<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1996
REGISTRATION NO. 333-5425
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRI-POINT MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3841 56-1959623
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL CLASSIFICATION EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
5265 CAPITAL BOULEVARD
RALEIGH, NC 27616
(919) 876-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT V. TONI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRI-POINT MEDICAL CORPORATION
5265 CAPITAL BOULEVARD
RALEIGH, NC 27616
(919) 876-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DEBRA J. POUL DAVID J. BEVERIDGE
MORGAN, LEWIS & BOCKIUS LLP SHEARMAN & STERLING
2000 ONE LOGAN SQUARE 599 LEXINGTON AVENUE
PHILADELPHIA, PA 19103 NEW YORK, NY 10022
(215) 963-5000 (212) 848-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
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. [_]
----------------
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
==============================================================================
<PAGE>
TRI-POINT MEDICAL CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-1 LOCATION IN PROSPECTUS
----------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus... Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front Cover Page of Prospectus;
Additional Information; Reports to Security
Holders; Outside Back Cover Page of
Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges.. Prospectus Summary; Risk Factors
4. Use of Proceeds............. Use of Proceeds
5. Determination of Offering
Price...................... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Principal and Selling Stockholders
8. Plan of Distribution........ Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to
be Registered.............. Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Not Applicable
11. Information with Respect to
the Registrant
a. Description of Business.. Business
b. Description of Property.. Business
c. Legal Proceedings........ Business
d. Market Price of and
Dividends on the
Registrant's Common
Equity and Related
Stockholder Matters..... Outside Front Cover Page of Prospectus;
Dividend Policy; Prior Partnership Status;
Shares Eligible for Future Sale
e. Financial Statements..... Financial Statements
f. Selected Financial Data.. Selected Financial Data
g. Supplementary Financial
Information............. Not Applicable
h. Management's Discussion
and Analysis of Financial
Condition and Results of
Operations.............. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i. Changes in and
Disagreements with
Accountants on Accounting
and Financial
Disclosure.............. Not Applicable
j. Directors, Executive
Officers and Control
Persons................. Management
k. Executive Compensation... Management
l. Security Ownership of
Certain Beneficial Owners
and Management.......... Principal and Selling Stockholders
m. Certain Relationships and
Related Transactions.... Certain Transactions
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 , 1996
PROSPECTUS
SHARES
[LOGO OF TRI-POINT MEDICAL
CORPORATION APPEARS HERE]
TRI-POINT MEDICAL CORPORATION
COMMON STOCK
------------
Of the shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, shares are being offered by Tri-
Point Medical Corporation ("Tri-Point" or the "Company") and shares are
being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to notice of issuance, under the symbol "TPMC."
------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------
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>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $725,000 payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to additional shares of Common Stock
on the same terms and conditions as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
------------
LEHMAN BROTHERS SANDS BROTHERS & CO., LTD.
, 1996
<PAGE>
TRAUMASEAL(TM) TraumaSeal(TM) will not be
commercially available in the U.S.
until FDA approval is received.
There is no assurance of such
approval.
NO NEEDLES [PHOTO OF LACERATION PRIOR
[PHOTO OF CHILD AND SYRINGE] TO APPLICATION]
Actual Laceration: Prior to
TraumaSeal application.
NO TRAUMA [PHOTO OF TRAUMASEAL [PHOTO OF APPLICATOR
[PHOTO OF CHILD WITH NURSE] APPLICATION TO LACERATION) FOR TRAUMASEAL]
Actual Laceration: After TraumaSeal
is applied.
NO SUTURES [PHOTO OF LACERATION AFTER TWO WEEKS]
[PHOTO OF SUTURES]
Needles, sutures and various medical
supplies depicted are not products After Two Weeks: The laceration
of the Company. shows healing with minimal scarring.
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 MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. See "Risk Factors" for a
discussion of certain risks associated with an investment in the Common Stock.
References in this Prospectus to the Company or Tri-Point also include, unless
the context requires otherwise, Tri-Point's predecessor, Tri-Point Medical L.P.
(the "Partnership"). Unless otherwise indicated, all information presented in
this Prospectus (i) is adjusted to give effect to an exchange (the "Exchange")
pursuant to which obligations of and interests in the Partnership will be
exchanged for shares of Common Stock and (ii) assumes the Underwriters have not
exercised the over-allotment option. The Exchange will occur contemporaneously
with the Offering. "Octyldent" and "Nexaband" are federally registered
trademarks of the Company. "TraumaSeal," "Nexacryl," "Nexaband S/C" and
"Nexaband QuickSeal" are trademarks of the Company. All other trade names and
trademarks appearing in this Prospectus are the property of their respective
holders.
THE COMPANY
Tri-Point develops, commercializes and manufactures medical adhesive products
based on its proprietary cyanoacrylate technology. The Company's medical
adhesives can be used to close and seal wounds and incisions rapidly and stop
leakage of blood and other body fluids from injured tissue. The Company's
nonabsorbable products can be used to replace sutures and staples for certain
topical wound closure applications, while the Company's absorbable products can
potentially be used as surgical sealants and surgical adhesives for internal
wound closure and management. Tri-Point's medical adhesive products align
injured tissue without the trauma caused by suturing or stapling and allow
natural healing to proceed. In addition, Tri-Point believes that its medical
adhesive products result in lower overall procedure costs and are easier and
quicker to prepare and use than sutures or staples. The worldwide market for
sutures and staples for topical and internal applications is currently
estimated to be $2.6 billion annually, and the Company expects that it will
compete for a portion of this market.
