beta radiation prior to receiving radiation sources for use in the
Beta-Cath System. Comparable, or perhaps more stringent, requirements and/or
approvals regulating radiation are anticipated in markets outside the United
States. If any of the foregoing approvals are significantly delayed or not
obtained, the Company's business, financial condition and results of operations
could be materially adversely affected.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire-hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future, or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations.
International
Sales of the Beta-Cath System outside the United States are subject to
regulatory requirements that vary 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 approval, and the requirements may differ. In addition, there
may be foreign regulatory barriers other than premarket approval (including
regulations concerning the distribution, use and handling of the radiation
sources), and the export of devices must be in compliance with FDA regulations.
In Europe, commencing in 1998 the Company will be required to obtain
certifications necessary to enable the CE mark to be affixed to the Beta-Cath
System, to market the Beta-Cath System throughout the European Union.
Additionally, to market products in Europe, the Company may choose to maintain
ISO 9001 and is required to maintain EN 46001 certification subject to periodic
surveillance audits. Using data from its feasibility studies, the Company
intends to submit an application by the end of the first quarter of 1998 for a
CE mark to commence marketing of the Beta-Cath System in Europe.
Other countries in which the Company intends to market the Beta-Cath System
may adopt regulations in the future that could prevent the Company from
marketing its Beta-Cath System in those countries. In addition, the Company may
be required to spend significant amounts of capital in order to respond to
requests for additional information by foreign regulatory bodies, or may
otherwise be required to spend significant amounts of capital in order to obtain
foreign regulatory approvals. Any such events could substantially delay or
preclude the Company from marketing the Beta-Cath System in foreign countries.
THIRD-PARTY REIMBURSEMENT
The Beta-Cath System, if approved for commercial sale, will be purchased
primarily by hospitals. Hospitals and physicians bill various third-party
payors, such as government health programs, private health insurance plans,
managed care organizations and other similar programs, for the health care
services provided to their patients. The FDA has classified the Beta-Cath System
as an experimental device and accordingly its use in the human clinical trials
will not be reimbursable under the Medicare program or by private insurers until
after the PMA approval is achieved, if ever. The classification of the Beta-Cath
System as experimental will materially increase the costs of conducting clinical
trials in the United States, and such costs could have a material adverse effect
on the Company's business, financial condition and results of operations. Even
if the Beta-Cath System were to receive approval for marketing by the FDA, there
can be no assurance that third-party payors will cover the Beta-Cath System, or,
if covered, that third-party payors will not place certain restrictions on the
circumstances in which coverage will be available. In addition, payors may deny
reimbursement if they determine that a product was not used in accordance with
established payor protocol regarding cost-effective treatment methods, or was
used for an unapproved indication. Third-party payors are
36
<PAGE> 38
also increasingly challenging the prices charged for medical products and
services and, in some instances, have put pressure on medical device suppliers
to lower their prices. The Company is unable to predict what changes will be
made in the reimbursement methods used by third-party health care payors. There
can be no assurance that the Beta-Cath System will be considered cost effective
by third-party payors, that reimbursement for the Beta-Cath System will be
available or, if available, that payors' reimbursement levels will not adversely
affect the Company's ability to sell the Beta-Cath System on a profitable basis.
In addition, the cost of health care has risen significantly over the past
decade, and there have been and may continue to be proposals by legislators,
regulators and third-party payors to curb these costs. Failure by hospitals and
physicians to obtain reimbursement from third-party payors, changes in
third-party payors' policies toward reimbursement for the Beta-Cath System or
legislative action could have a material adverse effect on the Company's
business, financial condition and results of operations.
Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets there are private insurance systems as
well as government managed systems. There can be no assurance that reimbursement
for the Company's products will be available in international markets under
either government or private reimbursement systems.
PRODUCT LIABILITY AND INSURANCE
The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
there can be no assurance that such claims will not be asserted or that the
Company will have sufficient resources to satisfy any liability resulting from
such claims. The Company maintains product liability insurance with coverage of
an annual aggregate maximum of $4 million. There can be no assurance that
product liability claims will not exceed such insurance coverage limits, that
such insurance will continue to be available on commercially reasonable terms or
at all, or that a product liability claim would not materially adversely affect
the business, financial condition or results of operations of the Company.
FACILITIES
The Company leases approximately 25,600 square feet of space in an office
park in Norcross, Georgia under a five-year lease expiring in 2000. All of the
Company's operations (other than clinical research activities and services of
its consultants) are conducted in that facility. The Company believes that its
facility is adequate to serve its needs through at least 1998, but additional
facilities may be needed thereafter to commercialize the Beta-Cath System.
EMPLOYEES AND CONSULTANTS
As of October 21, 1997 the Company directly employed 42 full-time
individuals. Most of the Company's employees have prior experience with medical
device or pharmaceutical companies. The Company believes it maintains good
relations with its employees. None of the Company's employees is represented by
a union or covered by a collective bargaining agreement. The Company's success
will depend in large part upon its ability to attract and retain qualified
employees. The Company faces competition in this regard from other companies,
research and academic institutions and other organizations.
The Company maintains continuing relationships with a number of independent
consultants that have contributed to the development of the Company's products
and work on specific development projects. These relationships are integral to
the continued success of the Company and the generation of new products from the
research and development departments.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas D. Weldon.......................... 42 President, Chief Executive Officer and
Director
Charles E. Larsen......................... 46 Senior Vice President, Chief Technical
Officer and Director
David N. Gill............................. 42 Chief Operating Officer, Vice President of
Finance and Treasurer
Thomas K. Brooks.......................... 41 Vice President, Sales and Marketing
Joan M. MacDonald, Ph.D................... 39 Vice President, Regulatory and Clinical
Affairs
Cheryl R. Johnson......................... 35 Vice President, Investor Relations and
Business Development and Secretary
Norman R. Weldon, Ph.D.................... 63 Chairman of the Board of Directors
J. Stephen Holmes......................... 54 Director(1)
Richard M. Johnston....................... 62 Director(1)(2)
Pieter J. Schiller........................ 59 Director(2)
Jack R. Kelly, Jr......................... 63 Director(1)
Stephen I. Shapiro........................ 52 Director
William E. Whitmer........................ 64 Director(2)
</TABLE>
- ---------------
(1) Member of Stock Option and Compensation Committee.
(2) Member of Audit Committee.
Thomas D. Weldon. Mr. Weldon co-founded the Company and has served as its
President and Chief Executive Officer and as a Director since its capitalization
in May 1992. Mr. Weldon co-founded and was President, Chief Executive Officer
and a Director of Novoste Puerto Rico Inc. ("Novoste Puerto Rico"), a
manufacturer of disposable cardiovascular medical devices, from 1987 to May
1992, prior to its sale. Previous responsibilities included management positions
at Arthur Young & Company and Key Pharmaceuticals. Mr. Weldon received a B.S. in
Industrial Engineering from Purdue University and an M.B.A. in Operations and
Systems Management from Indiana University.
Charles E. Larsen. Mr. Larsen co-founded the Company and has served as its
Senior Vice President and as a Director since its capitalization in May 1992.
Since February 28, 1997, Mr. Larsen has been Chief Technical Officer of the
Company, having served from May 1992 through February 1997 as its Chief
Operating Officer. Mr. Larsen co-founded and was Vice President and Director of
Novoste Puerto Rico from 1987 to May 1992. From 1983 through 1987, Mr. Larsen
was a manager of manufacturing engineering at Cordis Corporation. Mr. Larsen
received a B.S. in Mechanical Engineering from New Jersey Institute of
Technology.
David N. Gill. Mr. Gill has served as the Company's Vice President of
Finance, Chief Financial Officer and Treasurer since July 1996 and as Chief
Operating Officer since February 28, 1997. From August 1995 to June 1996, Mr.
Gill served as Chief Financial Officer of SPEA Software AG prior to its sale.
From 1992 to 1995, Mr. Gill served as President and Director of Dornier Medical
Systems, Inc., and from 1990 to 1992 as its Vice President of Finance. Mr. Gill
received an M.B.A. from Emory University and a B.S. degree in Accounting from
Wake Forest University.
Thomas K. Brooks. Mr. Brooks has served as the Company's Vice President,
Sales, Marketing and Business Development from January 1995 to July 1996 and as
Vice President, Sales and Marketing since July 1996. From 1986 through December
1994, Mr. Brooks served in various sales, marketing, and business development
positions with Boston Scientific Corporation, a manufacturer of medical devices,
most recently as manager of new business development. From 1983 through 1986,
Mr. Brooks held various sales positions
38
<PAGE> 40
for Ethicon Endo-Surgery Division of Johnson & Johnson. Mr. Brooks received a
B.A. in Business Administration from Monmouth College.
Joan M. Macdonald, Ph.D. Dr. Macdonald joined the Company in January 1994,
as its Director of Regulatory Affairs, and has been its Vice President,
Regulatory and Clinical Affairs since January 1996. From February 1991 through
September 1993, Dr. Macdonald worked for CIBA Vision Corporation, a manufacturer
of ophthalmic products, having served most recently as Director, Worldwide
Regulatory Strategy. Dr. Macdonald received a Ph.D. degree in Physiology from
the Medical College of Wisconsin and M.S. and B.S. degrees in Zoology from the
University of Wisconsin.
Cheryl R. Johnson. Ms. Johnson joined the Company in July 1992 as Director
of Marketing and Business Development and Secretary, served as Director of
Administration and Business Development of the Company from January 1996 until
July 1996 and as Vice President, Investor Relations and Business Development
from July 1996. From August 1989 to June 1992, Ms. Johnson worked in planning
and business development capacities at BOC Health Care, most recently as its
business development manager. Ms. Johnson received an M.B.A. from the Kellogg
School at Northwestern University and a B.S. degree in Chemical Engineering from
the Georgia Institute of Technology.
Norman R. Weldon, Ph.D. Dr. Weldon co-founded the Company and has been
Chairman of the Board since its capitalization in May 1992. Dr. Weldon is
Treasurer and Managing Director of Partisan Management Group, a venture capital
fund he co-founded in 1993. From 1986 until May 1996, Dr. Weldon served as
President and Chief Executive Officer and as a Director of Corvita Corporation,
a medical device company Dr. Weldon co-founded in 1986. In July 1996 Pfizer Inc.
consummated its acquisition of Corvita. From 1979 to 1987, Dr. Weldon served as
President and Chief Executive Officer of Cordis Corporation. From 1964 to 1979,
Dr. Weldon served CTS Corporation in various capacities, including as its
President and Chief Executive Officer beginning in 1976. Dr. Weldon received,
from Purdue University, a Ph.D. in Economics, a M.S. in Industrial Management
and a B.S. in Biochemistry.
J. Stephen Holmes. Mr. Holmes has served as a Director of the Company
since October 1992. Mr. Holmes is currently Executive Manager of Saber
Endoscopy, LLC, a medical device company, and has served as Founder and Manager
since its inception in February 1996. From 1992 through 1995, Mr. Holmes was a
private investor, having founded several start-ups from 1979 through 1991,
including Adler Instrument Company, Inc., SOLOS Ophthalmology, Inc. and SOLOS
Endoscopy, Inc., which he founded in 1982, 1988 and 1990, respectively, and in
which he sold his interests in 1988, 1991 and 1991, respectively. From 1970
through 1979, Mr. Holmes served in various marketing and sales positions with
Baxter/American Hospital Supply. Mr. Holmes received a B.S. in Marketing from
the University of Evansville.
Richard M. Johnston. Mr. Johnston has served as a Director of the Company
since December 1993. Mr. Johnston has been employed by The Hillman Company, an
investment holding company with diversified operations, since 1961 and has been
Vice-President -- Investments since 1970 and a Director since 1993. The Hillman
Company is controlled by a principal shareholder of the Company, the trust for
the benefit of Henry L. Hillman. Since February 1996 Mr. Johnston has served as
Chairman of the Board of Metrocall, Inc. Mr. Johnston has also served as
Chairman of the Board of Western Pennsylvania Healthcare System since 1978. Mr.
Johnston received a M.B.A. from the Wharton School of Finance and Commerce,
University of Pennsylvania and a B.S. in Commerce from Washington & Lee
University.
Pieter J. Schiller. Mr. Schiller has served as a Director of the Company
since March 1996. Mr. Schiller has served as a Director of CollaGenex
Pharmaceuticals, Inc. since September 1995. Since 1987, Mr. Schiller has been a
general partner of a principal shareholder of the Company, ATV, a venture
capital firm located in Boston, Massachusetts, where he specializes in health
care investing. Mr. Schiller served Allied Signal and its predecessor companies
from 1961 through 1986 in various capacities, including Treasurer and
Vice-President, Planning and Development. From 1983 to 1986, he served as
Executive Vice-President of Allied Health and Scientific Products Company, a
multi-national manufacturer of biomedical and analytical instruments and
supplies. Mr. Schiller received his M.B.A. from New York University and a B.A.
in Economics from Middlebury College.
39
<PAGE> 41
Jack R. Kelly, Jr. Mr. Kelly has served as a Director of the Company since
January 1995. Since July 1983, Mr. Kelly has been a member of the general
partner of Noro-Moseley Partners III, L.P., a venture capital fund and a
principal shareholder of the Company. From 1958 through 1983, Mr. Kelly was the
Chief Operating Officer and a Director of Scientific-Atlanta, Inc. Mr. Kelly is
a Director of Syntellect, Inc. Mr. Kelly earned a B.S. in Physics from Georgia
State University.
Stephen I. Shapiro. Mr. Shapiro has served as a Director of the Company
since October 1996. Mr. Shapiro previously served as a Director of the Company
from August 1995 until his resignation in March 1996. Since 1982, he has been a
Managing Principal of The Wilkerson Group (International Business Machines
Corporation), a management consulting group with clients in the health care
industry. From 1970 to 1982, Mr. Shapiro held a variety of technical management
and strategic planning positions with Union Carbide Clinical Diagnostics and
Becton Dickinson and Company. Mr. Shapiro received a B.S. degree in Chemical
Engineering from the Massachusetts Institute of Technology and a M.S. degree in
Chemical Engineering from the University of California at Berkeley.
William E. Whitmer. Mr. Whitmer has served as a Director of the Company
since October 1992. Mr. Whitmer is a certified public accountant and management
consultant. From 1989 until his retirement in 1992, he was a partner of Ernst &
Young, having served as the Associate Managing Director of that firm's southern
U.S. management consulting group. From 1968 through 1989, Mr. Whitmer was a
partner of Arthur Young & Company, having served as the Managing Partner of its
East and Southeast U.S. regions of the management consulting practice from 1975
through 1989. Mr. Whitmer received a B.A. in Economics from Denison University.
Dr. Norman R. Weldon is the father of Mr. Thomas D. Weldon.
The Company's Board of Directors is divided into three classes, each of
which will serve a term of three years, with one class being elected each year.
Each of the Company's directors has been elected to serve until his successor
has been elected and duly qualified. The terms of Richard M. Johnston, Pieter J.
Schiller and Jack R. Kelly, Jr. will expire at the annual meeting of
shareholders in 1998; the terms of Thomas D. Weldon, Charles E. Larsen and
Norman R. Weldon will expire at the annual meeting of shareholders in 1999; and
the terms of J. Stephen Holmes, William E. Whitmer and Stephen I. Shapiro will
expire at the annual meeting of shareholders in 2000.
The Board of Directors has a Stock Option and Compensation Committee,
comprised of Richard M. Johnston, Jack R. Kelly, Jr. and J. Stephen Holmes. The
Stock Option and Compensation Committee establishes compensation policies and
determines compensation for the executive officers of the Corporation, as well
as administering the Company's 1992 Amended and Restated Stock Option Plan. The
Board itself administers the Non-Employee Director Stock Option Plan. The Board
of Directors also has an Audit Committee, comprised of Messrs. William E.
Whitmer, Pieter J. Schiller and Richard M. Johnston. The Audit Committee reviews
the audit and financial procedures of the Company and recommends any changes
with respect thereto to the Board of Directors.
Officers are elected annually and serve at the pleasure of the Board of
Directors.
The Company has obtained key-man life insurance policies on the lives of
Mr. Thomas D. Weldon and Mr. Larsen in the amount of $1,000,000 and $750,000,
respectively, under each of which the Company is the sole beneficiary.
40
<PAGE> 42
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of October 20, 1997, information with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to own beneficially five percent or more of such Common Stock,
(ii) each director of the Company, (iii) each person named in the Summary
Compensation Table in the Company's Definitive Proxy Statement for its June 20,
1997 Annual Meeting of Shareholders, (iv) each Selling Shareholder and (v) all
executive officers and directors as a group, together with their respective
percentage ownership of such shares before this Offering and as adjusted to
reflect the sale of the Common Stock offered hereby:
<TABLE>
<CAPTION>
SHARES OWNED BEFORE SHARES OWNED AFTER
THE OFFERING THE OFFERING
------------------------- SHARES ----------------------
NAME AND ADDRESS NUMBER(1) PERCENTAGE BEING SOLD NUMBER(1) PERCENTAGE
- ---------------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Thomas D. Weldon(2)(3)(4)........... 930,402 10.4% 100,000 830,402 7.9%
Charles E. Larsen(4)................ 776,161 8.7% 100,000 676,161 6.4%
Henry L. Hillman, Elsie Hilliard
Hillman and C.G. Grefenstette,
Trustees(5)(6)(12)................ 449,087 5.1% -- 449,087 4.4%
C.G. Grefenstette and Thomas G.
Bigley, Trustees(5)(7)............ 582,112 6.8% -- 582,112 5.7%
Venhill Limited Partnership(8)...... 236,574 2.8% -- 236,574 2.3%
158 Main Street
New Canaan, Connecticut 06840
Advanced Technology Ventures IV,
L.P............................... 794,043 9.3% 100,000(9) 694,043 6.9%
10 Post Office Square #970
Boston, MA 02109
Noro-Moseley Partners III, L.P...... 537,037 6.3% 100,000(9) 437,037 4.3%
4200 Northside Parkway N.W.
Atlanta, GA 30327(10)
T. Rowe Price Associates,
Inc.(11).......................... 581,000 6.8% -- 581,000 5.7%
Norman R. Weldon, Ph.D.(3)(12)...... 375,883 4.4% -- 375,883 3.7%
Jonathan J. Rosen, Ph.D.(13)........ 10,575(13) * -- 10,575 *
Cheryl R. Johnson................... 118,600 1.4% -- 118,600 1.2%
Thomas K. Brooks.................... 54,850 * -- 54,850 *
Stephen I. Shapiro.................. 13,250 * -- 13,250 *
J. Stephen Holmes................... 22,500 * -- 22,500 *
William E. Whitmer.................. 14,500 * -- 14,500 *
Richard M. Johnston(14)............. 3,000 * -- 3,000 *
Jack R. Kelly, Jr.(15).............. 3,000 * -- 3,000 *
Pieter J. Schiller(16).............. 2,500 -- -- 2,500 --
David N. Gill....................... 16,250 * -- 16,250 *
All executive officers and directors
as a
group (13 persons)(17)............ 2,256,675 23.7% 200,000 2,056,675 18.5%
</TABLE>
- ---------------
* Less than 1%.
(1) A person is deemed to be the beneficial owner of Common Stock that can be
acquired within 60 days from the Record Date upon the exercise of options,
and that person's options are assumed to have been exercised (and the
underlying shares of Common Stock outstanding) in determining such person's
percentage ownership. Accordingly, the following shares issuable upon
exercise of options have been included in the shares beneficially owned by
the following persons: Thomas D. Weldon -- 391,875 shares; Charles E.
Larsen -- 391,875 shares; J. Stephen Holmes -- 12,500 shares; William E.
Whitmer -- 12,500 shares; Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, Trustees -- 12,500 shares; Noro-Moseley Partners III,
L.P. -- 7,500 shares; Cheryl R. Johnson -- 118,200 shares;
41
<PAGE> 43
Pieter J. Schiller -- 2,500 shares; Norman R. Weldon -- 2,500 shares;
Stephen I. Shapiro -- 2,500 shares and David N. Gill -- 16,250 shares.
(2) Includes 15,000 shares held in trust for the benefit of Mr. Weldon's
children and 5,000 shares held by Mr. Weldon as custodian for his nephew.
(3) Includes 122,571 shares held by The Weldon Foundation, Inc., a Florida
not-for-profit corporation in which Thomas D. Weldon and Norman R. Weldon
are directors. Mr. Weldon and Dr. Weldon disclaim beneficial ownership of
all shares held by The Weldon Foundation, Inc.
(4) Address is c/o Novoste Corporation, 4350-C International Blvd., Norcross,
GA 30093.
(5) Address is 2000 Grant Building, Pittsburgh, PA 15219.
(6) Consists of 436,587 shares held by a trust for the benefit of Henry L.
Hillman (the "HLH Trust") and 12,500 shares subject to options which were
granted to Richard M. Johnston, an officer of The Hillman Company. Pursuant
to an agreement with The Hillman Company, if Mr. Johnston exercises these
options, he does so on behalf of The Hillman Company or a wholly owned
subsidiary thereof. The Trustees of the HLH Trust are Henry L. Hillman,
Elsie Hilliard Hillman and C.G. Grefenstette (the "HLH Trustees"). The HLH
Trustees share voting and investment power with respect to the shares of
record held by the HLH Trust. Does not include an aggregate of 582,112
shares held by four trusts for the benefit of members of the Hillman family
(see note 7 below) or 236,574 shares owned by Venhill Limited Partnership
(see note 8 below), as to which shares the HLH Trustees (other than Mr.
Grefenstette with respect to the shares described in note 7 below) disclaim
beneficial interest.
(7) Includes 145,528 shares held by each of four irrevocable trusts for the
benefit of members of the Hillman family (the "Hillman Family Trusts"). Mr.
Grefenstette and Thomas G. Bigley are trustees of these four trusts and
share voting and dispositive power over the trusts' assets.
(8) Consists of 236,574 shares held by Venhill Limited Partnership. Howard B.
Hillman is the general partner of Venhill Limited Partnership and is a
step-brother of Henry L. Hillman.
(9) Does not include up to 100,000 shares and 30,000 shares which may be sold
by Advanced Technology Ventures IV, L.P. and Noro-Moseley Partners III,
L.P., respectively, upon exercise of the Underwriters' over-allotment
option.
(10) Includes 2,500 shares subject to options which were granted to Jack R.
Kelly, Jr., a member of the general partner of Noro-Moseley III, L.P.
("Noro-Moseley") and 5,000 shares issuable upon options issued to
Noro-Moseley. Pursuant to an agreement with Noro-Moseley, if Mr. Kelly
exercises his options, he does so on behalf of Noro-Moseley.
(11) Pursuant to a Schedule 13F, dated June 30, 1997, which was jointly filed
with the Securities and Exchange Commission by T. Rowe Price Associates,
Inc. ("T. Rowe Associates") and T. Rowe Price New Horizons Fund, Inc. ("T.
Rowe Fund"). The address of T. Rowe Associates and T. Rowe Fund is 100 E.
Pratt Street, Baltimore, MD 21202. Both entities disclaim beneficial
ownership of all shares held.
(12) Includes 14,250 shares held by Dr. Weldon's spouse but excludes all shares
held by Dr. Weldon's adult children, none of whom reside with Dr. Weldon.
(13) Resigned as an executive officer of the Company effective February 28,
1997. His ownership of shares is based upon the Company's records as of
October 23, 1997.
(14) Does not include shares held by the HLH Trust, the Hillman Family Trusts
and Venhill Limited Partnership (collectively, the "Hillman Related
Shareholders"), as to which Mr. Johnston disclaims beneficial ownership.
Mr. Johnston is Vice President -- Investments and a Director of The Hillman
Company, a private firm engaged in diversified investments and operations
which is controlled by the HLH Trust. Also does not include 12,500 shares
subject to options, which were granted to Mr. Johnston but to which he
disclaims beneficial ownership. Pursuant to an agreement with The Hillman
Company, if Mr. Johnston exercises these options, he does so on behalf of
The Hillman Company or a wholly owned subsidiary thereof. See note 6 above.
(15) Does not include shares held by Noro-Moseley, for which Mr. Kelly serves as
a member of the general partner. Mr. Kelly disclaims beneficial ownership
of such shares, except to the extent of his proportionate interest in
Noro-Moseley. Also does not include 2,500 shares subject to options, which
were granted to Mr. Kelley but to which he disclaims beneficial ownership.
Pursuant to an agreement with Noro-Moseley, if Mr. Kelly exercises his
options, he does so on behalf of Noro-Moseley. See Note 10 above.
42
<PAGE> 44
(16) Does not include shares held by Advanced Technology Ventures IV, L.P.
("ATV"), for which Mr. Schiller serves as a general partner. Mr. Schiller
disclaims beneficial ownership of such shares, except to the extent of his
proportionate interest in ATV.
(17) See notes 1, 2, 3 and 12 above. Also includes options to purchase 43,550
shares held by an executive officer not named in the Summary Compensation
Table under "Executive Compensation" on page of this Prospectus. Does not
include options to purchase 20,000 shares described in notes 14 and 15
above. Also does not include any shares held by Dr. Rosen, who resigned as
an executive officer of the Company effective February 28, 1997.
43
<PAGE> 45
UNDERWRITING
The Company and the Selling Shareholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the underwriters listed in the table
below (the "Underwriters"), for whom Piper Jaffray Inc., Cowen & Company and
NationsBanc Montgomery Securities, Inc. are acting as representatives (the
"Representatives"). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company and the Selling Shareholders have agreed to sell
to the Underwriters, and each of the Underwriters has severally agreed to
purchase from the Company and the Selling Shareholders in relative proportion to
the number of shares of Common Stock offered by them hereby, the following
number of shares of Common Stock set forth opposite each Underwriter's name in
the table below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Piper Jaffray Inc. .........................................
Cowen & Company.............................................
NationsBanc Montgomery Securities, Inc. ....................
---------
Total............................................. 2,000,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that in certain circumstances
purchase commitments of the nondefaulting Underwriters may be increased, or the
Purchase Agreement may be terminated.
The Representatives have advised the Company that the Underwriters propose
to offer Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share.
Additionally, the Underwriters may allow, and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After
the public offering, the public offering price and other selling terms may be
changed by the Underwriters.
The Company and two of the Selling Shareholders, ATV and Noro-Moseley, have
granted to the Underwriters an option, exercisable by the Representatives within
30 days after the date of the Purchase Agreement, to purchase up to an
additional 300,000 shares of Common Stock at the same price per share to be paid
by the Underwriters for the other shares offered hereby. Of such additional
shares, up to 170,000 shares are being offered by the Company, up to 100,000
shares by ATV and up to 30,000 shares by Noro-Moseley, on a pro rata basis. If
the Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.
The Representatives have informed the Company that neither they, nor any
other member of the National Association of Securities Dealers, Inc. (the
"NASD") participating in the distribution of this Offering, will make sales of
the Common Stock offered hereby to accounts over which they exercise
discretionary authority without the prior specific written approval of the
customer.
The Offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
44
<PAGE> 46
The officers and directors of the Company and certain other shareholders
designated by the Representatives, who will beneficially own in the aggregate
4,465,528 shares of Common Stock after the Offering, have agreed that they will
not sell, offer to sell, issue, distribute or otherwise dispose of any shares of
Common Stock owned by them prior to the date of this Prospectus for a period of
90 days after the date of this Prospectus, without the prior written consent of
Piper Jaffray Inc., except for the shares of Common Stock offered by the Selling
Shareholders hereby. The Company has agreed that it will not, without the
Underwriters' prior written consent, offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into Common Stock during the 90-day
period following the date of this Prospectus, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under the Stock Option Plans.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the Underwriters may be required to make in respect thereof.
In connection with this Offering, the Underwriters have advised the Company
that certain Underwriters and dealers, if any, or their respective affiliates
who are qualified registered market-makers on The Nasdaq National Market, may
engage in passive market-making transactions in the Common Stock on The Nasdaq
National Market in accordance with Rule M under the Securities Exchange Act of
1934, as amended (the "Exchange Act") during the two-business-day period before
commencement of offers or sales of the Common Stock offered hereby. The passive
market-making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for such security;
if all independent bids are lowered below the passive market-maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Shareholders by Epstein Becker & Green, P.C., New York, New York. Certain legal
matters will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, and for
the period from inception (May 22, 1992) through December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
45
<PAGE> 47
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements at December 31, 1995 and 1996 and for
the Years Ended December 31, 1994, 1995 and 1996 and the
Period from Inception (May 22, 1992) Through December 31,
1996
Report of Independent Auditors.............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
Unaudited Condensed Financial Statements at September 30,
1997 and for the Nine Months Ended September 30, 1996 and
1997
Balance Sheet............................................... F-15
Statements of Operations.................................... F-16
Statements of Cash Flows.................................... F-17
Notes to Unaudited Condensed Financial Statements........... F-18
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Novoste Corporation
We have audited the accompanying balance sheets of Novoste Corporation (a
Development Stage Company) (the "Company") as of December 31, 1996 and 1995, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from inception (May 22, 1992) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 and for the period from
inception (May 22, 1992) through December 31, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
February 1, 1997
F-2
<PAGE> 49
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,954,827 $ 817,587
Short-term investments.................................... 7,588,693 --
Prepaid expenses.......................................... 126,349 14,628
------------ -----------
Total current assets........................................ 27,669,869 832,215
Property and equipment, net................................. 1,128,031 932,681
License agreements, net..................................... 153,396 166,934
Other assets................................................ 303,642 125,388
------------ -----------
$ 29,254,938 $ 2,057,218
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Fixed rate convertible promissory notes with related
parties................................................ $ -- $ 1,038,450
Accounts payable.......................................... 155,946 217,543
Accrued expenses and taxes withheld....................... 665,175 482,584
------------ -----------
Total current liabilities................................... 821,121 1,738,577
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized at December 31, 1996, no shares issued and
outstanding; none authorized at December 31, 1995
Common stock, $.01 par value, 25,000,000 and 14,000,000
shares authorized at December 31, 1996 and 1995,
respectively; 8,257,967 and 2,482,622 shares issued.... 82,580 24,826
Class B common stock, $.01 par value, none authorized and
outstanding at December 31, 1996 and 6,000,000 shares
authorized, 1,611,269 shares issued and outstanding at
December 31,1995....................................... -- 16,113
Additional paid-in capital.................................. 41,772,791 7,760,175
Deficit accumulated during the development stage............ (13,405,714) (7,466,633)
------------ -----------
28,449,657 334,481
Less treasury stock, 5,280 shares of common stock, at
cost...................................................... (15,840) (15,840)
------------ -----------
Total stockholders' equity.................................. 28,433,817 318,641
------------ -----------
$ 29,254,938 $ 2,057,218
============ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 50
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(MAY 22,
1992)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------- DECEMBER 31,
1996 1995 1994 1996
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues:
Miscellaneous sales...................... $ -- $ 16,507 $ 71,777 $ 290,887
Operating expenses:
Research and development................. 4,646,583 2,088,822 1,404,429 8,887,032
General and administrative............... 1,574,678 465,670 525,656 4,087,541
Marketing................................ 581,280 659,361 291,470 1,532,111
----------- ----------- ----------- ------------
6,802,541 3,213,853 2,221,555 14,506,684
----------- ----------- ----------- ------------
Loss from operations....................... (6,802,541) (3,197,346) (2,149,778) (14,215,797)
Interest income............................ 950,791 15,427 768 991,842
Interest expense........................... (87,331) (36,107) (46,679) (181,759)
----------- ----------- ----------- ------------
Net loss................................... $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714)
=========== =========== =========== ============
Net loss per share......................... $ (0.88) $ (0.69) $ (0.54)
=========== =========== ===========
Weighted average shares outstanding........ 6,748,492 4,671,147 4,031,307
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 51
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (MAY 22, 1992) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
CLASS B ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- --------------------- PAID-IN DEVELOPMENT TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE STOCK TOTAL
--------- ------- ---------- -------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of stock for license
agreement at $.25 per
share....................... 746,894 $ 7,469 -- $ -- $ 179,255 $ -- $ -- $ 186,724
Sale of stock at $1.00 per
share....................... 820,000 8,200 -- -- 811,800 -- -- 820,000
Sale of stock at $3.00 per
share....................... 86,667 867 -- -- 259,133 -- -- 260,000
Exercise of stock options at
$.25 per share.............. 205,000 2,050 -- -- 49,200 -- -- 51,250
Issuance of stock for
consulting services, 117,500
shares at $.25 per share,
88,500 shares at $1.00 per
share and 37,585 shares at
$3.00 per share............. 243,585 2,435 -- -- 228,195 -- -- 230,630
Issuance of stock to employees
for settlement of obligation
for consulting services, at
$3.00 per share............. 10,000... 100 -- -- 29,900 -- -- 30,000
Net loss -- -- -- -- -- (727,688) -- (727,688)
--------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance at December 31,
1992........................ 2,112,146 21,121 -- -- 1,557,483 (727,688) -- 850,916
Sale of stock at $3.20 per
share, net of $138,932 of
offering costs.............. 331,250 3,312 -- -- 917,756 -- -- 921,068
Exercise of stock options at
$.25 to $1.00 per share..... 67,875 679 -- -- 23,790 -- -- 24,469
Issuance of stock for
consulting services, at
$3.00 per share............. 50,862 509 -- -- 152,077 -- -- 152,586
Repurchase of stock at $3.00
per share................... (5,280) -- -- -- -- -- (15,840) (15,840)
Net loss...................... -- -- -- -- -- (1,325,230) -- (1,325,230)
--------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance at December 31,
1993........................ 2,556,853 25,621 -- -- 2,651,106 (2,052,918) (15,840) 607,969
Sale of stock at $3.20 per
share....................... 312,500 3,125 -- -- 996,875 -- -- 1,000,000
Exercise of stock options at
$.25 to $1.00 per share..... 35,500 355 -- -- 12,270 -- -- 12,625
Issuance of stock for
consulting services, at
$3.20 per share............. 50,626 506 -- -- 161,494 -- -- 162,000
Net loss...................... -- -- -- -- -- (2,195,689) -- (2,195,689)
--------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance at December 31,
1994........................ 2,955,479 29,607 -- -- 3,821,745 (4,248,607) (15,840) (413,095)
Sale of stock at $3.75 per
share, net of $191,274 of
offering costs.............. -- -- 986,269 9,863 3,497,372 -- -- 3,507,235
Exercise of stock options at
$.25 per share.............. 9,300 93 -- -- 2,232 -- -- 2,325
Issuance of stock for
consulting services, at
$3.20 per share............. 27,813 278 -- -- 88,724 -- -- 89,002
Issuance of stock for
compensation to an employee,
at $3.20 per share.......... 16,000 160 -- -- 51,040 -- -- 51,200
Conversion of debt to
common...................... 93,750 938 -- -- 299,062 -- -- 300,000
Exchange of common for Class B
common...................... (625,000) (6,250) 625,000 6,250 -- -- -- --
Net loss...................... -- -- -- -- -- (3,218,026) -- (3,218,026)
--------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance at December 31,
1995........................ 2,477,342 24,826 1,611,269 16,113 7,760,175 (7,466,633) (15,840) 318,641
Issuance of stock for
consulting services 2,422
shares at $6.00 per share,
33,520 shares at $6.38 per
share, 678 shares at $9.50
per share, and 435 shares at
$9.375 per share............ 37,066 371 -- -- 407,667 -- -- 408,038
Issuance of stock for deferred
compensation to employees at
$3.20 per share............. 102,945 1,029 -- -- 328,395 -- -- 329,424
Conversion of debt to common
stock....................... 497,349 4,974 -- -- 1,860,109 -- -- 1,865,083
Exchange of Class B for common
stock....................... 1,611,269 16,113 (1,611,269) (16,113) -- -- -- --
Exercise of stock warrants at
$4.00 to $4.50 per share.... 62,104 621 -- -- 267,597 -- -- 268,218
Cashless exercise of
warrants.................... 889,912 8,899 -- -- (8,899) -- -- --
Issuance of stock in initial
public offering at $14.00
per share, net of issuance
costs of $2,973,746......... 2,400,000 24,000 -- -- 30,602,254 -- -- 30,626,254
Exercise of stock options at
$3.00 to $3.20 per share.... 174,700 1,747 -- -- 555,493 -- -- 557,240
Net loss...................... -- -- -- -- -- (5,939,081) -- (5,939,081)
--------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance at December 31,
1996........................ 8,252,687 $82,580 -- $ -- $41,772,791 $(13,405,714) $(15,840) $28,433,817
========= ======= ========== ======== =========== ============ ======== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 52
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(MAY 22,
1992)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------- DECEMBER 31,
1996 1995 1994 1996
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................... $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization............ 316,082 227,373 204,373 877,875
Issuance of stock for services or
compensation.......................... 408,038 140,202 162,000 947,318
Change in assets and liabilities:
Prepaid expenses and other............ (111,721) 34,041 (18,866) (133,808)
Accounts payable...................... (61,597) 95,386 48,249 155,946
Accrued expenses and taxes withheld... 577,098 59,230 33,677 1,059,682
----------- ----------- ----------- ------------
Net cash used by operations...... (4,811,181) (2,661,794) (1,766,256) (10,498,701)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase) sale of short-term
investments.............................. (7,588,693) -- 194,280 (7,588,693)
Purchase of property and equipment, net.... (449,730) (484,346) (510,939) (1,752,426)
Other...................................... (226,418) (113,779) -- (356,037)
----------- ----------- ----------- ------------
Net cash used by investing
activities..................... (8,264,841) (598,125) (316,659) (9,697,156)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable.... 2,561,700 1,358,450 550,000 4,770,150
Repayment of notes payable................. (1,800,150) (870,000) -- (2,970,150)
Proceeds from issuance of common stock..... 31,183,494 3,509,560 1,012,625 38,082,466
Exercise of warrants....................... 268,218 -- -- 268,218
----------- ----------- ----------- ------------
Net cash provided by financing
activities..................... 32,213,262 3,998,010 1,562,625 40,150,684
----------- ----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents........... 19,137,240 738,091 (520,290) 19,954,827
Cash and cash equivalents at beginning of
period................................... 817,587 79,496 599,786 --
----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period................................... $19,954,827 $ 817,587 $ 79,496 $ 19,954,827
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest..................... $ 101,312 $ 38,741 $ 25,084 $ 165,137
=========== =========== =========== ============
Conversion of fixed rate promissory notes
to related parties and accrued interest
to common stock.......................... $ 1,865,083 $ 1,865,083
=========== ============
Conversion of deferred compensation to
common stock............................. $ 329,424 $ 329,424
=========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 53
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Novoste Corporation (the "Company") was incorporated on January 8, 1987 and
remained dormant until May 22, 1992 (date of inception) at which time it was
capitalized. The Company is a development stage enterprise that is engaged in
developing the Beta-Cath System, an intraluminal beta radiation catheter
delivery system designed to reduce restenosis subsequent to percutaneous
transluminal coronary angioplasty.