The Company has three products for human use and has a product line for
veterinary uses, which are described below:
TraumaSeal is a topical adhesive used to close wounds from
skin lacerations and incisions. Human clinical trials for
TraumaSeal commenced in the United States in February 1996
and are expected to be completed by late 1996. TraumaSeal may
be marketed in Canada and product launch is expected in early
1997. The Company has entered into a marketing agreement with
Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson & Johnson,
for exclusive worldwide marketing and distribution of
TraumaSeal.
Octyldent is a topical sealant currently used in conjunction
with Actisite(R), a site-specific drug delivery system
manufactured by ALZA Corporation ("ALZA"), to treat adult
periodontal disease. Octyldent received 510(k) clearance
("510(k)") from the U.S. Food and Drug Administration (the
"FDA") in 1990 and is marketed with Actisite(R) in the United
States by Procter & Gamble/ALZA, Partners for Oral Health
Care (the "Procter & Gamble/ALZA Partnership") and outside
the United States by ALZA.
Nexacryl is a topical sealant to be used in the repair of
corneal ulcers and lacerations. The Company received an FDA
approvable letter for Nexacryl in January 1996. If approved,
the Company believes Nexacryl will be the first cyanoacrylate
adhesive product to receive premarket approval ("PMA") from
the FDA. The Company has entered into a marketing agreement
with Chiron Vision Corporation ("Chiron") for exclusive
worldwide marketing and distribution of Nexacryl.
Nexaband is a product line of five topical adhesives
currently used in veterinary wound closure and management.
Nexaband products have been marketed by Farnam Companies,
Inc. ("Farnam") since 1993.
Tri-Point is also developing absorbable products for internal applications.
The Company has development programs for surgical sealants to be used to
control post-surgical leakage from cardiovascular graft, cardiovascular bypass
and bowel resection procedures and for surgical adhesives to be used to close
internal surgical incisions and traumatic wounds. These future products require
further development, clinical trials and regulatory clearance or approval prior
to commercialization.
3
<PAGE>
Tri-Point's medical adhesive products are based on its proprietary
cyanoacrylate technology. Cyanoacrylates are a family of liquid monomers that
react under a variety of conditions to form polymer films with strong adhesive
properties. Using its technology, Tri-Point has overcome several obstacles to
regulatory approval, including demonstrating that cyanoacrylates are safe for
human use. The Company's ability to manufacture highly purified base material
allows Tri-Point to satisfy toxicity tests and, the Company believes, to meet
biocompatability standards. Tri-Point has also developed novel assays to
demonstrate sterility. In addition, Tri-Point has patented a "scavenger"
process that permits degradation of cyanoacrylates without a cytotoxic
reaction, enabling the Company to develop absorbable formulations for internal
applications. Tri-Point's technology allows it to customize the physical and
chemical properties of cyanoacrylates to meet specific market needs. For
example, different formulations of TraumaSeal may be developed to have varied
setting times or higher viscosity to enhance ease of use. Tri-Point's products
perform consistently and reproducibly, do not require special preparation or
refrigeration and have shelf-lives of 18 to 24 months. Tri-Point has also
developed delivery technology to enhance the utility of its products. The
Company's TraumaSeal applicator contains a catalyst that controls the
polymerization process and allows the adhesive film to be applied in multiple
layers, which enhances bond strength. The Company is building a strong
portfolio of patent and trade secret protection on its cyanoacrylate
technology, delivery technology and manufacturing processes. The Company has
seven U.S. patents with expiration dates ranging from 2004 to 2013 and has
filed applications for seven additional U.S. patents, as well as certain
corresponding patent applications outside the United States.
The Company's objective is to become the leader in the medical adhesive
market by capitalizing on its proprietary cyanoacrylate technology. The
Company's strategy is to focus initially on commercializing and launching
topical adhesive products based on its nonabsorbable formulations. Initial
target markets are topical wound closure in emergency rooms and operating rooms
and for plastic surgery procedures. The Company is also pursuing the
development and commercialization of absorbable formulations. The Company
intends to implement its strategy by (i) expanding its research and development
activities, (ii) seeking rapid regulatory approval by targeting product
applications classified as medical devices, (iii) expanding manufacturing
capacity by adding facilities, equipment and personnel and continuing to
research processes to improve manufacturing capacity and efficiency and (iv)
establishing marketing partnerships with recognized market leaders for
marketing and distribution of its products.
The Company's executive offices are located at 5265 Capital Boulevard,
Raleigh, North Carolina 27616, and its telephone number is (919) 876-7800.
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk,
including but not limited to the Company's history of operating losses and
accumulated deficit; early stage of product commercialization; dependence on
new products and technologies; uncertainty of market acceptance of its
products; uncertainty of results of clinical trials for TraumaSeal; dependence
on marketing partners; potential adverse effect of competition and
technological change; limited manufacturing experience; dependence on a sole
source supplier; dependence on patents, trade secrets and proprietary rights;
effects of FDA and other government regulation; effects of international sales;
future capital needs and uncertainty of additional financing; dependence upon
key personnel; product liability exposure and potential unavailability of
insurance; control by existing stockholders; anti-takeover provisions; broad
discretion in application of proceeds; no prior public market for the Common
Stock; volatility of the Common Stock price; substantial number of shares
eligible for future sale; substantial registration rights; potential adverse
impact on future market price from sales of shares; adverse impact from
potential release of shares subject to lock-up; absence of dividends; and
dilution to investors. See "Risk Factors" for a more complete discussion of
risk factors which should be considered by potential investors.