The majority of the Company's efforts to date have been in the organization
of the Company, establishing its management team, raising capital and initiating
product development. The Company's initial public offering became effective on
May 23, 1996 and closed on May 29, 1996 with the issuance of 2,400,000 shares of
Common Stock and net proceeds (after underwriting discounts) of $31,248,000
before related expenses of approximately $622,000. All revenues received to date
have been from the sale of certain patent rights, option payments made by a
potential strategic partner to the Company in exchange for the sole right for
the potential partner to enter into future agreements with the Company, and
contract fees. Substantially all of the Company's products are in various stages
of development. To achieve profitable operations, the Company must successfully
complete the development and clinical trials of its products, obtain required
regulatory approvals and achieve market acceptance. There can be no assurance
that these efforts will be successful.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET LOSS PER SHARE
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with Securities and Exchange Commission requirements, common and
common stock equivalent shares issued during the twelve-month period preceding
the initial public offering in May 1996 have been included in the calculation
through March 31, 1996 as if they were outstanding for all periods, using the
treasury stock method and the actual initial public offering price of $14.00 per
share.
Historical net loss per share information presented in accordance with
generally accepted accounting principles is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net loss per share.................................... $ (0.91) $ (0.87) $ (0.77)
========= ========= =========
Shares used in computing historical net loss per
share............................................... 6,543,129 3,679,361 2,836,896
========= ========= =========
</TABLE>
CASH AND SHORT-TERM INVESTMENTS
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified as short-term
(mature in more than 90 days but less than one year). Such investments are
classified as held-to-maturity, as the Company has the ability and intent to
hold them until maturity. Investments held-to-maturity are carried at amortized
cost, adjusted for the amortization or accretion of premiums or discounts
F-7
<PAGE> 54
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
without recognition of gains or losses that are deemed to be temporary. Premiums
and discounts are amortized or accreted over the life of the related instruments
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned. Fair value
approximates carrying value for all cash equivalents and investments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method based on the estimated useful lives of the related assets
ranging from 5 to 7 years. Leasehold improvements are amortized over the
remaining term of the related lease using the straight-line method. Repairs and
maintenance are expensed as incurred.
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Furniture and fixtures...................................... $ 303,958 $ 232,112
Office equipment............................................ 356,269 220,851
Laboratory equipment........................................ 134,735 98,001
Leasehold improvements...................................... 454,016 334,162
Production equipment........................................ 482,334 412,382
---------- ----------
1,731,312 1,297,508
Less: Accumulated depreciation and amortization............. (603,281) (364,827)
---------- ----------
$1,128,031 $ 932,681
========== ==========
</TABLE>
OTHER ASSETS
License agreements are amortized on a straight-line basis over periods
ranging from fifteen to twenty years. The amortization periods are based on the
lives of the license agreements or the approximate remaining lives of the
related patents, whichever is appropriate. Accumulated amortization on license
agreements at December 31, 1996 and 1995 totaled $65,368 and $43,569,
respectively.
At December 31, 1996 other assets includes $90,000 paid to a German
supplier for an option, exercisable through August 25, 2002, to purchase certain
assets of the vendor for $5,000,000. Other assets also include $130,720 advanced
to the same vendor. For additional discussion of these amounts see Note 3
"Commitments and Concentrations".
RESEARCH AND DEVELOPMENT
All research and development costs are charged to operations as incurred.
PATENT COSTS
Legal fees and other direct costs incurred in obtaining and protecting
patents are expensed as incurred.
STOCK BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
employees, directors, consultants and independent contractors with an exercise
price equal to the fair value of the shares at the date of grant. The Company
has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recognized for stock option grants for which the terms are
F-8
<PAGE> 55
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
fixed. Compensation expense is recognized for increases in the estimated fair
value of common stock for any stock options with variable terms.
In October 1995 the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which
changes the accounting for stock based compensation to non-employees and
provides an alternative to APB 25 in accounting for stock-based compensation to
employees. However, the Company elected to continue to account for stock-based
compensation to employees in accordance with APB 25 and to disclose the impact
of the alternative accounting (see Note 6).
RECLASSIFICATION
Certain prior year expense amounts have been reclassified in the Statements
of Operations for 1995 and 1994 and for the period from inception through
December 31, 1996 to conform with current year classifications.
2. CONSULTING AGREEMENTS
The Company has agreements with the members of its Scientific Advisory
Board, various consultants and others with terms ranging from one to five years.
Substantially all of these agreements provide for stock grants on the agreement
dates with such shares valued at the fair market value on the date of grant and
include certain registration rights.
During 1996, 1995 and 1994 approximately $46,000, $21,300, and $50,000,
respectively, were charged to operations as amortization of the deferred
compensation capitalized under these agreements ($187,751 from inception through
December 31, 1996).
3. COMMITMENTS AND CONCENTRATIONS
COMMITMENTS
The Company is committed under operating leases for its facility and
various office equipment. Rent expense was approximately $143,192, $116,400, and
$62,400 for 1996, 1995 and 1994, respectively ($416,392 from inception through
December 31, 1996). The total future minimum rental payments are as follows:
<TABLE>
<S> <C>
1997........................................................ $174,097
1998........................................................ 174,097
1999........................................................ 167,692
2000........................................................ 64,553
--------
$580,439
========
</TABLE>
The Company has entered into a license agreement with a physician pursuant
to which he is entitled to receive a royalty on the net sales of the Beta-Cath
System (excluding consideration paid for the radioactive isotope), subject to a
maximum of $5,000,000, to be paid in exchange for the right granted thereunder
to the Company to use his name in connection with sales and marketing of the
Beta-Cath System.
On January 30, 1996 the Company entered into a license agreement whereby
the licensor assigned its claim to certain of the Company's technology back to
the Company for royalties based on net sales (as defined in the agreement) of
products derived from such technology, subject to certain minimum royalties. The
royalty agreement term is consistent with the life of the related patent and
applies to assignments of the patent technology to a third party. The royalty
agreement provides for a reduction of the royalty fees and term of the agreement
if the patent for the technology is not received within three years of execution
of the agreement.
F-9
<PAGE> 56
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On June 27, 1996 the Company signed an agreement with a medical diagnostic
engineering, development, and design company to provide products and services to
be used in the Company's product development. The agreement provides for
aggregate payments of $1.3 million through April 30, 1997 of which $277,000 was
paid in 1996.
On November 15, 1996 an agreement was signed under which the Company agreed
to advance a German supplier a monthly investment grant of 100,000 Deutsche Mark
(approximately $65,000) for a period of 15 months from November 1996 through
March 1998 to build and equip a production site for the exclusive production of
radioactive materials to be supplied to the Company. At December 31, 1996
advances aggregated $131,000 under this agreement. All grant advances, and the
amount paid for the option described in Note 1 are included in other assets and
will be credited toward the purchase price of the assets upon exercise of the
option. Absent the Company's decision to exercise the option, all amounts paid
to the vendor will be amortized over the three year remaining life of the
agreement once production of commercial volumes of radioactive materials
commences.
CONCENTRATIONS OF SUPPLIERS
Significant proportions of key components and processes relating to the
Company's products are purchased from single sources due to technology,
availability, price, quality, and other considerations. Key components and
processes currently obtained from single sources include isotopes, catheters,
protective tubing for catheters, proprietary connectors, and certain plastics
used in the design and manufacture of the transfer device. In the event a supply
of a key single-sourced material or component were delayed or curtailed, the
Company's ability to produce the related product in a timely manner could be
adversely affected. The Company attempts to mitigate these risks by working
closely with key suppliers regarding the Company's product needs and the
maintenance of strategic inventory levels.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes. Significant
components of the Company's deferred tax assets for federal and state income
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 5,095,822 $ 2,697,752
R&D tax credit carryforwards.............................. 219,840 127,069
Other..................................................... 102,272 140,504
----------- -----------
5,417,934 2,965,325
Valuation allowance......................................... (5,417,934) (2,965,325)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1996 and 1995 no deferred tax assets were recorded as their
future benefit is not assured. No income taxes were paid for 1996, 1995 or 1994.
The Company has approximately $13,375,000 of net operating losses for
federal income tax purposes available to offset future taxable income. Such
losses expire $470,000 in 2007, $1,335,000 in 2008, $2,140,000 in 2009,
$3,120,000 in 2010, and $6,310,000 in 2011 and are subject to certain
limitations in the event of a change in ownership. Approximately $574,000 of the
net operating loss carryforwards will result in a credit to
F-10
<PAGE> 57
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contributed capital when recognized. Additionally, the Company has approximately
$220,000 in research and development tax credits which expire $24,000 in 2008,
$47,000 in 2009, $56,000 in 2010, and $93,000 in 2011 unless utilized earlier.
5. SHORT-TERM DEBT
As of December 31, 1995 the fixed rate convertible promissory notes with
related parties bore interest at the rate of 8% and were payable to certain
shareholders, together with accrued interest, on June 1, 1996. At any time prior
to the payment of these notes, the holders had the option to convert all or any
portion of the outstanding principal balance (plus accrued interest) into Class
B common stock at the rate of $3.75 per share. The conversion price of $3.75 per
share was subject to adjustment in the event the Company issued or sold, or was
deemed to have issued or sold, any of its common stock for consideration of less
than $3.75 per share. In connection with the placement of this indebtedness, the
Company issued to a third party a warrant for the purchase of 9,395 shares of
common stock at $3.75 per share exercisable through December 31, 2000. The
carrying amounts of the promissory notes approximated their fair values at
December 31, 1995. Subsequent to December 31, 1995, the Company issued to
certain other shareholders $761,550 of additional fixed rate convertible
promissory notes with the same terms.
On May 28, 1996 fixed rate convertible promissory notes payable to related
parties in the amount of $1,800,000 plus accrued interest of $65,083 were
converted into 497,349 shares of Common Stock. On May 31, 1996 a portion of the
proceeds from the initial public offering was used to pay in full fixed rate
promissory notes to related parties totaling $1,500,150 and a note payable to a
bank in the amount of $300,000. At December 31, 1996 there are no loans or debt
outstanding.
On June 15, 1995 the Company entered into a line-of-credit arrangement for
short-term debt with a bank under which the Company could borrow up to $300,000
at the prime rate plus one percent. The line-of-credit, which expired on June
15, 1996, was subject to commitment fees of .65% of the unused line-of-credit
and borrowings thereunder were guaranteed up to $100,000 each by three
officer/directors of the Company. No borrowings were outstanding at December 31,
1995 under this line-of credit.
6. SHAREHOLDERS' EQUITY
RECAPITALIZATION
On May 28, 1996 all of the 1,611,269 outstanding shares of Class B Common
Stock were converted on a one-for-one basis into shares of Common Stock and
accrued salaries of $320,624 were converted into 100,195 shares of Common Stock.
In addition, on May 28, 1996 the holders of warrants for 1,261,899 shares made
cashless exercises thereof to purchase an aggregate of 889,912 shares of Common
Stock (after giving effect to the conversion on a one-for-one basis of shares of
Class B Common Stock issued upon exercise of such warrants). Holders of
additional warrants exercised such warrants in full to purchase 62,104 shares of
Common Stock for $268,218 on or prior to May 28, 1996.
On May 28, 1996 the Company filed an amendment to its Articles of
Incorporation whereby the number of authorized shares of Common Stock was
increased from 14,000,000 to 25,000,000, the Class B Common Stock was eliminated
and 5,000,000 shares of Preferred Stock were authorized.
SHAREHOLDER RIGHTS PLAN
On October 25, 1996 the Company's Board of Directors declared a dividend of
one Right for each share of Common Stock held of record at the close of business
on November 25, 1996. The Rights are generally not exercisable until 10 days
after an announcement by the Company that a person has acquired at least 15% of
the Company's Common Stock. Each Right, should it become exercisable, will
entitle the owner to buy
F-11
<PAGE> 58
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1/100th of a share of new Series A participating preferred stock at an exercise
price of $85. The Rights, which do not have any voting rights, may be redeemed
by the Company at a price of $.01 per Right at any time prior to a person's or
group's acquisition of 15% or more of the Company's common stock.
In the event the rights become exercisable as a result of the acquisition
of at least 15% of the Company's Common Stock, each Right will entitle the
owner, other than the acquiring person, to buy at the Rights' then current
exercise price a number of shares of Common Stock with a market value equal to
twice the exercise price. In addition, unless the acquiring person owns more
than 50% of the outstanding shares of Common Stock, the Board of Directors may
elect to exchange all outstanding Rights (other than those owned by such
acquiring person or affiliates thereof) at an exchange ratio of one share of
Common Stock per Right. The Rights expire on November 25, 2006 unless they are
earlier exercised, redeemed, or exchanged. As a result of the adoption of the
Shareholders' Rights Plan, 1,000,000 shares of authorized preferred stock have
been reserved and designated as Series A Participating Preferred Stock.
STOCK OPTION PLAN
The Company's Board of Directors adopted on May 26, 1992 the Novoste
Corporation Stock Option Plan (the "Plan") under which options designated as
either incentive or non-qualified stock options may be issued to employees,
officers, directors, consultants and independent contractors of the Company or
any parent, subsidiary or affiliate of the Company. Options granted under the
Plan are at prices not less than the fair market value on the date of grant and
may be exercised for a period of ten years from the date of grant. Options
granted under the Plan have vesting periods ranging from immediately to four
years. On August 20, 1996 the Plan was amended subject to shareholder approval
to include a provision for options to accelerate and become immediately and
fully exercisable upon a 50% or more change in control as defined in the Amended
and Restated Stock Option Plan. The Company has reserved 2,500,000 shares of
Common Stock for issuance under the Plan. As of December 31, 1996 there are
248,350 shares available for issuance.
On August 20, 1996 the Stock Option and Compensation Committee of the Board
of Directors of the Company adopted a Non-Employee Director Stock Option Plan,
subject to shareholder approval. Concurrently, stock options covering 52,500
shares were granted, which vest over a three year period and exercises thereof
are contingent upon the individuals' continued service as directors. The Company
has reserved 100,000 shares of Common Stock for issuance under the Plan.
F-12
<PAGE> 59
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Activity under the Plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER WEIGHTED-
SHARES SHARE AVERAGE PRICE
--------- ------------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1994................... 1,330,125 $ .25 - $3.20
Options granted.................................. 166,000 3.00 - 3.20
Options exercised................................ (35,500) .25 - 1.00
Options canceled................................. (16,000) 3.20
---------
Outstanding at December 31, 1994................. 1,444,625 .25 - 3.20
Options granted.................................. 359,750 3.20
Options exercised................................ (9,300) .25
---------
Outstanding at December 31, 1995................. 1,795,075 .25 - 3.20
Options granted.................................. 209,250 8.00 - 14.00 $10.23
Options exercised................................ (174,700) 3.00 - 3.25 3.19
Options forfeited................................ (17,850) 3.25 3.20
---------
Outstanding at December 31, 1996................. 1,811,775 .25 - 14.00 2.29
=========
Exercisable at December 31, 1996................. 1,267,937 .25 - 3.20 0.74
=========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ ---------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$ .25 - $ 3.20 1,602,525 6.3 $ 1.25 1,267,937 $.74
8.00 - 9.75 143,250 9.6 8.85 -- --
12.25 - 14.00 66,000 9.6 13.22 -- --
---------
1,811,775 6.8 2.29 1,267,937 .74
========= =========
</TABLE>
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specified milestones are met at earlier
dates; $168,750 was expensed in 1996 relating to these options.
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method prescribed by that Statement. The
fair value for options granted prior to the initial public offering was
estimated at the date of grant using the Minimum Value pricing model. The fair
value for options granted subsequent to the initial public offering was
estimated at the date of grant using the Black-Scholes option pricing model. The
following weighted-average assumptions were used in the appropriate models for
1996 and 1995: risk-free interest rates of 6.69% and 6.32%, respectively; no
dividend yields; volatility factor of the expected market price of the Company's
common stock of 0.928 in 1996 (not applicable in 1995); and a weighted-average
expected life of the option of 6 years.
F-13
<PAGE> 60
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Pro forma net loss.......................................... $(6,175,817) $(3,317,068)
Pro forma net loss per share................................ (0.92) (0.71)
Weighted-average fair value of options granted.............. 1.01 6.97
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
7. EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company adopted a Defined Contribution
401(k) Plan in which all employees who are at least 21 years of age are eligible
to participate. Contributions of up to 15% of compensation to the 401(k) Plan
will be made by employees through salary withholdings. Company contributions are
discretionary.
F-14
<PAGE> 61
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,737,474
Short-term investments.................................... 3,961,633
Prepaid expenses.......................................... 148,214
------------
Total current assets.............................. 19,847,321
Property and equipment, net................................. 1,068,197
License agreements, net..................................... 143,168
Other assets................................................ 215,664
------------
$ 21,274,350
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 306,537
Accrued expenses and taxes withheld....................... 1,474,516
------------
Total current liabilities......................... 1,781,053
------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding........... --
Common stock, $.01 par value, 25,000,000 shares
authorized; 8,502,930 shares issued.................... 85,029
Additional paid-in capital................................ 42,405,272
Deficit accumulated during the development stage.......... (22,973,164)
------------
19,517,137
Less treasury stock, 5,780 shares of common stock, at
cost................................................... (23,840)
------------
Total shareholders' equity........................ 19,493,297
------------
$ 21,274,350
============
</TABLE>
See accompanying notes.