4
<PAGE>
THE OFFERING
Common Stock offered by:
<TABLE>
<S> <C>
The Company........... shares
The Selling
Stockholders......... shares
Common Stock to be
outstanding after the
Offering(1)............ shares
Use of proceeds......... To fund capital expenditures, clinical trials and
research and development, and for working capital and
general corporate purposes. See "Use of Proceeds."
Nasdaq National Market
symbol................. "TPMC"
</TABLE>
- --------
(1) Excludes 550,000 shares of Common Stock issuable upon the exercise of
options to be outstanding under the Company's 1996 Equity Compensation Plan
(the "Equity Compensation Plan") after the Offering at an estimated
weighted average exercise price of $ per share and (ii) 450,000 shares
reserved for future option grants under the Equity Compensation Plan. See
"Management--Equity Compensation Plan."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales........... $ 398 $ 648 $ 1,048 $ 1,478 $ 1,380 $ 415 $ 162
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------ --------
Total revenues........ 510 878 1,210 1,503 1,380 415 3,662
Cost of products sold... 375 386 366 528 531 117 136
------- ------- ------- ------- ------- ------ --------
Gross profit............ 135 492 844 975 849 298 3,526
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 341 651
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 326 626
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 62 287
------- ------- ------- ------- ------- ------ --------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 729 1,564
------- ------- ------- ------- ------- ------ --------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (431) 1,962
Interest expense to
Sharpoint Development
Corporation............ 135 234 342 443 845 192 134
------- ------- ------- ------- ------- ------ --------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $ (623) $ 1,828
======= ======= ======= ======= ======= ====== ========
Pro forma net income
(loss) per common
share(1)............... $ $
======= ========
Shares used in
computation of pro
forma net income (loss)
per common share(1)....
======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $4,091 $
Working capital...................................... 2,011
Total assets......................................... 4,835
Long-term debt and capital lease obligations, less
current portion..................................... 26
Total partners' capital and stockholders' equity..... 2,462
</TABLE>
- --------
(1) Pro forma net income (loss) per common share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the periods assuming that the contribution of
obligations of and interests in the Partnership to the Company in exchange
for shares of Common Stock in connection with the Exchange had
been consummated as of the first day of the applicable periods. Pro forma
net income (loss) does not reflect the elimination of the payments to CRX
Medical, Inc. ("CRX"), interest expense to Sharpoint Development
Corporation ("Sharpoint") or the non-cash expense ($ per share)
discussed in footnote (2) below. These payments and expenses will not
continue after the Exchange. See "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Prior Partnership Status."
(2) In connection with the Exchange, Caratec, L.L.C. ("Caratec"), the successor
to CRX's limited partnership interest in the Partnership, will exchange its
right to receive various payments from the Partnership and its limited
partnership interest for 1,776,250 shares of Common Stock. This transaction
will result in a non-cash expense which should not exceed $19,500,000 and
which will equal the difference between the value of the Common Stock
issued to Caratec and its basis in the Partnership. The resulting charge to
accumulated deficit will be offset by a credit to additional paid-in
capital. See "Prior Partnership Status."
(3) Adjusted to reflect the sale by the Company of shares of Common
Stock (at an assumed public offering price of $ per share) and the
application of the net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully by potential
investors before purchasing the Common Stock offered hereby.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net losses in each year since its inception, including net losses of
approximately $7.0 million during the year ended December 31, 1995, and as of
March 31, 1996 had accumulated net losses of $12.9 million. These losses have
resulted primarily from expenses associated with the Company's research and
development activities, including preclinical and clinical trials and general
and administrative expenses. The Company anticipates that its expenses will
increase in the future and that it will incur additional losses for the
foreseeable future. The amount of future net losses and time required by the
Company to reach profitability are highly uncertain. The Company's ability to
generate significant revenue and become profitable is dependent in large part
on its success in obtaining regulatory approvals or clearances for its
products, commercializing the Company's lead product, TraumaSeal, expanding
its manufacturing capacity, developing new products and entering into
additional marketing agreements and the ability of its marketing partners to
commercialize successfully products incorporating the Company's technologies.
There can be no assurance that the Company will generate significant revenue
or become profitable on a sustained basis, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. The Company is in the early stage of product
commercialization and has derived only limited revenue from sales of certain
products to its marketing partners. The Company is conducting human clinical
trials of TraumaSeal in the United States and has several potential products
in development. The Company believes that its long-term viability and growth
will depend in large part on receiving regulatory clearances or approvals for
and the successful commercialization of TraumaSeal and other new products
resulting from its research activities. The Company presently is pursuing
product opportunities that will require extensive additional capital
investment, research, development, clinical testing and regulatory clearances
or approvals prior to commercialization. There can be no assurance that the
Company's development programs will be successfully completed or that required
regulatory clearances or approvals will be obtained on a timely basis, if at
all. Moreover, commercial applications of the Company's absorbable
formulations are relatively new and evolving. The successful development and
market acceptance of the Company's proposed products are subject to inherent
developmental risks, including ineffectiveness or lack of safety,
unreliability, failure to receive necessary regulatory clearances or
approvals, high commercial cost and preclusion or obsolescence resulting from
third parties' proprietary rights or superior or equivalent products, as well
as general economic conditions affecting purchasing patterns.