F-15
<PAGE> 62
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED FROM INCEPTION
SEPTEMBER 30, (MAY 22, 1992)
-------------------------- THROUGH SEPTEMBER 30,
1997 1996 1997
------------ ----------- ---------------------
<S> <C> <C> <C>
Miscellaneous revenues........................... $ 29,313 $ -- $ 320,200
Costs and expenses:
Research and development....................... 8,618,578 2,799,071 17,505,610
General and administrative..................... 1,342,605 1,091,872 5,430,146
Marketing...................................... 575,390 341,168 2,107,501
------------ ----------- ------------
10,536,573 4,232,111 25,043,257
------------ ----------- ------------
Loss from operations............................. (10,507,260) (4,232,111) (24,723,057)
------------ ----------- ------------
Interest income.................................. 939,810 559,642 1,931,652
Interest expense................................. -- (87,331) (181,759)
------------ ----------- ------------
Net loss......................................... $ (9,567,450) $(3,759,800) $(22,973,164)
============ =========== ============
Net loss per share............................... $ (1.14) $ (0.60)
============ ===========
Weighted average shares outstanding.............. 8,375,739 6,275,378
============ ===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 63
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS FROM INCEPTION
ENDED SEPTEMBER 30, (MAY 22, 1992)
------------------------- THROUGH SEPTEMBER 30,
1997 1996 1997
----------- ----------- ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $(9,567,450) $(3,759,800) $(22,973,164)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization................... 310,150 223,647 1,188,025
Issuance of stock for services or
compensation................................. 202,500 248,076 1,149,818
Changes in assets and liabilities:
Prepaid expenses............................. (21,865) (187,736) (155,673)
Accounts payable............................. 150,591 59,632 306,537
Accrued expenses and taxes withheld.......... 809,341 152,954 1,869,023
Other........................................ 130,719 -- (225,318)
----------- ----------- ------------
Net cash used by operations....................... (7,986,014) (3,263,227) (18,840,752)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity (purchase) of short-term investments..... 3,627,060 (2,977,365) (3,961,633)
Purchase of property and equipment, net........... (192,204) (305,234) (1,944,630)
----------- ----------- ------------
Net cash provided by (used by) investing
activities...................................... 3,434,856 (3,282,599) (5,906,263)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable........... -- 2,561,700 4,770,150
Repayment of notes payable........................ -- (1,800,150) (2,970,150)
Proceeds from issuance of common stock............ 333,805 31,023,428 38,684,489
----------- ----------- ------------
Net cash provided by financing activities......... 333,805 31,784,978 40,484,489
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents..................................... (4,217,353) 25,239,152 15,737,474
Cash and cash equivalents at beginning of
period.......................................... 19,954,827 817,587 --
----------- ----------- ------------
Cash and cash equivalents at end of period........ $15,737,474 $26,056,739 $ 15,737,474
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest............................ -- $ 101,312 $ 165,137
=========== =========== ============
</TABLE>
See accompanying notes.
F-17
<PAGE> 64
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with instructions to Article 10 of
Regulation S-X. Accordingly, such financial statements do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
The operating results of the interim periods presented are not necessarily
indicative of the results to be achieved for the year ending December 31, 1997.
The accompanying financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996 and for the cumulative period from May 22, 1992 (inception) through
December 31, 1996, included elsewhere herein.
Certain prior year expense amounts have been reclassified in the Statements
of Operations for the nine months ended September 30, 1996 and the period from
inception through September 30, 1997 to conform with current year
classifications.
NOTE 2. NET LOSS PER SHARE
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with SEC requirements, common and common stock equivalent shares
issued during the twelve-month period prior to the initial filing of the public
offering on April 11, 1996 have been included in the calculations as if they
were outstanding through March 31, 1996 using the treasury stock method. See
Exhibit 11.
Historical net loss per share information presented in accordance with GAAP
for the period affected by the above mentioned SEC requirement is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996
-----------------
<S> <C>
Net loss per share.......................................... $(0.63)
==========
Shares used in computing net loss per share................. 6,002,227
==========
</TABLE>
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The adoption of SFAS No. 128 is not
anticipated to have a material impact on operations.
NOTE 3. CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified
F-18
<PAGE> 65
NOVOSTE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
as short-term (mature in more than 90 days but less than one year). Such
investments are classified as held-to-maturity, as the Company has the ability
and intent to hold them until maturity. Investments held-to-maturity are carried
at amortized cost, adjusted for the amortization or accretion of premiums or
discounts without recognition of gains or losses that are deemed to be
temporary. Premiums and discounts are amortized or accreted over the life of the
related instrument as an adjustment to yield using the straight-line method,
which approximates the effective interest method. Interest income is recognized
when earned. Fair value approximates carrying value for all cash equivalents and
investments.
NOTE 4. SHAREHOLDERS' EQUITY
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999 subject to acceleration if the specific milestones are met at earlier
dates. The Company expensed $202,500 and $248,000 relating to these options in
the nine months ended September 30, 1997 and 1996, respectively.
NOTE 5. MISCELLANEOUS REVENUE
On May 15, 1997 the Company sold all of the technology, intellectual
property and equipment relating to the "Pulse Plus" blood containment device
product line for $130,000 in cash and a continuing royalty. During each 12-month
period following the date of the first sale of the device (the "Royalty
Period"), the Company shall receive a royalty equal to $.10 per unit on the
initial 500,000 units sold and $.08 per unit on all units sold in excess of
500,000. The purchaser guaranteed minimum royalty payments of $10,000 for the
first Royalty Period, $20,000 for the second Royalty Period and $30,000 in the
third Royalty Period. Royalties shall cease with the expiration of the last
related patent. The net book value of the equipment sold was $101,000 and the
Company recorded a $29,000 gain on the sale as miscellaneous revenue in the nine
months ended September 30, 1997.
F-19
<PAGE> 66
NO DEALER, SALES PERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Safe Harbor Provisions of the Private
Securities Litigation Reform Act.... 7
Risk Factors.......................... 7
Use of Proceeds....................... 16
Price Range of Common Stock........... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 22
Management............................ 38
Principal and Selling Shareholders.... 41
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Index to Financial Statements......... F-1
Report of Independent Auditors........ F-2
</TABLE>
2,000,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
PIPER JAFFRAY INC.
COWEN & COMPANY
NATIONSBANC MONTGOMERY
SECURITIES, INC.
, 1997
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this offering are as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee..................................... $ 14,871
N.A.S.D. Filing Fee......................................... 4,813
Nasdaq National Market Qualification Fee.................... 17,500
Accounting Fees............................................. 60,000
Legal Fees and Expenses..................................... 120,000
Blue Sky Qualification Fees and Expenses.................... 3,000
Printing and Engraving...................................... 70,000
Transfer Agent's Fees and Expenses.......................... 3,500
Miscellaneous Expenses...................................... 56,316
----------
Total............................................. $ 350,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act grants
corporations the power to indemnify their directors, officers, employees and
agents in accordance with the provisions thereof, Article VI of Registrant's
Amended and Restated Articles of Incorporation and Article VIII of Registrant's
By-laws provide for indemnification of Registrant's directors, officers, agents
and employees to the full extent permissible under Section 607.0850 of the
Florida Business Corporation Act.
See also Section 6 of the Purchase Agreement.
Registrant maintains directors' and officers' liability insurance coverage
with an aggregate policy limit of $10,000,000 for each policy year.
ITEM 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1.1 -- Form of Purchase Agreement.
1.2 -- Power of Attorney and Custody Agreement.
4.1 -- Form of Specimen Common Stock Certificate of Registrant.(1)
4.2 -- Registration Rights Agreement, dated July 28, 1995, by and
among Registrant, Norman R. Weldon, Thomas D. Weldon,
Charles E. Larsen, the Hillman Investors (as defined
therein), Noro-Moseley Partners-III, L.P. and Advanced
Technology Ventures IV, L.P.(1)
4.3 -- Registration Rights Agreement, dated April 26, 1995, between
Registrant and ABS Employees' Venture Fund Limited
Partnership.(1)
4.4 -- Registration Rights Agreement, dated September 20, 1995,
between Registrant and Karen C. Vinjamuri.(1)
4.5 -- Stock Purchase Warrant, dated September 24, 1993, between
Registrant and The Kriegsman Group.(1)
4.6 -- Stock Purchase Warrant, dated March 24, 1994, between
Registrant and The Kriegsman Group.(1)
4.7 -- Stock Purchase Warrant, dated December 1, 1995, between
Registrant and The Kriegsman Group.(1)
</TABLE>
II-1
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
4.8 -- Stock Purchase Warrant, dated December 1, 1995, between
Registrant and The Kriegsman Group.(1)
4.9 -- Consulting Agreement, dated July 30, 1992, between
Registrant and Spencer B. King III, M.D.(1)
4.10 -- Consulting Agreement, dated February 1, 1996, between
Registrant and Spencer B. King III, M.D.(1)
4.13 -- Consulting Agreement, dated July 30, 1992, between
Registrant and John B. Martin.(1)
4.14 -- Consulting Agreement, dated November 4, 1992, between
Registrant and Raphael Meloul.(1)
4.15 -- Consulting Agreement, dated June 30, 1992, between
Registrant and David O. Williams, M.D.(1)
4.17(a) -- Form of Rights Agreement, dated as of October 25, 1996,
between Registrant and American Stock Transfer & Trust
Company, which includes as Exhibit B thereto the Form of
Right Certificate.(2)
4.17(b) -- Summary of Rights to Purchase Preferred Shares of
Registrant.(2)
*5 -- Opinion by Epstein Becker & Green, P.C., as to legality.
+10.13 -- Memorandum of Understanding between Registrant and Bebig
Isotopentechnik und Umweltdiagnostik GmbH regarding
purchases and investment grant dated April 23, 1997.
23.1 -- Consent of Ernst & Young LLP (contained on page II-6).
*23.2 -- Consent of Epstein Becker & Green, P.C. (included in Exhibit
5).
24 -- Power of Attorney (contained on page II-4).
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
(1) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form S-1 (File No. 333-4988).
(2) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form 8-A filed November 5, 1996.
(3) Filed as same numbered Exhibit to Registrant's Form 10-K for the year ended
December 31, 1996.
(b) Financial Statement Schedules:
Schedules have been omitted for the reason that they are not required or
are not applicable or because the required information is included in the
financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Amended and
Restated Certificate of Incorporation, its By-Laws, or otherwise, 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 Registrant for expenses incurred or
paid by a director, officer or
II-2
<PAGE> 69
controlling person of 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, 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.
Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on the 23rd day of
October, 1997.
Novoste Corporation
By: /s/ DAVID N. GILL
------------------------------------
David N. Gill
Vice President, Finance
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint THOMAS D. WELDON and DAVID N. GILL, and
each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement,
including without limitation any registration statement for the same Offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same,
as fully, for all intents and purposes, as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and October , 1997
- --------------------------------------------------- Director
Norman R. Weldon, Ph.D.
/s/ THOMAS D. WELDON President, Chief Executive October 23, 1997
- --------------------------------------------------- Officer and Director
Thomas D. Weldon (Principal Executive Officer)
/s/ DAVID N. GILL Vice President, Finance October 23, 1997
- --------------------------------------------------- (Principal Financial and
David N. Gill Accounting Officer)
/s/ CHARLES E. LARSEN Director October 23, 1997
- ---------------------------------------------------
Charles E. Larsen
/s/ J. STEPHEN HOLMES Director October 23, 1997
- ---------------------------------------------------
J. Stephen Holmes
</TABLE>
II-4
<PAGE> 71
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD M. JOHNSTON Director October 23, 1997
- ---------------------------------------------------
Richard M. Johnston
Director October , 1997
- ---------------------------------------------------
Pieter J. Schiller
/s/ JACK R. KELLY, JR. Director October 23, 1997
- ---------------------------------------------------
Jack R. Kelly, Jr.
/s/ WILLIAM E. WHITMER Director October 23, 1997
- ---------------------------------------------------
William E. Whitmer
/s/ STEPHEN I. SHAPIRO Director October 23, 1997
- ---------------------------------------------------
Stephen I. Shapiro
</TABLE>
II-5
<PAGE> 72
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 1,
1997 in the Registration Statement (Form S-3) and related Prospectus of Novoste
Corporation for the registration of 2,300,000 shares of its Common Stock.
We also consent to the incorporation by reference therein of our report
dated February 1, 1997, with respect to the financial statements of Novoste
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
October 23, 1997
II-6
<PAGE> 1
EXHIBIT 1.1
Draft 10/1/97
2,000,000 SHARES(1)
NOVOSTE CORPORATION
COMMON STOCK
PURCHASE AGREEMENT
------------------
____________, 1997
PIPER JAFFRAY INC.
COWEN & COMPANY
NATIONSBANC MONTGOMERY SECURITIES, INC.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
Novoste Corporation, a Florida corporation (the "Company"), and
certain stockholders of the Company named in Schedule I hereto, acting
severally and not jointly, (collectively, the Selling Stockholders") propose to
sell to the several Underwriters named in Schedule II hereto (the
"Underwriters") an aggregate of 2,000,000 shares (the "Firm Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company. The Firm
Shares consist of 1,600,000 authorized but unissued shares of Common Stock to
be issued and sold by the Company and 400,000 authorized and outstanding shares
of Common Stock to be sold by the Selling Stockholders (the "Selling
Stockholder Shares") as set forth on Schedule I hereto. The Company and certain
of the Selling Stockholders also propose to grant to the several Underwriters
an option to purchase up to 300,000 additional shares of Common Stock, on the
terms and for the purposes set forth in Section 3 hereof (the "Option Shares").
The Firm Shares and any Option Shares purchased pursuant to this Purchase
Agreement are herein collectively called the "Securities."
The Company and the Selling Stockholders hereby confirm their
agreement with respect to the sale of the Securities to the several
Underwriters, for whom you are acting as Representatives (the
"Representatives").
- ---------------------
(1) Plus an option to purchase up to 300,000 additional shares to cover
over-allotments.
<PAGE> 2
1. Registration Statement.
(a) A registration statement on Form S-1 (File No.
333-______) with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement, prospectuses
subject to completion and such abbreviated registration statements pursuant to
Rule 462(b) of the Rules and Regulations have also been so prepared and have
been, or will be, so filed. Copies of such registration statement and
amendments and each related preliminary prospectus, including financial
statements, schedules and exhibits, and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
(b) If the Company has elected not to rely upon Rule 430A of
the Rules and Regulations, the Company has prepared and will promptly file an
amendment to the registration statement and an amended prospectus. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, it
will prepare and file a prospectus pursuant to Rule 424(b) that discloses the
information previously omitted from the prospectus in reliance upon Rule 430A.
Such registration statement, including financial statements, schedules and
exhibits, as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including the information deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A(b), if applicable,
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, is
hereafter called the "Registration Statement." The prospectus included in the
Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any
prospectus filed by the Company with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or any other prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission
pursuant to Rule 424(b) of the Rules and Regulations) differs from the
prospectus on file at the time the Registration Statement is or was declared
effective by the Commission, the term "Prospectus" shall refer to such
differing prospectus from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) or from and after the time it is first provided to the Underwriters by
the Company for such use. The term "Preliminary Prospectus" as used herein
means any preliminary prospectus included in the Registration Statement prior
to the time it becomes or became effective under the Act and any prospectus
subject to completion as described in Rule 430A of the Rules and Regulations.
2. Representations and Warranties of the Company and the Selling
Stockholders.
-2-
<PAGE> 3
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus) and at the First Closing Date
and Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus (in each case, as so amended and/or supplemented) will
conform or conformed in all material respects to the requirements of the Act
and the Rules and Regulations, (B) the Registration Statement (as so amended
and/or supplemented) will not or did not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) the Prospectus
(as so amended and/or supplemented) will not or did not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are or were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any such document
in reliance upon, and in conformity with, written information furnished to the
Company by you, or by any Underwriter through you, specifically for use in the
preparation thereof. If the Registration Statement has been declared effective
by the Commission, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that purpose has
been initiated or, to the Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together
with the notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated and
the results of operations and changes in cash flows for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
stated therein); and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. No
other financial statements or schedules are required to be included in the
Registration Statement or Prospectus. Ernst & Young LLP, which has expressed
its opinion with respect to the financial statements and schedules filed as a
part of the Registration Statement and included in the Registration Statement
and Prospectus, are independent public accountants as required by the Act and
the Rules and Regulations.
-3-
<PAGE> 4
(iv) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction
of incorporation. The Company has full corporate power and authority to own its
properties and conduct its business as currently being carried on and as
described in the Registration Statement and Prospectus, and is duly qualified
to do business as a foreign corporation in good standing in each jurisdiction
in which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon its business, condition
(financial or otherwise) or properties. The Company does not have any
subsidiaries.
(v) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions, or declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; and there has not been any change in
the capital stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of outstanding
options or warrants), or any material change in the short-term or long-term
debt, or any issuance of options, warrants, convertible securities or other
rights to purchase the capital stock, of the Company (except pursuant to the
Company's Stock Option Plan), or any material adverse change in the condition
(financial or otherwise), business, key personnel, property, net worth or
results of operations of the Company (hereinafter, a "Material Adverse
Change").
(vi) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company, or its directors or officers,
is a party, or against the Company's properties, assets or rights, before or by
any court or governmental agency, authority or body, or any arbitrator, which
might result in any Material Adverse Change.
(vii) There are no contracts or documents of the Company
that is required to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations that have not been so filed.
(viii) This Agreement, the Power of Attorney (as hereafter
defined) and the Custody Agreement (as hereafter defined) have been duly
authorized, executed and delivered by the Company, and constitute a valid,
legal and binding obligation of the Company, enforceable in accordance with its
terms, except as rights to indemnity hereunder may be limited by federal or
state securities laws and except as such enforceability may be limited by
bankruptcy insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The execution,
delivery and performance of this Agreement, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any material agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its property is subject, the Company's charter or by-laws, or any order,
rule, regulation or decree of any court or
-4-
<PAGE> 5
governmental agency or body having jurisdiction over the Company or any of its
properties; no consent, approval, authorization or order of, or filing with,
any court or governmental agency or body is required for the execution,
delivery and performance of this Agreement, the Power of Attorney and the
Custody Agreement, or for the consummation of the transactions contemplated
hereby and thereby, including the issuance or sale of the Securities by the
Company, except such as may be required under the Act or state securities or
blue sky laws; and the Company has full power and authority to enter into this
Agreement, the Power of Attorney and the Custody Agreement, and to authorize,
issue and sell the Securities as contemplated by this Agreement and perform the
transactions contemplated herein and therein.
(ix) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common Stock and
Selling Stockholder Shares, are duly authorized and validly issued, fully paid
and nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities with respect to
which waivers have not been obtained, and the holders thereof are not subject
to personal liability by reason of being such holders; the Securities have been
duly authorized and in the case of the Securities to be sold by the Company to
the Underwriters as provided therein, when issued, delivered and paid for in
accordance with the terms hereof, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders; and as of the First Closing
Date, the capital stock of the Company, including the Common Stock, will
conform to the description thereof in the Registration Statement and
Prospectus. Except as otherwise stated in the Registration Statement and
Prospectus, as of the First Closing Date, there will be no preemptive rights or
other rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any shares of Common Stock pursuant to the Company's
charter, by-laws or any agreement or other instrument to which the Company is a
party or by which the Company is bound. Neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
shares of Common Stock or other securities of the Company, other than rights
which have been waived by the holders thereof. Except as described in the
Registration Statement and the Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or acquire from
the Company any shares of the capital stock of the Company. As of the First
Closing Date, the Company will have an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
(x) The Company holds, and is operating in compliance in
all material respects with, all franchises, grants, authorizations, approvals,
licenses, permits, easements, consents, certificates and orders of any
governmental or self-regulatory body required for the conduct of its business
as presently conducted, including without limitation, all such permits,
consents, licenses or approvals required by the United States Food and Drug
Administration (the "FDA"), and all such franchises, grants, authorizations,
licenses, permits, easements, consents, certifications and orders are valid and
in full force and effect. The Company is in compliance in all material respects
with all applicable federal, state, local and foreign laws, regulations, orders
and decrees, including without limitation, all regulations prescribed by the
FDA.