There can be no assurance that the Company and its marketing partners will
be able to commercialize successfully or achieve market acceptance of the
Company's technologies or products, or that the Company's competitors will not
develop competing technologies that are less expensive or otherwise superior
to those of the Company. The failure to develop and market successfully new
products would have a material adverse effect on the Company's results of
operations and financial condition. See "Business--Products," "Business--Sales
and Marketing" and "Business--Manufacturing."
Clinical Trials for TraumaSeal. The Company is currently conducting clinical
trials in the United States for TraumaSeal to test safety and efficacy in
humans under an Investigational Device Exemption ("IDE") allowed by the FDA.
There can be no assurance that clinical testing of TraumaSeal will be
completed successfully within any specified time period, if at all, or that
the Company will not encounter problems in the clinical trials that will cause
the Company to delay or suspend clinical trials. There also can be no
assurance that such testing will ultimately show TraumaSeal to be safe or
efficacious. Without obtaining acceptable clinical results, the Company would
not be able to commercialize TraumaSeal in the United States, which would have
a material adverse effect on the Company's results of operations and financial
condition. The Company's other future products will also require clinical
trials. See "--FDA and Other Government Regulation," "Business--Products" and
"Business--Government Regulations."
7
<PAGE>
Dependence on Marketing Partners. The Company has limited experience in
sales, marketing and distribution. Therefore, the Company's strategy for
commercialization of its products includes entering into agreements with other
companies to market current and certain future products incorporating the
Company's technology. To date, the Company has entered into five such
agreements, and the Company derived all of its fiscal 1995 revenues from the
sale of products to its marketing partners. There can be no assurance that the
Company will be able to enter into additional marketing agreements on terms
favorable to the Company, if at all, or that current or future agreements will
ultimately be beneficial to the Company.
The Company is dependent for product sales revenues upon the success of such
marketing partners in performing their responsibilities. The amount and timing
of resources which may be devoted to the performance of their contractual
responsibilities by its marketing partners are not within the control of the
Company. There can be no assurance that such marketing partners will perform
their obligations as expected, pay any additional option or license fees to
the Company or market any products under the marketing agreements, or that the
Company will derive any revenue from such arrangements. Moreover, certain of
the agreements provide for termination under certain circumstances. For
example, Ethicon may terminate its agreement to purchase TraumaSeal from the
Company should the Company be unable to provide an adequate supply, and
Ethicon may itself then manufacture TraumaSeal and only pay the Company
royalties on sales. Certain agreements also permit the marketing partners to
pursue existing or alternative technologies in preference to the Company's
technology. There can be no assurance that the interests of the Company will
continue to coincide with those of its marketing partners or that the
marketing partners will not develop independently or with third parties
products which could compete with the Company's products, or that
disagreements over rights or technology or other proprietary interests will
not occur. To the extent that the Company chooses not to or is unable to enter
into future agreements, it would experience increased capital requirements to
undertake the marketing or sale of its current and future products. There can
be no assurance that the Company will be able to market or sell its current
and future products independently in the absence of such agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing Partners."
Potential Adverse Effect of Competition and Technological Change. The
Company competes with many domestic and foreign competitors in various rapidly
evolving and technologically advanced fields in developing its technology and
products, including medical device, pharmaceutical and biopharmaceutical
companies. For example, in the worldwide wound closure market, the Company's
products will compete with the suture products of Ethicon, the world leader in
the wound closure market, and American Home Products Corporation. In addition,
the Company believes its products will compete with the staple products of
United States Surgical Corporation and Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson. The Company's products may also compete with
Histoacryl, a cyanoacrylate-based topical adhesive marketed by B. Braun GmbH,
and with a similar adhesive marketed by Loctite Corporation. In the surgical
sealants market, the Company's products will compete with the fibrin-based
sealants of Immuno AG and Behringwerke AG, and most likely with fibrin-based
sealants being developed by Baxter Healthcare Corporation and Bristol-Myers
Squibb Company. The Company's surgical sealants also may compete with
collagen-based hemostatic products of, among others, Collagen Corporation,
Fusion Medical Technologies, Inc. and MedChem Products Inc., a division of
C.R. Bard Inc.
Many of the Company's competitors and potential competitors have
substantially greater financial, technological, research and development,
marketing and personnel resources than the Company. In addition to those
mentioned above, other recently developed technologies or procedures are, or
may in the future be, the basis of competitive products. There can be no
assurance that the Company's competitors will not succeed in developing
alternative technologies and products that are more effective, easier to use
or more economical than those which have been or are being developed by the
Company or that would render the Company's technology and products obsolete
and non-competitive in these fields. These competitors may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory clearances or approvals, and manufacturing and marketing such
products. Certain of these competitors may obtain patent protection, approval
or clearance by the FDA or product commercialization earlier than the Company,
any of which could materially adversely affect the Company. Furthermore, if
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in
8
<PAGE>
which it currently has limited experience. Finally, under the terms of the
Company's marketing agreements, the Company's marketing partners may pursue
parallel development of other technologies or products, which may result in a
marketing partner developing additional products that will compete with the
Company's products. See "Business--Competition and Technological Change."