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<PAGE> 6
(xi) The Company has good and marketable title to all
property described in the Registration Statement and Prospectus as being owned
by it, in each case free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectus; the property held under lease by the Company is held under
a valid, subsisting and enforceable lease with only such exceptions as do not
interfere in any material respect with the conduct of the business of the
Company; the Company owns or possesses all adequate rights to use all patents,
patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
trade secrets and other similar rights (collectively, the "Intellectual
Property") necessary for the conduct of the business of the Company as
currently carried on and as described in the Registration Statement and
Prospectus. Except as stated in the Registration Statement and Prospectus, no
name which the Company uses and, to the Company's knowledge, no other aspect of
the business of the Company will involve or give rise to any infringement of,
or license or similar fees for, any Intellectual Property of others material to
the business or prospects of the Company.
(xii) Except as set forth in the Prospectus, the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
Intellectual Property; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property other than as described in the
Prospectus, which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could have a material adverse effect on the
condition (financial or otherwise) or business of the Company; to the knowledge
of the Company, none of the patents owned or licensed by the Company are
unenforceable or invalid. The Company has duly and properly filed or caused to
be filed with the United states Patent and Trademark Office (the "PTO") and
applicable foreign and international patent authorities all patent applications
described or referred to in the Prospectus, and believes it has complied with
the PTO's duty of candor and disclosure for the Company Patent Applications (as
defined below); the Company is unaware of any facts material to a determination
of patentability regarding the Company Patent Applications not called to the
attention of the PTO; the Company is unaware of any facts not called to the
attention of the PTO which would preclude the grant of a patent for the Company
Patent Applications; the Company has no knowledge of any facts which would
preclude it from having clear title to its patent applications referenced in
the Prospectus; and the Company has not terminated or breached and is not in
violation of any agreement covering its Intellectual Property rights, which
agreement, if terminated, could have a material adverse effect on the condition
(financial or otherwise) or business of the Company. The Company is not aware
of the granting of any patents to third parties or the filing of patent
applications by third parties or any other rights of third parties to any of
the Company's Intellectual Property other than as described in the Prospectus.
(xiii) The Company is not in violation of its charter or
by-laws or in breach of or otherwise in default in the performance of any
material obligation, agreement or condition contained in any bond, debenture,
note, indenture, loan agreement or any other material contract, lease or other
instrument to which it is subject or by which any of them may be
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<PAGE> 7
bound, or to which any of the material property or assets of the Company or any
of its subsidiaries is subject.
(xiv) The Company has filed all federal, state, local and
foreign income and franchise tax returns required to be filed and are not in
default in the payment of any taxes-which were payable pursuant to said returns
or any assessments with respect thereto, other than any which the Company is
contesting in good faith.
(xv) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xvi) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed on the Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Compnay
received any notification that the Commission or the National Association of
Securities Dealers, Inc. (the "NASD") is contemplating termination of such
registration or listing.
(xvii) The Company owns no capital stock or other equity or
ownership or proprietary interest in any corporation, partnership, association,
trust or other entity.
(xviii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ix) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(xx) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xxi) Except as set forth in the Registration Statement
and Prospectus, (i) the Company is in compliance in all material respects with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
(including without limitation, all laws or rules provided by the United States
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<PAGE> 8
Nuclear Regulatory Commission or any similar state agency or body
("Environmental Laws") which are applicable to its business, (ii) the Company
has received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus, and (iii) no
property which is owned, leased or occupied by the Company has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(xxii) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism, product
liability claims, workers' compensation claims and all other risks customarily
insured against, all of which insurance is in full force and effect; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a reasonable cost.
(xxiii) To the best of the Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, subcontractors,
manufacturers, authorized dealers or international distributors that might be
expected to result in a Material Adverse Change. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(b) Each Selling Stockholder, severally and not jointly,
represents and warrants to, and agrees with, the several Underwriters as
follows:
(i) Such Selling Stockholder is the record and
beneficial owner of, and has, and on the First Closing Date and/or the Second
Closing Date, as the case may be, will have, good title to all Securities to be
sold by such Selling Stockholder hereunder, free and clear of all restrictions
on transfer, liens encumbrances, security interests and adverse claims
whatsoever, including any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee or beneficiary of such
Selling Stockholder, with full right and authority to deliver the same
hereunder, subject, in the case of each Selling Stockholder, to the rights of
[the Company], as Custodian (herein called the "Custodian").
(ii) Upon delivery of and payment for such shares of
Securities, good title to such shares, will pass to the Underwriters, free and
clear of all restrictions on transfer, liens, encumbrances, security interests
and adverse claims whatsoever.
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<PAGE> 9
(iii) Such Selling Stockholder has and on the First
Closing Date (and any later date on which Option Shares are purchased for the
account of the Underwriters, if applicable) will have, full legal right, power
and authority to enter into this Agreement and the Letter of Transmittal and
Custody Agreement (the "Custody Agreement") and to sell, assign, transfer and
deliver such shares, in the manner provided herein and therein, and this
Agreement and the Custody Agreement have been duly authorized, executed and
delivered by such Selling Stockholder and each of this Agreement and the
Custody Agreement is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as rights to indemnity and
contribution under Section 6 hereof may be limited by applicable law.
(iv) The Power of Attorney signed by such Selling
Stockholder appointing ____________ and _______________, as such Selling
Stockholder's attorneys-in-fact to the extent set forth therein with regard to
the transactions contemplated by this Agreement and by the Registration
Statement and Custody Agreement, has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and is a valid and
binding instrument of such Selling Stockholder, enforceable in accordance with
its terms, and, pursuant to the Power of Attorney, such Selling Stockholder has
authorized ____________ and _____________, to , among other things, execute and
deliver on such Selling Stockholder's behalf this Agreement and any other
document necessary or desirable in connection with transactions contemplated
hereby, to determine the purchase price to be paid by the several Underwriters
to such Selling Stockholder as provided in Section 3 hereof, to duly endorse
(in blank or otherwise) the certificate or certificates representing the
Selling Stockholder's Shares or a stock power or powers with respect thereto,
to accept payment therefor and to deliver the shares of Securities to be sold
by such Selling Stockholder pursuant to this Agreement.
(v) Such Selling Stockholder has not taken, and will not
take, directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the price
of the Common Stock of the Company to facilitate the sale or resale of the
Securities.
(vi) Such Selling Stockholder has not distributed and
will not distribute any Prospectus or other offering material in connection
with the offering and sale of the Securities.
(vii) The execution, delivery and performance of this
Agreement, the Power of Attorney and Custody Agreement by such Selling
Stockholder, compliance by such Selling Stockholder with all the provisions
hereof and thereof and the consummation of the transactions contemplated hereby
and thereby will not require any consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body (except as such may be required by the NASD, state securities
laws or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, organizational documents of
such Selling Stockholder, if not an individual, or any agreement, indenture or
other instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or the shares of Securities of such Selling Stockholder are
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<PAGE> 10
bound, or violate or conflict with any law, administrative regulation or ruling
or court decree applicable to such Selling Stockholder or the shares of
Securities of such Selling Stockholder.
(viii) Such parts of the Registration Statement, comprised
of the table and notes thereto under the caption "Principal and Selling
Stockholders" in the form supplied to each Selling Stockholder, which
specifically relate to such Selling Stockholder do not, and will not on the
First Closing Date (and any later date on which Option Shares are purchased for
the account of the Underwriters, if applicable), contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(ix) Certificates in negotiable form for all shares of
Securities to be sold by such Selling Stockholder under this Agreement have
been placed in custody with the Custodian for the purpose of effecting delivery
under this Agreement.
(x) Such Selling Stockholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to
be complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date, or any later date on which Option Shares are to be purchased, as
the case may be, and will advise Piper Jaffray Inc. prior to the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, if any statement to be made on behalf of such Selling Stockholder in the
certificate contemplated by Section 5(l) would be inaccurate if made as of the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be.
(xi) Such Selling Stockholder does not have, or has
waived prior to the date hereof, any preemptive right, co-sale right or right
of first refusal or other similar right to purchase any of the Securities to be
sold by the Company or any other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration rights or similar right to
participate in the offering made by the Prospectus, other than the rights of
participation satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(xii) To the best knowledge of such Selling Stockholder,
the representations and warranties of the Company set forth in Section 2(a)
above are true and accurate.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the
matters covered thereby; any certificate signed by or on behalf of any Selling
Stockholder as such and delivered to you or to counsel for the Underwriters
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<PAGE> 11
shall be deemed a representation and warranty by such Selling Stockholder to
each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell 1,600,000 Firm Shares, and each
Selling Stockholder agrees, severally and not jointly, to sell the number of
Firm Shares set forth opposite the name of such Selling Stockholder in Schedule
I hereto, to the several Underwriters, and each Underwriter agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto. The purchase price for each Firm Share shall be $__ per
share. In making this Agreement, each Underwriter is contracting severally and
not jointly; except as provided in paragraph (c) of this Section 3 and in
Section 8 hereof, the agreement of each Underwriter is to purchase only the
respective number of Firm Shares specified in Schedule II.
(b) The Firm Shares will be delivered by the Company
[and the Custodian] to you for the accounts of the several Underwriters against
payment of the purchase price therefor by certified or official bank check or
other next day funds payable to the order of the Company, at the offices of
Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable, at 9:00 a.m.,
Minneapolis time, on __________, 1997, in accordance with Rule 15c6-1 of the
Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." The Firm Shares, in definitive form and in such
denominations and registered in such names as you may request upon at least two
business days' prior notice to the Company [and the Custodian], will be made
available for checking and packaging at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable, at least two business days prior
to the First Closing Date.
(c) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, each of the Company, Advanced Technology Ventures IV, L.P. and
Noro-Moseley Partners III, L.P. hereby grant to the several Underwriters an
option to purchase all or any pro rata portion of the Option Shares listed
opposite its name on Schedule I hereto at the same purchase price as the Firm
Shares, for use solely in covering any over-allotments made by the Underwriters
in the sale and distribution of the Firm Shares. The option granted hereunder
may be exercised at any time (but not more than once) within 30 days after the
effective date of this Agreement upon notice (confirmed in writing) by the
Representatives to the Company setting forth the aggregate number of Option
Shares as to which the several Underwriters are exercising the option, the
names and denominations in which the certificates for the Option Shares are to
be registered and the date and time, as determined by you, when the Option
Shares are to be delivered, such time and date being herein referred to as the
"Second Closing" and "Second Closing Date", respectively; provided, however,
that the Second Closing Date shall not be earlier than the First Closing Date
nor earlier than the second business day after the date on which the option
shall have been
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<PAGE> 12
exercised. The number of Option Shares to be purchased by each Underwriter
shall be the same percentage of the total number of Option Shares to be
purchased by the several Underwriters as the number of Firm Shares to be
purchased by such Underwriter is of the total number of Firm Shares to be
purchased by the several Underwriters, as adjusted by the Representatives in
such manner as the Representatives deem advisable to avoid fractional shares.
No Option Shares shall be sold and delivered unless the Firm Shares previously
have been, or simultaneously are, sold and delivered.
(d) The Option Shares will be delivered by the Company
to you for the accounts of the several Underwriters against payment of the
purchase price therefor by certified or official bank check or other next day
funds payable to the order of the Company at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable at 9:00 a.m., Minneapolis time, on
the Second Closing Date. The Option Shares in definitive form and in such
denominations and registered in such names as you have set forth in your notice
of option exercise, will be made available for checking and packaging at the
office of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable,
at least two business days prior to the Second Closing Date.
(e) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment to the Company, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company.
4. Covenants.
(a) The Company covenants and agrees with the several
Underwriters as follows:
(i) If the Registration Statement has not
already been declared effective by the Commission, the Company will use its
best efforts to cause the Registration Statement and any post-effective
amendments thereto to become effective as promptly as possible; the Company
will use its best efforts to cause any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations as may be required
subsequent to the date the Registration Statement is declared effective to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement or any abbreviated Registration Statement pursuant
to Rule 462(b) of the Rules and Regulations has become effective or any
supplement to the Prospectus has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will file a Prospectus
containing the information omitted therefrom pursuant to such Rule 430A with
the Commission within the time period required by, and otherwise in accordance
with the provisions
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<PAGE> 13
of, Rules 424(b) and 430A of the Rules and Regulations; the Company will
prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus that, in
your opinion, may be necessary or advisable in connection with the distribution
of the Securities by the Underwriters; in case any Underwriter is required to
deliver a prospectus nine (9) month or more after the effective date of the
Registration Statement in connection with the sale of the Securities, the
Company will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
Prospectus as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and the Company will not file any amendment or
supplement to the Registration Statement or Prospectus to which you shall
reasonably object by notice to the Company after having been furnished a copy a
reasonable time prior to the filing.
(ii) The Company will advise you, promptly after
it shall receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of
any proceeding for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such a stop order should be issued.
(iii) Within the time during which a prospectus
relating to the Securities is required to be delivered under the Act, the
Company will comply as far as it is able with all requirements imposed upon it
by the Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities as contemplated by the provisions hereof
and the Prospectus. If during such period any event occurs as a result of which
the Prospectus would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Prospectus to
comply with the Act, the Company will promptly notify you and will amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such compliance.
(iv) The Company will use its best efforts to
qualify the Securities for sale under the securities laws of such jurisdictions
as you reasonably designate and to continue such qualifications in effect so
long as required for the distribution of the Securities, except that the
Company shall not be required in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process in any state.
(v) The Company will furnish to the
Underwriters copies of the Registration Statement (three of which will be
signed and will include all exhibits), each Preliminary Prospectus, the
Prospectus, and all amendments and supplements to such documents, in each case
as soon as available and in such quantities as you may from time to time
reasonably request.
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<PAGE> 14
(vi) During a period of five years commencing
with the date hereof, the Company will furnish to the Representatives, and to
each Underwriter who may so request in writing, copies of all periodic and
special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the National
Association of Securities Dealers, Inc., The Nasdaq Stock Market or any
securities exchange.
(vii) The Company will make generally available
to its security holders as soon as practicable, but in any event not later than
15 months after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective under the provisions of Section 9(a) hereof
or is terminated, will pay or cause to be paid (A) all expenses (including
transfer taxes allocated to the respective transferees) incurred in connection
with the delivery to the Underwriters of the Securities, (B) all expenses and
fees (including, without limitation, fees and expenses of the Company's
accountants and counsel but, except as otherwise provided below, not including
fees of the Underwriters' counsel) in connection with the preparation,
printing, filing, delivery, and shipping of the Registration Statement
(including the financial statements therein and all amendments, schedules, and
exhibits thereto), the Securities, each Preliminary Prospectus, the Prospectus,
and any amendment thereof or supplement thereto, and the printing, delivery,
and shipping of this Agreement and other underwriting documents, including Blue
Sky Memoranda, (C) all filing fees and fees and disbursements of the
Underwriters' counsel incurred in connection with the qualification of the
Securities for offering and sale by the Underwriters or by dealers under the
securities or blue sky laws of the states and other jurisdictions which you
shall designate in accordance with Section 4(d) hereof, (D) the fees and
expenses of any transfer agent or registration, (E) the filing fees incident to
any required review by the National Association of Securities Dealers, Inc. of
the terms of the sale of the Securities, (F) listing fees, if any, and (G) all
other costs and expenses incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein. If the sale
of the Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement from
becoming effective, or by reason of any failure, refusal or inability on the
part of the Company to perform any agreement on its or their part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, the Company
will reimburse the several Underwriters for all out-of-pocket disbursements
(including fees and disbursements of counsel) incurred by the Underwriters in
connection with their investigation, preparing to market and marketing the
Securities or in contemplation of performing their obligations hereunder. The
Company shall not in any event be liable to any of the Underwriters for loss of
anticipated profits from the transactions covered by this Agreement.
(ix) The Company will apply the net proceeds
from the sale of the Securities to be sold by it hereunder for the purposes set
forth in the Prospectus and will file such reports with the Commission with
respect to the sale of the Securities and the application of the
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<PAGE> 15
proceeds therefrom as may be required in accordance with Rule 463 of the Rules
and Regulations.
(x) The Company will not, without your prior
written consent, offer for sale, sell, sell short, contract to sell, grant any
option for the sale of or otherwise issue or dispose of any Common Stock or any
securities convertible into or exchangeable for, or any options or rights to
purchase or acquire, Common Stock, except to the Underwriters pursuant to this
Agreement or pursuant to the Company's stock plans for a period of 90 days
after the commencement of the public offering of the Securities by the
Underwriters. The Company shall not file with the Commission any registration
statements (including without limitation any registration statements on Form
S-8 or any successor form) with respect to any stock option stock purchase,
restricted stock or similar plan until at least 90 days following the date of
this Agreement.
(xi) The Company either has caused to be
delivered to you or will cause to be delivered to you prior to the effective
date of the Registration Statement a letter from each of the Company's
directors, officers and all stockholders affiliated with a director or officer,
stating that such person agrees that he or she will not, without your prior
written consent, directly or indirectly offer for sale, sell, sell short,
contract to sell or otherwise dispose of any shares of Common Stock or rights
to purchase Common Stock, except to the Underwriters pursuant to this
Agreement, for a period commencing September ___, 1997 and ending 90 days after
commencement of the public offering of the Securities by the Underwriters;
provided, that [______, _____ and ______] will each be permitted to sell no
more than ____ shares of Common Stock during the period beginning [twenty-one]
days after the effective date of the Registration Statement and ending 90 days
after commencement of the public offering of the Securities by the Underwriter.
(xii) The Company has not taken and will not
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in, or which has constituted, the stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities, and has not effected any sales of Common
Stock which are required to be disclosed in response to Item 701 of Regulation
S-K under the Act which have not been so disclosed in the Registration
Statement.
(xiii) The Company will not incur any liability
for any finder's or broker's fee or agents commission in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xiv) The Company will inform the Florida
Department of Banking and Finance at any time prior to the consummation of the
distribution of the Securities by the Underwriters if it commences engaging in
business with the government of Cuba or with any person or affiliate located in
Cuba. Such information will be provided within 90 days after the commencement
thereof or after a change occurs with respect to previously reported
information.