Limited Manufacturing Experience. The Company has limited manufacturing
capacity and has limited experience in manufacturing its products. The
Company's future success is dependent in significant part on its ability to
manufacture its products in commercial quantities, in compliance with
regulatory requirements and in a cost-effective manner. The Company intends to
expand its manufacturing capabilities by using a portion of the net proceeds
from this Offering to build or acquire large-scale manufacturing and
formulation facilities by the end of 1997. Production of commercial-scale
quantities may involve technical challenges for the Company and will require
significant scale-up expenses for additions to facilities and personnel. There
can be no assurance that the Company will be able to achieve large-scale
manufacturing capabilities or to manufacture its products in a cost-effective
manner or in quantities necessary to allow the Company to achieve
profitability. If the Company is unable to expand sufficiently its
manufacturing capacity to meet Ethicon's requirements for TraumaSeal as set
forth under their agreement, Ethicon may itself then manufacture TraumaSeal
and only pay the Company royalties on sales. The resulting loss of payments
from Ethicon for the purchase of TraumaSeal from the Company would have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--Marketing Partners."
In addition, the manufacture of the Company's products will be subject to
periodic inspection by regulatory authorities and certain marketing partners,
and the Company's manufacture of its products for human use is subject to
regulation and inspection from time to time by the FDA for compliance with
Good Manufacturing Practices ("GMPs"), as well as equivalent requirements and
inspections by state and foreign regulatory authorities. There can be no
assurance that the FDA or other authorities will not, during the course of an
inspection of existing or new facilities, identify what they consider to be
deficiencies in GMPs or other requirements and request, or seek, remedial
action. Failure to comply with such regulations or delay in attaining
compliance may adversely affect the Company's manufacturing activities and
could result in, among other things, Warning Letters, injunctions, civil
penalties, FDA refusal to grant premarket approvals or clearances of future or
pending product submissions, fines, recalls or seizures of products, total or
partial suspensions of production and criminal prosecution. Additionally,
certain modifications of the Company's manufacturing facilities and processes,
such as those made in preparation for commercial-scale production of products,
will subject the Company to further FDA inspections and review prior to final
approval of its products for commercial sale. There can be no assurance that
the Company will be able to obtain necessary regulatory approvals or
clearances on a timely basis, if at all. Delays in receipt of or failure to
receive such approvals or clearances or the loss of previously received
approvals or clearances would have a material adverse effect on the Company's
results of operations and financial condition. See "--FDA and Other Government
Regulation," "Use of Proceeds" and "Business--Manufacturing."
Dependence on Sole Source Supplier. The Company currently purchases
cyanoacetate, the primary raw material used in manufacturing most of the
Company's products, from a single qualified source. Upon manufacturing scale-
up there can be no assurance that the Company will be able to obtain adequate
increased commercial quantities within a reasonable period of time or at
commercially reasonable rates. Lack of adequate commercial quantities or
inability to develop alternative sources meeting regulatory requirements at
similar prices and terms within a reasonable time or any interruptions in
supply in the future could have a material adverse effect on the Company's
ability to manufacture its products, including TraumaSeal, and, consequently,
could have a material adverse effect on the Company's results of operations
and financial condition. See "--Dependence on Marketing Partners," "Business--
Marketing Partners" and "Business--Manufacturing."
Dependence on Patents, Trade Secrets and Proprietary Rights. The Company's
success depends in large part on whether it can obtain patents, maintain trade
secret protection and operate without infringing on the proprietary rights of
third parties. The Company has seven U.S. patents with expiration dates
ranging from 2004 to 2013 and has filed applications for seven additional U.S.
patents, as well as certain corresponding patent
9
<PAGE>
applications outside the United States, relating to the Company's technology.
There can be no assurance that any of the pending patent applications will be
approved, that the Company will develop additional proprietary products that
are patentable, that any patents issued to the Company will provide the
Company with competitive advantages or will not be challenged by any third
parties or that the patents of others will not prevent the commercialization
of products incorporating the Company's technology. Furthermore, there can be
no assurance that others will not independently develop similar products,
duplicate any of the Company's products or design around the Company's
patents. Any of the foregoing results could have a material adverse effect on
the Company's results of operations and financial condition.
The commercial success of the Company also will depend, in part, on its
ability to avoid infringing patents issued to others. If the Company were
determined to be infringing any third party patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses or
cease certain activities. If the Company is required to obtain any licenses,
there can be no assurance that the Company will be able to do so on
commercially favorable terms, if at all. The Company's failure to obtain a
license for any technology that it may require to commercialize its products
could have a material adverse effect on the Company's results of operations
and financial condition.
Litigation, which could result in substantial costs to and diversion of
effort by the Company, may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company that claim technology also
claimed by the Company prepare and file patent applications in the United
States, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs to and diversion of effort
by the Company, even if the eventual outcome is favorable to the Company. Any
such litigation or interference proceeding, regardless of outcome, could be
expensive and time consuming. Litigation could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using certain
technology and, consequently, could have a material adverse effect on the
Company's results of operations and financial condition.