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<PAGE> 16
(b) Each Selling Stockholder covenants and agrees with
the several Underwriters as follows:
(i) Except as otherwise agreed to by the
Company and the Selling Stockholder, such Selling Stockholder will pay all
taxes, if any, on the transfer and sale, respectively, of the Securities being
sold by such Selling Stockholder, the fees of such Selling Stockholder's
counsel and such Selling Stockholder's proportionate share (based upon the
number of Securities being offered by such Selling Stockholder pursuant to the
Registration Statement) of all costs and expenses (except for legal and
accounting expenses and fees of the registrar and transfer agent) incurred by
the Company pursuant to the provisions of Section 4(a)(viii) of this Agreement;
provided, however, that each Selling Stockholder severally agrees to reimburse
the Company for any reimbursement made by the Company to the Underwriters
pursuant to Section 4(a)(viii) hereof to the extent such reimbursement resulted
from the failure or refusal on the part of such Selling Stockholder to comply
under the terms or fulfill any of the conditions of this Agreement.
(ii) If this Agreement shall be terminated by
the Underwriters because of any failure, refusal or inability on the part of
such Selling Stockholder to perform any agreement on such Selling Stockholder's
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by such Selling Stockholder is
not fulfilled, such Selling Stockholder agrees to reimburse the several
Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel for the Underwriters) incurred by the Underwriters in
connection with their investigation, preparing to market and marketing the
Securities or in contemplation of performing their obligations hereunder. The
Selling Stockholder shall not in any event be liable to any of the Underwriters
for loss of anticipated profits from the transactions covered by this
Agreement.
(iii) The Selling Stockholders Shares to be sold
by such Selling Stockholder, represented by the certificates on deposit with
the Custodian pursuant to the Custody Agreement of such Selling Stockholder,
are subject to the interest of the several Underwriters and the other Selling
Stockholders; the arrangements made for such custody are, except as
specifically provided in the Custody Agreement, irrevocable; and the
obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Custody Agreement, by any act of
such Selling Stockholder, by operation of law, whether by the liquidation,
dissolution or merger of such Selling Stockholder, by the death of such Selling
Stockholder, or by the occurrence of any other event. If any Selling
Stockholder should liquidate, dissolve or be a party to a merger or if any
other such event should occur before the delivery of the Securities hereunder,
certificates for the Securities deposited with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such liquidation, dissolution, merger or other event had not occurred,
whether or not the Custodian shall have received notice thereof.
(iv) Such Selling Stockholder will not, without
your prior written consent, offer for sale, sell, contract to sell, grant any
option for the sale of or otherwise dispose of any Common Stock or any
securities convertible into or exchangeable for, or any options or
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<PAGE> 17
rights to purchase or acquire, Common Stock, except to the Underwriters
pursuant to this Agreement, for a period of 90 days after the commencement of
the public offering of the Securities by the Underwriters.
(v) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
the Securities, and has not effected any sales of Common Stock which, if
effected by the Company, would be required to be disclosed in response to Item
701 of Regulation S-K.
(vi) Such Selling Stockholder shall immediately
notify you if any event occurs, or of any change in information relating to
such Selling Stockholder or the Company or any new in formation relating to the
Company or relating to any matter stated in the Prospectus or any supplement
thereto, which results in the Prospectus (as supplemented) including an untrue
statement of a material fact or omitting to state any material fact necessary
to make the statements therein, in fight of the circumstances under which they
were, made, not misleading.
5. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters hereunder are subject to
the accuracy, as of the date hereof and at each of the First Closing Date and
the Second Closing Date (as if made at such Closing Date), of and compliance
with all representations, warranties and agreements of the Company contained
herein, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 p.m., Minneapolis time, on the date of this
Agreement, or such later time and date as you, as Representatives of the
several Underwriters, shall approve and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been timely made; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereof shall have been issued; no proceedings for the issuance of
such an order shall have been initiated or threatened; and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) No Underwriter shall have advised the Company that
the Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact which, in your
opinion, is material, or omits to state a fact which, in your opinion, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.
(c) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company shall not have incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions, or declared or paid any dividends or made any
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<PAGE> 18
distribution of any kind with respect to its capital stock; and there shall not
have been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term long-term debt of the Company, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock of the
Company (except pursuant to the Company's Stock Option Plan), or any Material
Adverse Change that, in your judgment, makes it impractical or inadvisable to
offer or deliver the Securities on the terms and in the manner contemplated in
the Prospectus.
(d) On each Closing Date, there shall have been
furnished to you, as Representatives of the several Underwriters, the opinion
of Epstein, Becker and Green, P.C., counsel for the Company, dated such Closing
Date and addressed to you, to the effect that:
(i) The capital stock of the Company conforms
as to legal matters to the description thereof contained in the Prospectus
under the caption "Description of Capital Stock." The Securities to be issued
and sold by the Company hereunder have been duly authorized and, when issued,
delivered and paid for in accordance with the terms of this Agreement, will
have been validly issued and will be fully paid and nonassessable, and the
holders thereof will not be subject to personal liability by reason of being
such holders.
(ii) The Registration Statement has become
effective under the Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or, to the
knowledge of such counsel, threatened by the Commission.
(iii) The Company has full corporate power and
authority to enter into this Agreement, the Power of Attorney and Custody
Agreement and this Agreement, the Power of Attorney and Custody Agreement have
been duly authorized, executed and delivered by the Company; the execution,
delivery and performance of this Agreement, the Power of Attorney and Custody
Agreement and the consummation of the actions herein and therein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, rule or regulation, any material
agreement or instrument known to such counsel to which the Company is a party
or by which it is bound or to which any of its material property is subject,
the Company's charter or by-laws, or any order or decree involving the Company
known to such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its respective properties; and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Power of Attorney and Custody Agreement or
for the consummation of the transactions contemplated hereby and thereby,
including the issuance or sale of the Securities by the Company, except such as
may be required under the Act or state securities laws.
(iv) To the best of such counsel's knowledge,
the Company holds all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders required by the FDA and the NRC
and other similar state organizations required for
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<PAGE> 19
the conduct of its business as presently conducted, and all such franchises,
grants, authorizations, licenses, permits, easements, consents, certifications
and orders are valid and in full force and effect.
(v) The Registration Statement and the
Prospectus, and any amendment thereof or supplement thereto, comply as to form
in all material respects with the requirements of the Act and the Rules and
Regulations; and on the basis of our participation in the preparation of the
Registration Statement and Prospectus, which included conferences with officers
of the Company at which the contents of the Registration Statement and
Prospectus and related matters were discussed and our examination of documents
referred to in the Registration Statement and Prospectus, no facts have come to
the attention of such counsel that causes such counsel to believe that the
Registration Statement thereof, at the time it became effective and as of such
Closing Date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (as of its date and as
of such Closing Date), as amended or supplemented, contained any untrue
statement of material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; it being understood that such counsel need express
no opinion as to the financial statements or other financial data included in
any of the documents mentioned in this clause.
(vi) Based insofar as factual matters are
concerned solely upon certificates of the Selling Stockholders and
representations and agreements of the Selling Stockholders contained in the
Custody Agreement and Power of Attorney referred to below, the accuracy of
which we have no reason to question, (A) the Agreement has been duly executed
and delivered by or on behalf of each of the Selling Stockholders; (B) the
Custody Agreement between the Selling Stockholders and the Company, as
Custodian, and the Power of Attorney referred to in such Custody Agreement,
have been duly executed and delivered by such Selling Stockholder; (C) the
Custody Agreement entered into by, and the Power of Attorney given by, such
Selling Stockholder is valid and binding on such Selling Stockholder; and (D)
each Selling Stockholder has full legal right and authority to enter into this
Agreement and to sell, transfer and deliver in the manner provided in this
Agreement the shares of Securities sold by such Selling Stockholder hereunder.
(vii) Upon delivery of the Selling Stockholder
Shares to be sold by the Selling Stockholders and payment therefor in
accordance with this Agreement, the Underwriters will acquire the Securities
free and clear of any "adverse claim" (within the meaning of Section 8-302(2)
of the Uniform Commercial Code), assuming for purpose of such opinion that the
Underwriters are without notice of any defect in the title of the Selling
Stockholder Shares being purchased from the Selling Stockholders.
(viii) No consent, approval, authorization or
order of any court or governmental agency or body on the part of the Selling
Stockholders is required for the consummation of the transactions contemplated
in this Agreement, except such as have been obtained under the Act and such as
may be required under state securities or blue sky laws in
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<PAGE> 20
connection with the purchase and distribution of the Securities by the
Underwriters (as to which state securities laws such counsel expresses no
opinion).
In rendering such opinion such counsel may rely (i) as to matters of
law other than the laws of the state of New York and federal law, upon the
opinion or opinions of local counsel provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such
opinion or opinions of local counsel are satisfactory to them and that they
believe they and you are justified in relying thereon and (ii) as to matters of
fact, to the extent such counsel deems reasonable upon certificates of officers
of the Company and its subsidiaries provided that the extent of such reliance
is specified in such opinion.
On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, the opinion of Mirkin & Woolf,
Florida counsel for the Company, dated such Closing Date and addressed to you,
to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. The Company has full corporate power and
authority to own its properties and conduct its business as currently being
conducted and as described in the Registration Statement and Prospectus, and is
duly qualified to do business as a foreign corporation and is in good standing
in the State of Georgia.
(ii) All of the issued and outstanding shares of
the capital stock of the Company have been duly authorized, validly issued and
are fully paid and nonassessable, and the holders thereof are not subject to
personal liability for any reason of being such holders. Except as otherwise
stated in the Registration Statement and Prospectus, to the best of such
counsel's knowledge, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or transfer
of, any shares of Common Stock pursuant to the Company's charter, by-laws or
any agreement or other instrument known to such counsel to which the Company is
a party or by which the Company is bound. To the best of such counsel's
knowledge, neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common Stock or
other securities of the Company which have not been duly waived.
(iii) To the best of such counsel's knowledge,
except as described in the Registration Statement and Prospectus, there are no
options, warrants, agreements, contracts or other rights in existence to
purchase or acquire from the Company any shares of the capital stock of the
Company.
(vii) To the best of such counsel's knowledge,
the Company is not in violation of its charter or by-laws. To the best of such
counsel's knowledge, the Company is not in breach of or otherwise in default in
the performance of any material obligation, agreement or condition contained in
any bond, debenture, note, indenture, loan agreement or any other material
contract, lease or other instrument to which it is subject or by which any of
them may be bound, or to which any of the material property or assets of the
Company is subject.
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<PAGE> 21
(f) On each Closing Date, there shall have been
furnished to you, as Representatives of the Several Underwriters, the opinion
of Cooper & Dunham LLP, patent counsel to the Company, to the effect that they
serve as patent counsel to the Company with respect to specified aspects of the
Company's Intellectual Property, including the applications listed in Schedule
A hereto (the "Company Patent Applications"), and that:
(i) The statements in the Registration
Statement and Prospectus (x) under the caption "Risk Factors -- Uncertainty
Regarding Patents and Protection of Proprietary Technology" and (y) under the
caption "Business -- Patents and Proprietary Technology," insofar as such
statements constitute summaries of matters of law are accurate and complete
statements or summaries of the matters set forth therein.
(ii) To such counsel's knowledge, there are no
legal or governmental proceedings pending (other than patent applications
pending) relating to patents or Intellectual Property owned or used by the
Company, and to such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or others, except as set forth in the
Prospectus [and except for a letter received by the Company from E-Z-FM, Inc.]
(iii) Such counsel has no knowledge of any facts
which would preclude the Company from having valid license rights or clear
title to the Company Patent Applications. Based on representations by the
Company that no interests have been conveyed to third parties which have not
been recorded in the United States Patent and Trademark Office, the Company or
its licensors have clear record title to the Company Patents Applications. To
the best of such counsel's knowledge, the Company has complied with the PTO
duty of candor and disclosure for each of the Company Patent Applications. Such
counsel has no knowledge that the Company lacks or will be unable to obtain any
rights or licenses to use all Intellectual Property necessary to the conduct of
its business as now or proposed to be conducted by the Company as described in
the Prospectus, except as described in the Prospectus or as described in
Schedule A. Such counsel has no knowledge of any facts material to a
determination of patentability regarding the Company Patent Applications not
called to the attention of the PTO. Such counsel is unaware of any facts not
called to the attention of the PTO which would preclude the grant of a patent
for the Company Patent Applications. To the best of such counsel's knowledge[,
except for a letter received by the Company from E-Z-FM, Inc.], the Company has
not received any notice of infringement or of conflict with rights or claims of
others with respect to any Intellectual Property owned or used by it which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, could result in any material adverse effect upon the Company,
except as described in the Prospectus. Such counsel has no knowledge of any
patent rights of others which are or would be infringed by specific products or
processes referred to in the Prospectus in such a manner as to materially and
adversely affect the Company, except as described in the Prospectus.
In addition, such counsel shall state that although they have not
verified the accuracy or completeness of the statements contained in the
Prospectus, nothing has come to the attention of such counsel that caused them
to believe that, at the time the Registration Statement became
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<PAGE> 22
effective, or at the Closing Date or at any later date on which Option Shares
are purchased, as the case may be, the Prospectus (i) under the caption "Risk
Factors -- Uncertainty Regarding Patents and Protection of Proprietary
Technology; and (ii) under the caption "Business -- Patents and Proprietary
Technology" contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) On each Closing Date, there shall have been
furnished to you, as Representatives of the several Underwriters, such opinion
or opinions from, Testa, Hurwitz & Thibeault LLP, counsel for the several
Underwriters, dated such Closing Date and addressed to you, with respect to the
formation of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as you reasonably may
request, and such counsel shall have received such papers and information as
they request to enable them to pass upon such matters.
(h) On each Closing Date you, as Representatives of the
several Underwriters, shall have received a letter of Ernst & Young LLP, dated
such Closing Date and addressed to you, confirming that they are independent
public accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under
Rule 2-01 of Regulation S-X of the Commission, and stating, as of the date of
such letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the date of
such letter), the conclusions and findings of said firm with respect to the
financial information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
(i) On each Closing Date, there shall have been
furnished to you, as Representatives of the Underwriters, a certificate, dated
such Closing Date and addressed to you, signed by the chief executive officer
and by the chief financial officer of the Company, to the effect that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, in all material respects, as if
made at and as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued, and no
proceeding for that purpose has been instituted or, to the best of their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
(iii) The signers of said certificate have
carefully examined the Registration Statement and the Prospectus, and any
amendments thereof or supplements thereto, and (A) such documents contain all
statements and information required to be included therein,
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<PAGE> 23
the Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented, does not include
any untrue statement of material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (B) since the effective date of the
Registration Statement there has occurred no event required to be set forth in
an amended or supplemented prospectus which has not been so set forth, (C)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company has not incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock, and except as disclosed in the Prospectus, there has not been
any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company, or
any of its subsidiaries, or any Material Adverse Change, and (D) except as
stated in the Registration Statement and the Prospectus, there is not pending,
or, to the knowledge of the Company, threatened or contemplated, any action,
suit or proceeding to which the Company is a party before or by any court or
governmental agency, authority or body, or any arbitrator, which might result
in any Material Adverse Change.
(j) The Company shall have furnished to you and counsel
for the Underwriters such additional documents, certificates and evidence as
you or they may have reasonably requested.
(k) On each Closing Date, there shall have been
furnished to the several Underwriters, a certificate or certificates, dated
such Closing Date and addressed to you, signed by each of the Selling
Stockholders or an Attorney-in-Fact of such Selling Stockholder to the effect
that the representations and warranties of such Selling Stockholder contained
in this Agreement are true and correct as if made at and as of such Closing
Date, and that such Selling Stockholder has complied with all the agreements
and satisfied all the conditions on such Selling Stockholder's part to be
performed or satisfied at or prior to such Closing Date.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and
other documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise (including in settlement of any litigation if such
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<PAGE> 24
settlement is effected with the written consent of the Company, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto arise out
of or are based upon (i) any breach of any representation, warranty, agreement
or covenant of the Company contained herein, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, including the information deemed to be a part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A, if applicable,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action (a)
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you, or by any Underwriter through you, specifically for use in the
preparation thereof, or (b) results from the fact that a copy of the Prospectus
was not sent or given to such person at or prior the written confirmation of
the sale of such shares to such person as required by the Securities Act and if
the untrue statement or omission concerned has been corrected in the
Prospectus.
In addition to its other obligations under this Section 6(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 6(a), they will reimburse each Underwriter on a monthly basis for
all reasonable legal fees or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriter that received such payment shall promptly return it
to the party or parties that made such payment, together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by US TRUST (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agree to
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise (including in settlement of any litigation
if such settlement is effected with the written consent of the Selling
Stockholder, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto arise out of or are based upon (i) any breach of any
representation, warranty, agreement or
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<PAGE> 25
covenant of the Selling Stockholder contained herein, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, including the information deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A, if
applicable, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or such Underwriter by such Selling Stockholder,
specifically for use in the preparation thereof, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that the Selling Stockholder shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action (a) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof, or (b) results from the fact
that a copy of the Prospectus was not sent or given to such person at or prior
the written confirmation of the sale of such shares to such person as required
by the Securities Act and if the untrue statement or omission concerned has
been corrected in the Prospectus. The liability of each Selling Stockholder
under the representations, warranties, agreements or covenants contained herein
and under the indemnity agreements contained in this Section 6 shall be limited
to an amount no greater than the public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by
such Selling Stockholder. The Company and such Selling Stockholder may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible.
In addition to its other obligations under this Section 6(b), each
Selling Stockholder, severally and not jointly, agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 6(b), they will
reimburse each Underwriter on a monthly basis for all reasonable legal fees or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Selling Stockholder's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriter
that received such payment shall promptly return it to the party or parties
that made such payment, together with interest, compounded daily, determined on
the basis of the prime rate (or other commercial lending rate for borrowers of
the highest credit standing) announced from time to time by US TRUST (the
"Prime Rate"). Any such interim reimbursement payments which are not made to
-25-
<PAGE> 26
an Underwriter within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement shall be in addition to any liabilities which each Selling
Stockholder may otherwise have.
(c) Each Underwriter will indemnify and hold harmless
the Company against any losses, claims, damages or liabilities to which the
Company may become subject, under the Act or otherwise (including in settlement
of any litigation, if such settlement is effected with the written consent of
such Underwriter), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by you, or by such Underwriter through you,
specifically for use in the preparation thereof, and will reimburse the Company
for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending against any such loss, claim,
damage, liability or action.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation;
provided, however, that if, in the reasonable judgment of the Representatives,
it is advisable for the Underwriters to be represented as a group by separate
counsel, the Representatives shall have the right to employ a single counsel to
represent the Representatives and all Underwriters who may be subject to
liability arising from any claim in respect of which indemnity may be sought by
the Underwriters under subsection (a) or (b) of this Section 6, in which event
the reasonable fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties and reimbursed to the Underwriters as incurred
(in accordance with the provisions of the second paragraphs in subsection (a)
or (b) above). An indemnifying party shall not be obligated under any
settlement agreement relating to any action under this Section 6 to which it
has not agreed in writing.