In addition to patent protection, the Company relies on unpatented trade
secrets and proprietary technological expertise. There can be no assurance
that others will not independently develop or otherwise acquire substantially
equivalent techniques, or otherwise gain access to the Company's trade secrets
and proprietary technological expertise or disclose such trade secrets, or
that the Company can ultimately protect its rights to such unpatented trade
secrets and proprietary technological expertise. The Company relies, in part,
on confidentiality agreements with its marketing partners, employees,
advisors, vendors and consultants to protect its trade secrets and proprietary
technological expertise. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach
or that the Company's unpatented trade secrets and proprietary technological
expertise will not otherwise become known or be independently discovered by
competitors. Failure to obtain or maintain patent or trade secret protection,
for any reason, could have a material adverse effect on the Company's results
of operations and financial condition. See "Business--Patents, Trade Secrets
and Proprietary Rights."
Effects of FDA and Other Government Regulation. Most medical devices,
including the Company's current and future medical adhesives for humans, are
subject to stringent government regulation in the United States by the FDA
under the federal Food, Drug, and Cosmetic Act, as amended (the "FDC Act"),
and, in many instances, by foreign and state governments. The FDA regulates
the clinical testing, manufacture, safety, labeling, sale, distribution and
promotion of medical devices. Included among these regulations are premarket
clearance and premarket approval requirements and GMPs. Other statutory and
regulatory requirements govern, among other things, establishment registration
and inspection, medical device listing, prohibitions against misbranding and
adulteration, labeling and postmarket reporting. The regulatory process is
lengthy, expensive and uncertain. Before any new medical device may be
introduced to the market, the manufacturer generally must obtain FDA approval
through either the 510(k) premarket notification ("510(k)") process or the
lengthier
10
<PAGE>
premarket approval ("PMA") process. It is expected that most of the Company's
future products under development will be subject to the PMA process. Securing
FDA approvals and clearances may require the submission of extensive clinical
data and supporting information to the FDA, and there can be no guarantee of
ultimate clearance or approval. Failure to comply with applicable requirements
can result in Warning Letters, application integrity proceedings, fines,
recalls or seizures of products, injunctions, civil penalties, total or
partial suspensions of production, withdrawals of existing product approvals
or clearances, refusals to approve or clear new applications or notifications
and criminal prosecution.
Medical devices also are subject to postmarket reporting requirements for
deaths or serious injuries when the device may have caused or contributed to
the death or serious injury, and for certain device malfunctions that would be
likely to cause or contribute to a death or serious injury if the malfunction
were to recur. If safety or efficacy problems occur after the product reaches
the market, the FDA may take steps to prevent or limit further marketing of
the product. Additionally, the FDA actively enforces regulations prohibiting
marketing of devices for indications or uses that have not been cleared or
approved by the FDA.
The Company's current human medical devices are at different stages of FDA
review. There can be no assurance that the Company will be able to obtain
necessary 510(k) clearances or PMAs to market and manufacture its products in
the United States for their intended use, on a timely basis, if at all, and
delays in receipt of or failure to receive such clearances or approvals, the
loss of previously received clearances or approvals, or failure to comply with
existing or future regulatory requirements could have a material adverse
effect on the Company's results of operations and financial condition. See "--
Limited Manufacturing Experience" and "Business--Government Regulations."
Effects of International Sales. The Company's marketing partners intend to
market the Company's current and future products outside the United States as
well as domestically. A number of risks are inherent in international
transactions. In order for the Company to market its products in Europe,
Canada and certain other foreign jurisdictions, the Company must obtain
required regulatory approvals or clearances and otherwise comply with
extensive regulations regarding safety, manufacturing processes and quality.
These regulations, including the requirements for approvals or clearances to
market, may differ from the FDA regulatory scheme. There can be no assurance
that the Company will obtain regulatory approvals or clearances in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals or clearances.
Delays in receipt of approvals or clearances to market the Company's products
in foreign countries, failure to receive such approvals or clearances or the
future loss of previously received approvals or clearances could have a
material adverse effect on the Company's results of operations and financial
condition. International sales also may be limited or disrupted by political
instability, price controls, trade restrictions and changes in tariffs. The
Company's royalties from international sales of TraumaSeal are based on net
sales in foreign currencies, but payable in U.S. dollars, and thus may be
adversely affected by fluctuations in currency exchange rates. Additionally,
fluctuations in currency exchange rates may adversely affect demand for the
Company's products by increasing the price of the Company's products in the
currency of the countries in which the products are sold. There can be no
assurance that the Company will be able to successfully commercialize its
current or future products in any foreign market. See "Business--Government
Regulations," "Business--Marketing Partners" and "Business--Sales and
Marketing."