-26-
<PAGE> 27
(e) If the indemnification provided for in this Section
6 is unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or
(c) above, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and Selling Stockholders on the one hand and the Underwriters on the
other in connection with any breach of representation, warranty, agreement or
covenant contained herein or the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company or Selling Stockholder
bears to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, a Selling Stockholder or the Underwriters
and the parties' relevant intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the first
sentence of this subsection (e). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the subject of
this subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and Selling
Stockholders under this Section 6 shall be in addition to any liability which
the Company or Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability that
the respective Underwriters may
-27-
<PAGE> 28
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named
in the Registration Statement as about to become a director of the Company), to
each officer of the Company, who has signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the Act
(g) The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented by counsel
during the negotiations regarding this Agreement, including, without
limitation, the provisions of this Section 6, and are fully informed regarding
this Agreement and such provisions. They further acknowledge and agree that the
provisions of this Section 6 fairly allocate the risks in light of the ability
of the parties to investigate the Company and its business in order to assure
that adequate disclosure is made in the Registration Statement and Prospectus
as required by the Act and Rules and Regulations.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall fail to
take up and pay for the amount of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Firm Shares in
accordance with the terms hereof, and the amount of Firm Shares not purchased
does not aggregate more than 10% of the total amount of Firm Shares set forth
in Schedule II hereto, the remaining Underwriters shall be obligated to take up
and pay for (in proportion to their respective underwriting obligations
hereunder as set forth in Schedule I hereto except as may otherwise be
determined by you) the Firm Shares that the withdrawing or defaulting
Underwriters agreed but failed to purchase.
(b) If any Underwriter or Underwriters shall fail to
take up and pay for the amount of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Firm Shares in
accordance with the terms hereof, and the amount of Firm Shares not purchased
aggregates more than 10% of the total amount of Firm Shares set forth in
Schedule I hereto, and arrangements satisfactory to you for the purchase of
such Firm Shares by other persons are not made within 36 hours thereafter, this
Agreement shall terminate. In the event of any such termination the Company
shall not be under any liability to any Underwriter (except to the extent
provided in Section 4(h) and Section 6 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the amount of Firm Shares agreed by
such Underwriter to be
-28-
<PAGE> 29
purchased hereunder) be under any liability to the Company (except to the
extent provided in Section 6 hereof).
(c) If Firm Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by any other party or parties,
the Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and another documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted Underwriter under this Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m.,
Minneapolis time, on the first full business day following the effective date
of the Registration Statement, or at such earlier time after the effective time
of the Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall
become effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to
securities dealers, whichever shall first occur. By giving notice as
hereinafter specified before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except that the provisions of Section 4(h) and Section 6 hereof shall at
all times be effective.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the First Closing Date, and
the option referred to in Section 3(b), if exercised, may be canceled at any
time prior to the Second Closing Date, if (i) the Company shall have failed,
refused or been unable, at or prior to such Closing Date, to perform any
agreement on its part to be performed hereunder, (ii) any other condition of
the Underwriters' obligations hereunder is not fulfilled, (iii) trading on the
New York Stock Exchange or the American Stock Exchange shall have been wholly
suspended, (iv) minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York Stock Exchange or the American Stock Exchange, by such Exchange or by
order of the Commission or any other governmental authority having
jurisdiction, (v) a banking moratorium shall have been declared by Federal, New
York or Georgia or Minneapolis authorities, or (vi) there has occurred any
material adverse change in the financial markets in the United States or an
outbreak of major hostilities (or an escalation thereof) in which the United
States is involved, a declaration of war by Congress, any other substantial
national or international calamity or any other event or occurrence of a
similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to
-29-
<PAGE> 30
any other party except that the provisions of Section 4(h) and Section 6 hereof
shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company shall be notified promptly by you by telephone or telegram, confirmed
by letter. If the Company elects to prevent this Agreement from becoming
effective, you shall be notified by the Company by-telephone or telegram,
confirmed by letter.
10. Default by the Company or One or More of the Selling
Stockholders.
(a) If the Company shall fail at the First Closing Date
to sell and deliver the number of Securities which it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the
part of any non-defaulting party .
(b) No action taken pursuant to this Section shall
relieve the Company so defaulting from liability, if any, in respect of such
default.
(c) If one or more of the Selling Stockholders shall
fail at the First Closing Date to sell and deliver the number of Securities
which such Selling Stockholder or Selling Stockholders are obligated to sell
hereunder, and the remaining Selling Stockholders do not exercise the right
hereby granted to increase, pro rata or otherwise, the number of Securities to
be sold by them hereunder to the total number of Securities to be sold by all
Selling Stockholders as set forth in Schedule I, then the Underwriters may at
your option, by notice from you to the Company and the non-defaulting Selling
Stockholders, either (a) terminate this Agreement without any liability an the
part of any non-defaulting party or (b) elect to purchase the Securities which
the Company and the non-defaulting Selling Stockholders have agreed to sell
hereunder.
In the event of a default by any Selling Stockholder as referred to in
this Section, either you or the Company shall have the right to postpone the
First Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
11. Information Furnished by Underwriters. The statements set
forth in the last paragraph of the cover page and under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitute
the written information furnished by or on behalf of the Underwriters referred
to in Section 2 and Section 6 hereof.
12. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to the Representatives
c/o Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402, except notices given to an Underwriter pursuant
to Section 6 hereof shall be sent to such Underwriter at the address stated in
the Underwriters' Questionnaire furnished by such Underwriter in connection
with this offering; if to the Company, shall be mailed, telegraphed or
delivered to it at 4350 International Boulevard, Suite C,
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<PAGE> 31
Norcrosse, Georgia 30093 Attention: Mr. Thomas Weldon; if to a Selling
Stockholder, shall be mailed, telegraphed or delivered to either _____________
or __________, as Attorney-in-Fact for the Selling Stockholders, at
_______________. Any notices given by telegram shall be promptly confirmed by
letter. Any party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new address for
such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal
or equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Securities
from any of the several Underwriters.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota.
[Remainder of Page Intentionally Left Blank]
-31-
<PAGE> 32
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
NOVOSTE CORPORATION
By:
-------------------------
Name:
Title:
SELLING STOCKHOLDERS
By:
-------------------------
Attorney-in-Fact
PIPER JAFFRAY INC.
COWEN & COMPANY
NATIONSBANC MONTGOMERY SECURITIES, INC.
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
By: PIPER JAFFRAY INC.
By:
---------------------------------
Managing Director
-32-
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Number of Option
Name Shares to be Sold Shares to be Sold
---- ----------------- -----------------
<S> <C> <C> <C>
The Company 1,600,000 170,000
Advanced Technology Ventures IV, L.P. 100,000 100,000
Charles E. Larsen 100,000 0
Noro-Moseley Partners III, L.P. 100,000 30,000
Thomas D. Weldon 100,000 0
--------- -------
TOTAL 2,000,000 300,000
</TABLE>
<PAGE> 34
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Underwriter Firm shares (1)
----------- ---------------
<S> <C> <C>
Piper Jaffray Inc.
Cowen & Company
NationsBanc Montgomery Securities, Inc.
Total. . . . . . . . . . . . . . . . . . . . . . 2,000,000
=========
</TABLE>
- ---------------------
(1) The Underwriters may purchase additional Option Shares, to the extent
the option described in Section 3 of the Agreement is exercised, in
the proportions and in the manner described in the Agreement.
-34-
<PAGE> 35
SCHEDULE A
Company Patent Applications
NOVOSTE CORPORATION
INTELLECTUAL PROPERTY PORTFOLIO
__________, 1997
[To be provided by the Company]
-35-
<PAGE> 1
EXHIBIT 1.2
NOVOSTE CORPORATION
SELLING STOCKHOLDER'S POWER OF ATTORNEY
AND CUSTODY AGREEMENT
Novoste Corporation
4350-C International Boulevard
Norcross, GA 30093
Novoste Corporation
4350-C International Boulevard
Norcross, GA 30093
Ladies and Gentlemen:
The undersigned understands that Novoste Corporation (the "Company")
will file a Registration Statement on Form S-3 (the "Registration Statement")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the proposed sale by the undersigned, the Company and certain
other stockholders of the Company (such holders, including the undersigned,
hereinafter referred to as the "Selling Stockholders") of shares of Common Stock
of the Company ("Common Stock") to certain underwriters (the "Underwriters")
represented by Piper Jaffray, Inc., Cowen & Company and Montgomery Securities
(the "Representatives"), who propose to offer such Common Stock to the public
(the "Offering"). The Company, Selling Stockholders and the Underwriters propose
to enter into a Purchase Agreement in connection with the Offering,
substantially in the form to be filed as an exhibit to the Registration
Statement (the "Purchase Agreement").
The shares of Common Stock the undersigned desires to sell (the
"Underwritten Shares") are set forth in Schedule I hereto ("Schedule I") and
either are: (i) - issued and outstanding shares of Common Stock held of record
by, and in the name of the undersigned; (ii) - shares of Common Stock issuable
upon exercise of outstanding options or warrants; or (iii) - a combination
thereof.
Concurrently with the execution and delivery of this Power of Attorney
and Custody Agreement, the undersigned is delivering to Novoste Corporation, as
custodian (the "Custodian") fully endorsed certificates and/or original stock
option and/or warrant agreement(s) with notice(s) of exercise for at least the
number of Underwritten Shares specified in Schedule I (except where such
certificates, and/or agreements and notice(s) previously have been delivered),
pursuant to the terms hereof.
<PAGE> 2
-2-
I. APPOINTMENT AND POWERS OF ATTORNEYS-IN-FACT.
1. In connection with the foregoing, the undersigned hereby makes,
constitutes and appoints ________________ and ________________, and each of them
or their successors or substitutes, the true and lawful attorneys-in-fact of the
undersigned (such persons, or either of them or their successors, hereinafter
referred to individually as an "Attorney-in-Fact" and collectively as the
"Attorneys-in-Fact") with respect to all matters arising in connection with the
sale of Securities by the Selling Stockholders to the Underwriters, including,
but not limited to, the full power and authority, in the name and on behalf of
the undersigned to take any and all of the following actions:
a. To sell, assign, transfer and deliver to the Underwriters
up to the number of Underwritten Shares set forth on Schedule I and
represented by certificate(s) (in negotiable and deliverable form with
signatures guaranteed by a bank or trust company or by a member firm of
the New York, Boston, Midwest, Pacific, Philadelphia or American Stock
Exchange or accompanied by a duly executed stock power or powers, in
blank, bearing the signature of the Selling Stockholder so guaranteed)
and/or original stock option and/or warrant agreements and notices of
exercise deposited with the Custodian at such purchase price per share
to be paid by the Underwriters that the Attorneys-in-Fact in the sole
discretion of either of them shall determine and agree to with the
Underwriters pursuant to the Purchase Agreement, which purchase price
shall be the same purchase price per share to be paid by the
Underwriters to the other Selling Stockholders and to the Company;
b. For the purpose of effecting such sale, (i) to execute and
deliver a Purchase Agreement (which agreement will contain, among other
things, provision for representations, warranties and covenants by the
Selling Stockholders) by and among the Company, the Selling
Stockholders and the Underwriters, substantially in the form attached
hereto as Exhibit A, with such additions thereto and changes therein as
the Attorneys-in-Fact in the sole discretion of either of them shall
determine not to be materially adverse to the Selling Stockholder and
approve (the "Purchase Agreement"), such approval to be conclusively
evidenced by the execution and delivery thereof by any of the
Attorneys-in-Fact and (ii) to carry out and comply with all of the
terms and conditions of the Purchase Agreement, including the making of
all representations and agreements provided for in the Purchase
Agreement to be made by and to exercise all authority vested in the
Selling Stockholder;
c. To endorse, transfer and deliver and/or authorize the
delivery of certificates for the Underwritten Shares to or on the order
of the Underwriters or to their nominee or nominees pursuant to the
Purchase Agreement, and to give such orders and instructions to the
Custodian as the Attorneys-in-Fact may in the sole discretion of either
of them determine with respect to: (i) the transfer on the books of the
Company of the Underwritten Shares to be sold by the undersigned in
order to effect such sale (including the names and denominations in
which new certificates for such shares are to be issued); (ii) the
delivery to or for the account of the Underwriters of the certificates
for such Underwritten Shares against receipt by the Custodian of the
purchase price to be paid therefore; (iii) the remittance to the
undersigned of the proceeds, less any discounts, commissions, fees and
expenses, all as hereinafter described, from any sale of Underwritten
Shares by the undersigned to the Underwriters; (iv) the return to the
undersigned of certificates representing the number of shares, if any,
of Common Stock received by the Custodian but not sold by the
undersigned
<PAGE> 3
-3-
to the Underwriters; (v) the return to the undersigned of original
stock option and/or warrant agreements and exercise notices with
respect to shares not sold by the undersigned to the Underwriters; (vi)
the receipt of any cash payable in lieu of any fractional shares; and
(vii) such other matters as shall be necessary or desirable to effect
the intent and purpose of the foregoing;
d. To retain Epstein, Becker & Green, P.C. as legal counsel in
connection with any and all matters referred to herein (it being
understood and agreed that Epstein, Becker & Green, P.C. also is acting
as counsel to the Company);
e. To instruct the Custodian as to the number of Underwritten
Shares to be sold by each Selling Stockholder (it being understood and
agreed to by the undersigned that the Custodian shall be entitled to
rely on the instructions from the Attorneys-in-Fact as to the purchase
price per share and the number of Underwritten Shares to be sold by
each Selling Stockholder; provided, that, the purchase price per share
shall be the same price paid by the Underwriters to the other Selling
Stockholders and the Company);
f. To make, execute, acknowledge and deliver all such other
contracts, powers of attorney, orders, receipts, notices, requests,
instructions, certificates, letters and other writings, including
without limitation, a request that the Registration Statement be made
effective, amendments to the Purchase Agreement, actions to facilitate
the qualification of the Underwritten Shares under the blue sky or
securities laws of the jurisdictions in which the Underwriters propose
to offer the Underwritten Shares, and generally to do all things and to
take all actions that the Attorneys-in-Fact in the sole discretion of
either of them may consider necessary or proper in connection with or
to carry out the sale of the Underwritten Shares to the Underwriters,
as fully as could the undersigned if personally present and acting;
g. To approve on behalf of the undersigned any amendments to
the Registration Statement or the Prospectus (as hereinafter defined)
and, if applicable, to advise the Securities and Exchange Commission
(the "Commission") on behalf of the undersigned that such person is
aware: (i) that the Commission's staff has made summary, cursory or no
review of the Registration Statement, as applicable; and (ii) that such
review or lack thereof may not be relied upon in any degree to indicate
that the Registration Statement is true, complete or accurate;
h. To make, acknowledge, verify and file on behalf of the
undersigned applications, consents to service of process and such other
undertakings or reports as may be required by law with state
commissioners or officers administering state blue sky or securities
laws; and
i. If necessary, to endorse (in blank or otherwise) the
certificate or certificates representing the Underwritten Shares to be
sold by the undersigned, or a stock power or powers attached to such
certificate or certificates.
2. This Power of Attorney and all authority conferred hereby is granted
and conferred subject to and in consideration of the interests of the Company,
the Underwriters and the other Selling Stockholders who may become parties to
the Purchase Agreement, and, for the purposes of
<PAGE> 4
-4-
completing the transactions contemplated by the Purchase Agreement and this
Power of Attorney, this Power of Attorney and all authority conferred hereby
shall be irrevocable and shall not be terminated by any act of the undersigned
or by operation of law, whether by the death or incapacity of the undersigned
(or either or any of them) or by the occurrence of any other event or events
(including, without limiting the foregoing, the death or incapacity of any
executor or trustee or the termination of any trust or estate for which the
undersigned is acting as a fiduciary or fiduciaries or, in the case of a
partnership, limited liability company or corporation, by the dissolution of
such partnership, limited liability company or corporation), and if after the
execution hereof the undersigned (or either or any of them) shall die or become
incapacitated, or if any such trust or estate is terminated, or if any such
partnership, limited liability company or corporation dissolved, or if any other
such event or events occur before the completion of the transactions
contemplated by the Purchase Agreement and this Power of Attorney, the
Attorneys-in-Fact nevertheless shall be authorized and directed to complete all
such transactions as if such death, incapacity or other event or events had not
occurred and regardless of notice thereof.
Notwithstanding the foregoing, if the Purchase Agreement shall not be
entered into prior to November 30, 1997 or otherwise terminated pursuant to the
provisions thereof, then from and after such date the undersigned shall have the
power to revoke all authority hereby conferred by giving written notice to the
Attorneys-in-Fact and the Custodian that this Power of Attorney has been
terminated. Any such termination shall be subject to all lawful action done or
performed by the Attorneys-in-Fact pursuant to this Power of Attorney prior to
actual receipt of such notice.
3. Each of the Attorneys-in-Fact shall have full power to make and
substitute any Attorney-in-Fact in his place and stead, and the undersigned
hereby ratifies and confirms all that the Attorneys-in-Fact or substitute or
substitutes shall do by virtue of these presents. All actions hereunder may be
taken by any one of the persons named herein as Attorneys-in-Fact or his
substitute. In the event of the death or incapacity of any Attorneys-in-Fact,
the remaining Attorneys-in-Fact may appoint a substitute therefor. The term
"Attorneys-in-Fact" as used herein shall include their respective substitutes.
II. CUSTODY AGREEMENT
1. The Selling Stockholder hereby transmits to the Custodian a
certificate or certificates (the "Certificates") representing Common Stock,
and/or original stock option and/or warrant agreements for the purchase of
Common Stock and notices of exercise therefor of the Company, together with (i)
stock powers from the owners of each of the Certificates with signatures
guaranteed by a bank or trust company or by a member firm of the New York,
Boston, Midwest, Pacific, Philadelphia or American Stock Exchange, representing
not less than the number of shares of Common Stock set forth on Schedule I
hereto, and (ii) additional documentation required to effectuate or confirm
compliance with any of the provisions hereof or of the Purchase Agreement. The
Certificates (x) are to be held by you as Custodian for the account of the
Selling Stockholders, and (y) are to be disposed of by you in accordance with
this Custody Agreement.
2. The Custodian is hereby authorized and directed to hold the
Certificates in its custody and (i) on or immediately prior to the date on which
the Underwritten Shares are purchased pursuant to the Purchase Agreement (the
"Closing Date"), to cause the number of Underwritten Shares to be transferred on
the books of the Company into such names as the Attorneys-in-Fact shall
<PAGE> 5
-5-
have instructed the Custodian prior to the Closing Date, and to cause to be
issued, against surrender of the Certificates representing such shares, new
certificates for such shares registered in such names and in such denominations
as Attorneys-in-Fact shall have instructed the Custodian prior to the Closing
Date, and upon the instructions of either Attorney-in-Fact, to deliver such new
certificates to the Representative for the accounts of the several Underwriters
pursuant to the Purchase Agreement, against payment for such shares in such
amount as either Attorney-in-Fact shall certify to the Custodian, and to give
receipt for such payment and to deposit the same to the Custodian's account as
Custodian, and (ii) when instructed by either Attorney-in-Fact to do so, the
Custodian is to remit to each of the Selling Stockholders the amount received by
it as payment for such shares, less any discounts and commissions, applicable
fees and expenses (the "Net Proceeds") which discounts and commissions, fees and
expenses the Custodian is hereby authorized to pay for the account of the
Selling Stockholders.