Future Capital Needs and Uncertainty of Additional Financing. The Company
has expended and expects to continue to expend substantial funds to complete
the research, development and clinical testing of its products and to
establish commercial-scale manufacturing facilities. The Company believes that
existing cash and cash equivalents, which totaled $4,091,000 as of March 31,
1996, together with net proceeds of approximately $ from this
Offering, will be sufficient to finance its capital requirements for at least
24 months. There can be no assurance that the Company will not be required to
seek additional capital to finance its operations following the Offering. The
Company currently has no commitments for any additional financing, and there
can be no assurance that adequate funds for the Company's operations from any
such additional financing, the Company's revenues, financial markets,
arrangements with marketing partners or from other sources will be
11
<PAGE>
available when needed or on terms attractive to the Company. The inability to
obtain sufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs,
manufacturing operations, clinical studies or regulatory activities or to
license third parties to commercialize products or technologies that the
Company would otherwise seek to develop itself, and could have a material
adverse effect on the Company's results of operations and financial condition.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Dependence Upon Key Personnel. The Company is highly dependent on the
principal members of its management and scientific staff. The Company does not
maintain key person life insurance for any of its employees. In addition, the
Company believes that its future success in developing marketable products and
achieving a competitive position will depend in large part upon whether it can
attract and retain additional qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract and retain such personnel. The
loss of services of one or more members of the management or scientific staff
or the inability to attract and retain additional personnel and develop
expertise as needed could have a material adverse effect on the Company's
results of operations and financial condition. See "Management."
Product Liability Exposure and Potential Unavailability of Insurance. The
testing, manufacturing, marketing and sale of the products being developed by
the Company involve an inherent risk that product liability claims will be
asserted against the Company, its marketing partners or licensees. There is no
assurance that the Company's current clinical trial and commercial product
liability insurance in the amount of $3 million per claim with an annual
aggregate limit of $3 million is adequate or will continue to be available in
sufficient amounts or at an acceptable cost, if at all. A product liability
claim, product recall or other claim, as well as any claims for uninsured
liabilities or in excess of insured liabilities, could have a material adverse
effect on the Company's results of operations and financial condition.
Control by Existing Stockholders; Anti-Takeover Provisions. Upon completion
of this Offering, Rolf D. Schmidt, Chairman of the Board of Directors of the
Company and a co-founder, and F. William Schmidt, a director of the Company
and a co-founder, and their affiliates, will beneficially own approximately
% of the outstanding Common Stock (approximately % of the outstanding
Common Stock assuming exercise in full of the Underwriters' over-allotment
option), and in the aggregate the Company's stockholders immediately prior to
the Offering will beneficially own a total of approximately % of the
outstanding Common Stock after the Offering (approximately % of the
outstanding Common Stock assuming exercise in full of the Underwriters' over-
allotment option). Accordingly, the Schmidts, either acting alone or together
with other existing stockholders, would be able to exert considerable
influence over the management and policies of the Company. Such a
concentration of ownership may have the effect of delaying, deferring or
preventing a change of control of the Company and consequently could adversely
affect the market price of the Common Stock. Additionally, the Company's
Restated Certificate of Incorporation and By-Laws contain certain provisions
that could prevent or delay the acquisition of the Company by means of a
tender offer, proxy contest or otherwise, or could discourage a third party
from attempting to acquire control of the Company, even if such events would
be beneficial to the interests of the stockholders. These provisions, among
other things, (i) prohibit stockholders of the Company from taking any action
required or permitted to be taken by the stockholders by written consent, (ii)
provide that special meetings of stockholders may only be called by the Board
of Directors or the Chairman of the Board, (iii) do not allow cumulative
voting for directors, (iv) divide the Board of Directors into three classes,
each of which serves for a staggered three-year term, (v) prohibit the removal
of directors without cause by the stockholders and without the approval of at
least 75% of the voting power of the then outstanding shares entitled to vote
in the election of directors, voting as a single class, (vi) provide
supermajority voting requirements with respect to the approval of certain
fundamental corporate changes and transactions, including, among others,
amendment of certain provisions of the Restated Certificate of Incorporation
and amendment of the By-Laws by the stockholders, and (vii) grant the Board of
Directors the authority, without action by the
12
<PAGE>
stockholders, to fix the rights and preferences of and issue shares of
preferred stock. The Company is also subject to Section 203 of the Delaware
General Corporation Law which contains certain anti-takeover provisions which
prohibit a "business combination" between a corporation and an "interested
stockholder" within three years of the stockholder becoming an "interested
stockholder" except in certain limited circumstances. The business combination
provisions of Section 203 of the Delaware General Corporation Law may have the
effect of deterring merger proposals, tender offers or other attempts to
effect changes in control of the Company that are not negotiated and approved
by the Board of Directors. See "Management," "Principal and Selling
Stockholders" and "Description of Capital Stock."
Broad Discretion in Application of Proceeds. The Company intends to use
approximately $ million, or %, of the net proceeds to the Company from
the Offering (approximately $ million, or %, of the net proceeds to the
Company from the Offering if the Underwriters' over-allotment option is
exercised in full) for working capital and general corporate purposes, and the
Company has not yet finally identified more specific uses for such net
proceeds. In addition, a portion of the net proceeds may be used for the
acquisition of complementary businesses or products. Accordingly, the specific
uses for the net proceeds will be at the complete discretion of management of
the Company and the Board of Directors and may be allocated based upon
circumstances arising from time to time in the future. See "Use of Proceeds."