3. As instructed by either Attorney-in-Fact promptly after the Closing
Date, the Custodian shall return to each of the Selling Stockholders the Net
Proceeds and certificates and/or stock option and/or warrant agreements and
notices of exercise representing the number of Underwritten Shares of such
Selling Stockholder's Common Stock (if any) held by the Custodian that are in
excess of the number of Underwritten Shares sold by such Selling Stockholder
pursuant to the Purchase Agreement.
4. If the Purchase Agreement shall not be entered into on behalf of the
Selling Stockholders prior to November 30, 1997 or shall be terminated pursuant
to the provisions thereof, then, unless the Custodian shall receive instructions
to the contrary from the Attorney-in-Fact, on or after that date the Custodian
is to return to the undersigned the Certificates deposited with the Custodian,
together with the stock powers delivered therewith.
5. The authority granted to and conferred on the Custodian hereunder is
subject to and in consideration of the interest of the Company, the Underwriters
and the other Selling Stockholders who may become parties to the Purchase
Agreement. Accordingly, the authority granted hereunder and thereunder is an
agency coupled with an interest and is irrevocable and not subject to
termination by operation of law, whether by death or incapacity, by the
dissolution or liquidation of any corporation, limited liability company or
partnership, or by the occurrence of any other event or events (including,
without limiting the foregoing, the termination of any trust or estate for which
one or more of the Selling Stockholders is or are acting as a fiduciary or
fiduciaries). The Certificates deposited with the Custodian and this Power of
Attorney and Custody Agreement and the Custodian's authority hereunder, are
subject to such interest, and this Power of Attorney and Custody Agreement and
the Custodian's authority hereunder are similarly irrevocable by the undersigned
or any Selling Stockholder and shall not be subject to termination in any such
event. Notwithstanding the death or incapacity of any Selling Stockholder, the
dissolution or liquidation of any Selling Stockholder or any such other event or
events, the Custodian is nevertheless authorized and directed to deal with the
Certificates deposited hereunder in accordance with the terms and conditions
hereof, as if such death, incapacity, dissolution, liquidation or other event or
events had not occurred, regardless of whether or not the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event or events.
6. Until the purchase price for the shares of Common Stock sold by each
of the Selling Stockholders pursuant to the Purchase Agreement has been paid to
the Custodian by or for the
<PAGE> 6
-6-
account of the Underwriters, such Selling Stockholder shall remain the owner of
such shares as are outstanding and shall have the right to vote such shares and
all other outstanding shares (if any) represented by the Certificates deposited
with the Custodian and to receive all dividends and distributions thereon.
III. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLING STOCKHOLDER.
The undersigned Selling Stockholder hereby represents, warrants to and
agrees with the Attorneys-in-Fact, the Company and the Underwriters that:
1. The undersigned now has and on the Closing Date (as defined in the
Purchase Agreement), and on any later date on which Option Shares (as defined in
the Purchase Agreement) are purchased, will have valid, marketable title to the
Underwritten Shares free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to the Purchase
Agreement; the undersigned has full right, power and authority to sell, assign,
transfer and deliver the Underwritten Shares pursuant to the Purchase Agreement;
and upon delivery of such Underwritten Shares and payment of the purchase price
as therein contemplated, each of the Underwriters will obtain valid, marketable
title to the Underwritten Shares purchased by it free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, including any liability for estate or inheritance taxes, or any liability
to or claims of any creditor, devisee, legatee or beneficiary of the
undersigned;
2. The undersigned has duly authorized (if applicable), executed and
delivered, in the form heretofore furnished to the Representatives, a Power of
Attorney and Custody Agreement appointing ________________ and ________________
as Attorneys-in-Fact and the Company as the Custodian; the Power of Attorney and
Custody Agreement constitutes a valid and binding agreement of the undersigned,
enforceable in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; and each of the undersigned's Attorneys-in-Fact, acting
alone, is authorized to execute and deliver the Purchase Agreement and
certificate referred to thereunder on behalf of the undersigned, to determine,
subject to Article I, Section 1(e) hereof, the purchase price to be paid by the
several Underwriters to the undersigned as provided in Section 3 of the Purchase
Agreement, to authorize the delivery of the Underwritten Shares under the
Purchase Agreement and to duly endorse (in blank or otherwise) the certificate
or certificates representing such Underwritten Shares or a stock power or powers
with respect thereto, to accept payment therefor, and otherwise to act on behalf
of the undersigned in connection with the Purchase Agreement. Certificates in
negotiable form for all Underwritten Shares, together with a stock power or
powers duly endorsed in blank by the undersigned, have been placed in custody
with the Custodian for the purpose of effecting delivery pursuant to the
Purchase Agreement;
3. All authorizations, approvals, consents and orders necessary for the
execution and delivery by the undersigned of the Power of Attorney and Custody
Agreement, the execution and delivery by or on behalf of the undersigned of the
Purchase Agreement and the sale and delivery of the Underwritten Shares under
the Purchase Agreement (other than, at the time of the execution hereof if the
Registration Statement has not yet been declared effective by the Commission,
the issuance of the order of the Commission declaring the Registration Statement
effective and such
<PAGE> 7
-7-
authorizations, approvals or consents as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; the undersigned, if other than a natural person, has been duly organized
and is validly existing and in good standing under the laws of the jurisdiction
of its organization as the type of entity that it purports to be; and the
undersigned has full right, power and authority to enter into and perform its
obligations under the Purchase Agreement and the Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Underwritten Shares
pursuant to the Purchase Agreement;
4. The Purchase Agreement when executed by either Attorney-in-Fact on
behalf of the undersigned will be duly authorized by the undersigned if the
undersigned is not a natural person and will have been duly executed and
delivered by or on behalf of the undersigned and is a valid and binding
agreement of the undersigned, enforceable in accordance with its terms, except
as the indemnification and contribution provisions thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of the Purchase Agreement and the consummation
of the transactions therein contemplated will not result in a breach of or
default under any material bond, debenture, note or other evidence of
indebtedness, or any material contract, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the undersigned is a
party or by which the undersigned or any Underwritten Shares may be bound or, to
the best of the undersigned's knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body or, if the undersigned is other than a natural person, result in
any violation of any provisions of the charter, by-laws or other organizational
documents of the undersigned;
5. The undersigned has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Underwritten Shares;
6. Such Selling Stockholder has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Underwritten Shares, other than a preliminary prospectus or a final
prospectus;
7. All information furnished by the undersigned relating to the
undersigned and the Underwritten Shares that is contained in the representations
and warranties of the undersigned in this Power of Attorney and Custody
Agreement or set forth in the Registration Statement and the Prospectus (as
defined in the Purchase Agreement) is and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date, and on any later date on which Option
Shares are to be purchased, was or will be, true, correct and complete, and does
not, and at the time the Registration Statement became or becomes, as the case
may be, effective and at all times subsequent thereto up to and on the Closing
Date and on any later date on which Option Shares are to be purchased, will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading;
<PAGE> 8
-8-
8. The undersigned will review the Prospectus and will comply with all
agreements and satisfy all conditions on its part to be complied with or
satisfied pursuant to the Purchase Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purchased, as the case may be,
and will advise one of its Attorneys-in-Fact and Piper Jaffray Inc. prior to the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, if any statement to be made on behalf of such Selling
Stockholder in any certificate contemplated by the Purchase Agreement would be
inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be;
9. The undersigned is not aware (without having conducted any
investigation or inquiry) that any of the representations and warranties of the
Company set forth in Section 2(a) of the Purchase Agreement is untrue or
inaccurate in any material respect;
10. The undersigned does not have, or has waived prior to the date
hereof, any preemptive right, co-sale right or right of first refusal or other
similar right to purchase any of the shares of Common Stock that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to the Purchase Agreement; and the undersigned does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus;
11. The undersigned will pay or cause to be paid, in addition to the
underwriting commission or discount (i) all costs and expenses incident to the
performance of the undersigned's obligations pursuant to the Purchase Agreement
that are not otherwise specifically provided for in this section, including: (x)
any fees and expenses of counsel for the undersigned who is not also counsel to
the Company; and (y) all expenses and taxes incident to the sale and delivery of
the shares by the undersigned to the Underwriters pursuant to the Purchase
Agreement; and (ii) any fees, disbursements, and expenses described in Section 4
of the Purchase Agreement that result from the inclusion of the shares held by
the Selling Stockholder in the shares being registered and sold to the
Underwriters pursuant to the Purchase Agreement, which fees, disbursements and
expenses are determined by resolution of the Board of Directors of the Company
to be attributable solely to that Selling Stockholder alone and not to
constitute a normal cost or expense of the registration and sale of all shares.
The undersigned authorizes the Custodian to withhold and pay from the proceeds
from the sale of Underwritten Shares for the account of the undersigned, upon
instruction from the Attorneys-in-Fact, all of the foregoing expenses,
disbursements and fees;
12. The undersigned has carefully reviewed the Purchase Agreement
including the proposed form of representations, warranties, statements and
agreements to be made by the undersigned as a Selling Stockholder pursuant
thereto, and including, without limitation, those contained in Section 2(b) of
the Purchase Agreement and the indemnity and contribution agreements contained
in Sections 6 of the Purchase Agreement, and does hereby represent, warrant and
agree that: (i) such representations, warranties, statements and agreements
insofar as they relate to the undersigned are true and correct as of the date
hereof and will be true and correct at all times through the Closing Date and
any later date on which Option Shares are to be purchased under the Purchase
Agreement; and (ii) such agreements, insofar as they relate to the undersigned,
have been complied with as of the date hereof and will be complied with on and
after the Closing Date and any later date on which Option Shares are to be
purchased;
<PAGE> 9
-9-
13. Upon request of the Attorneys-in-Fact, Epstein, Becker & Green,
P.C. or the Representatives or their counsel, the undersigned, if a partnership,
corporation, limited liability company, custodian, trustee and/or guardian, will
supply the Attorneys-in-Fact with all documentation demonstrating authority of
the undersigned to enter into and be bound by this Power of Attorney and Custody
Agreement (e.g., appropriate corporate resolutions, by-laws and charter
documents; partnership agreements; articles of organization; operating
agreements; trust agreements; etc.);
14. Upon request of the Attorneys-in-Fact, Epstein, Becker & Green,
P.C., or the Representatives or their counsel, the undersigned will supply the
Underwriters with an opinion of counsel for the undersigned to the effect set
forth in Section 5(d) of the Purchase Agreement; and
15. The information regarding the Selling Stockholder set forth in
Schedule I to this Power of Attorney and Custody Agreement is true and correct
as of the date hereof and shall be true and correct at all times through the
Closing Date (taking into account any sale of shares to the Underwriters
pursuant to the Purchase Agreement prior to such Closing Date) and through any
later date on which Option Shares are to be purchased;
16. The representations, warranties and agreements of the undersigned
in this Power of Attorney and Custody Agreement and those of the undersigned
contained in the Purchase Agreement, are made for the benefit of, and may be
relied upon by, the other Selling Stockholders, the Attorneys-in-Fact, the
Company and its counsel, the Underwriters and their Representatives, agents and
counsel and the Custodian.
17. The Undersigned will furnish to the Representatives a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by the Treasury Department regulations in
lieu thereof), in order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983, prior to
the Closing Date.
IV. GENERAL
1. The Attorneys-in-Fact and the Custodian shall be entitled to act and
rely upon any statement, request, notice or instruction respecting this Power of
Attorney and Custody Agreement, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information therein contained; provided, however, that any statement or notice
to the Attorneys-in-Fact and the Custodian with respect to the Closing Date
under the Purchase Agreement or with respect to the noneffectiveness or
termination of the Purchase Agreement, or advice that the Purchase Agreement has
not been executed and delivered, shall have been confirmed in writing to the
Attorneys-in-Fact and the Custodian by the Representatives.
2. It is understood that the Attorneys-in-Fact and the Custodian assume
no responsibility or liability to any person other than to deal with the
Certificates deposited with the Custodian and the proceeds from the sale of
securities represented thereby in accordance with the provisions hereof. The
Attorneys-in-Fact and the Custodian, in their capacities as the Attorneys-in-
<PAGE> 10
-10-
Fact and Custodian make no representations with respect to and shall have no
responsibility for the Registration Statement or the Prospectus nor, except as
herein expressly provided, for any aspect of the offering of Common Stock, and
the Attorneys-in-Fact and the Custodian shall not be liable for any error of
judgment or for any act done or omitted or for any mistake of fact or law except
for his or its own gross negligence or bad faith. Each of the Selling
Stockholders agrees to indemnify the Attorneys-in-Fact and the Custodian for and
to hold the Attorneys-in-Fact and the Custodian harmless against any loss,
liability or expense incurred on his or its part arising out of or in connection
with his or its acting as Attorneys-in-Fact or Custodian under this Power of
Attorney and Custody Agreement, as well as the cost and expenses of defending
against any claim of liability in the premises, and not due to the gross
negligence or bad faith of such Attorneys-in-Fact and Custodian, as the case may
be. The undersigned agrees that the Attorneys-in-Fact and Custodian may consult
with counsel of his or its choice (who may be counsel for the Company) and the
Attorneys-in-Fact and Custodian shall have full and complete authorization and
protection for any action taken or suffered by him or it hereunder in good faith
and in accordance with the opinion of such counsel. It is understood that the
Attorneys-in-Fact may, without breaching any express or implied obligation to
the undersigned hereunder, release, amend or modify any other Power of Attorney
and Custody Agreement granted by any other Selling Stockholder; provided that
such release, amendment or modification would not have an adverse effect on the
undersigned.
3. In case any provision of this Power of Attorney and Custody
Agreement shall be invalid, illegal or otherwise unenforceable, the validity,
legality and enforceability of the remaining provisions shall in no way be
affected or impaired thereby.
4. This Power of Attorney and Custody Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties hereto and delivered to each of the other parties
hereto. This Power of Attorney and Custody Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof.
5. Notices, if any, under this Power of Attorney and Custody Agreement
shall be addressed to the Selling Stockholder at its address set forth in the
share records of the Company, unless the Selling Stockholder shall in writing
request a different address. Notices to the Custodian or the Attorneys-in-Fact
may be addressed to the first address written above.
6. This Power of Attorney and Custody Agreement shall be binding upon
the Selling Stockholder and his, her or its personal representative, successors
and assigns, as the case may be.
7. It is understood that the Attorneys-in-Fact and Custodian shall
serve entirely without compensation.
8. This Power of Attorney and Custody Agreement shall be governed by
the laws of the State of Delaware.
[Signature page follows immediately]
<PAGE> 11
-11-
The undersigned hereby executes the foregoing Power of Attorney and
Custody Agreement.
Dated:_____________________, 1997
Very truly yours,
___________________________________________*
___________________________________________*
Signature(s) of Selling Stockholder(s)
___________________________________________*
___________________________________________*
Signature(s) guaranteed:** Name(s) and titles(s) if applicable of
Selling Stockholders
______________________________ (Please print)
______________________________ ___________________________________________*
Number of Shares you propose to sell
* To be signed in exactly the same manner as the certificate(s) are registered.
** The signature(s) must be guaranteed by an eligible guarantor under a
medallion signature guarantee program (including a national bank or trust
company or a member firm of the New York, American, Boston, Midwest, Pacific or
Philadelphia stock exchange).
<PAGE> 12
-12-
ACCEPTANCE BY CUSTODIAN
Novoste Corporation, named as Custodian in the foregoing Power of
Attorney and Custody Agreement, hereby acknowledges receipt of the stock
certificates and/or stock option and/or warrant agreements in the form
hereinabove described and agrees to act in accordance with this Power of
Attorney and Custody Agreement.
NOVOSTE CORPORATION
By:_________________________________________
Name:
Title:
Dated:______________, 1997
<PAGE> 13
EXHIBIT A
Purchase Agreement
<PAGE> 14
SCHEDULE I
<TABLE>
<CAPTION>
NAME NUMBER OF FIRM SHARES NUMBER OF OPTION
TO BE SOLD SHARES TO BE SOLD
<S> <C> <C>
Thomas D. Weldon 100,000 -- 0 --
Charles E. Larson 100,000 -- 0 --
Advanced Technology Ventures IV, L.P. 100,000 100,000
Noro-Mosely Partners III, L.P. 100,000 30,000
</TABLE>
<PAGE> 1
EXHIBIT 10.13
MEMORANDUM OF UNDERSTANDING
Today's discussion between Charlie, David, Jurgen, and Andreas lead to the
following conclusions:
1. Free-Standing-Facility Issue
----------------------------
The issue is resolved. BEBIG will continue to create and Novoste will
continue to fund a capacity for the production of at least * trains per
year. Novoste understands that this capacity can not be created in a
stand-alone-facility, but in a separate part of a room in the BEBIG
production facility.
2. Payments and Deliveries for the 1997 * train order
--------------------------------------------------
a) Delivery Schedule:
* trains until end of week 22
* trains until end of week 32
* trains until end of week 47
BEBIG understands that Novoste strongly prefers:
(1) a more detailed delivery schedule,
(2) a continuous delivery stream, and
(3) a quicker delivery of the * trains already ordered
BEBIG will try to address these issues once it had a chance to
evaluate it's experience from the production of the first batches.
b) Payment Schedule:
To resolve the dispute about the payment dates and the container cost for
the * train order, both parties agreed to cancel the outstanding BEBIG
invoices #970044 and #870066 and to apply from now on a different price and
payment formula of a flat ex-work rate of * US$ per train including
redistribution packaging (inner and outer container), billable and to be
paid upon shipment of the trains.
3. Development Cost
----------------
Upon delivery of the first * trains Novoste will test the specification of
the trains within one week and then pay to BEBIG 647,000 DM for outstanding
net development cost. Once BEBIG has given proof of it's capacity to
manufacture * trains/year (by, for example, shipping * trains by March 31st,
1998), Novoste will pay the remaining net development cost of 737,000 DM.
The payment is due after the testing of the trains, which will be completed
one week after delivery.
Details of the form of payment are to be worked out between David and
Andreas.
*Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE> 2
4. Purchase Order for * additional trains
--------------------------------------
Within the next days, Novoste will give a purchase order to BEBIG for
the production of an additional * trains at an ex-work price of * US$
per train (packaging will be charged extra). The purchase order may be
made contingent upon the timely delivery of * trains in 1997 per the
schedule at 2a above and their meeting specification.
5. Distribution
------------
In June of 1997 BEBIG will revisit Novoste for a discussion about a
role in the distribution of the radioisotopes outside the United States
and a possible, politically advantageous participation of local
cardiological centers in European clinical trials.
6. Disposal of Trains
------------------
Novoste currently anticipates that a train can be used in a hospital
for not more than 12 months. Novoste will return used trains to BEBIG
for disposal or recycling and will not give used trains to any other
party.
7. Miscellaneous
-------------
The original contracts remain in full force, except for the changes
made in this memorandum.
Berlin, 1 April 1997 Norcoss, GA 23 April 1997
/s/ A. Eckert /s/ David N. Gill
* Denotes confidential portions of this agreement that have been omitted and
filed separately with the Securities and Exchange Commission.