No Prior Public Market; Volatility of Stock Price. Prior to this Offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active public market will develop or be sustained after this
Offering. The initial public offering price of the Common Stock offered hereby
will be determined through negotiations between the Company and the
representatives of the Underwriters and may not be indicative of future market
prices, revenues or profitability. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. Factors
such as announcements concerning the Company or its competitors, including the
results of testing and clinical trials, technological innovations and the
attainment of (or failure to attain) milestones in the commercialization of
new products, government regulations, developments concerning proprietary
rights, including new patents, changes in existing patents or litigation
matters, a change in status of a marketing partner, investor perception of the
Company or the commercial value or safety of its products, fluctuations in the
Company's operating results and general market conditions in the industry may
cause the market price of the Common Stock to fluctuate significantly.
Furthermore, the stock market has experienced extreme price and volume
fluctuations, which recently have particularly affected the market prices of
the shares of medical technology companies and which have often been unrelated
to the operating performance of such companies. These broad market
fluctuations also may adversely affect the market price of the Common Stock.
Shares Eligible for Future Sale; Registration Rights; Potential Adverse
Impact on Market Price From Sales of Shares. Sales of substantial amounts of
Common Stock in the public market following this Offering could adversely
affect the market price of the Common Stock and adversely affect the Company's
ability to raise capital at a time and on terms favorable to the Company. In
addition to the shares of Common Stock offered hereby that will be
freely tradeable, shares of Common Stock to be issued to certain
stockholders in the Exchange and not sold in this Offering will become
eligible for sale in the public market two years after the Exchange, subject
to the provisions of Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). In addition, after this Offering, there will be
outstanding options to purchase 550,000 shares of Common Stock, of which
132,500 will be fully vested and exercisable. An additional 450,000 shares are
reserved for issuance under the Equity Compensation Plan. The Company intends
to register the shares of Common Stock issuable and reserved for issuance
under the Equity Compensation Plan as soon as practicable following the date
of this Prospectus.
Certain holders of shares of Common Stock to be outstanding prior
to the Offering, of which shares are to be sold by the Selling
Stockholders in the Offering, will be entitled to certain registration rights
with respect to such shares, which registration rights will become effective
contemporaneously with the
13
<PAGE>
Offering. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price for the Common Stock.
Such rights may not be exercised prior to the expiration of 180 days from the
date of this Prospectus. See "Description of Capital Stock--Registration
Rights" and "Shares Eligible for Future Sale."
Adverse Impact from Potential Release of Shares Subject to Lock-Up. All
directors and executive officers and certain other stockholders of the Company
who will beneficially own an aggregate shares of Common Stock upon
completion of this Offering, and the Company, with certain limited exceptions,
have agreed with the Underwriters not to offer for sale, sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. The release of such shares from the lock-up prior to the
expiration of the 180-day period could adversely affect the market price of
the Common Stock.
Absence of Dividends. The Company has never declared or paid cash dividends
on its Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
fund the development and growth of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and
will be dependent upon the Company's financial condition, operating results,
capital requirements and such other factors as the Board of Directors deems
relevant. See "Dividend Policy."
Dilution to Investors. Purchasers of Common Stock in this Offering will
experience immediate and substantial dilution of $ per share in the net
tangible book value per share of the Common Stock (based on an assumed public
offering price of $ per share and after deducting Underwriters' discounts
and commissions and other estimated offering expenses). See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale and issuance of the
shares of Common Stock offered by the Company hereby, after deducting expenses
payable by the Company in connection with this Offering (at an assumed public
offering price of $ per share), are estimated to be approximately $
million ($ million if the Underwriters' over-allotment option is exercised
in full). The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company estimates that it will use approximately $ million of the net
proceeds for capital expenditures related to laboratories, office space and
manufacturing facilities. The Company expects to use approximately $ million
of the net proceeds for clinical trials, research and development and the
remaining net proceeds for working capital and general corporate purposes. A
portion of the net proceeds may also be used for the acquisition of
complementary businesses or products, although the Company has not entered
into any definitive agreements or letters of intent with respect to any such
transactions and is not in any negotiations with respect to any written or
oral agreements or understandings regarding such transactions. The Company
believes that existing cash and cash equivalents, which totaled $4,091,000 as
of March 31, 1996, together with net proceeds of approximately $ million
from this Offering, will be sufficient to finance its capital requirements for
at least 24 months.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds of this Offering in short-term, interest-
bearing, investment-grade securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company currently intends to retain future earnings to fund the
development and growth of its business. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, operating results, capital
requirements and such other factors as the Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company reflecting the consummation of the Exchange and (iii) the pro forma as
adjusted capitalization of the Company reflecting the consummation of the
Exchange and the sale of the shares of Common Stock offered by the
Company hereby (at an assumed public offering price of $ per share) and
receipt of the proceeds therefrom, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds." This table should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease
obligations, less current portion.......... $ 26 $ 26 $
------ ------ --------
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000
shares authorized........................ -- -- --
Common Stock, $.01 par value; 35,000,000
shares authorized; shares
issued and outstanding; shares
as adjusted(3)........................... -- 96
Additional paid-in capital.................. -- 2,366
Accumulated deficit......................... -- --
Partners' capital........................... 2,462 -- --
------ ------ --------
Total partners' capital and stockholders'
equity................................... 2,462 2,462
------ ------ --------
Total capitalization.................... $2,488 $2,488 $
====== ====== ========
</TABLE>
- --------
(1) Reflects the consummation of the Exchange. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Prior Partnership Status."
(2) Adjusted to reflect the consummation of the Exchange and the sale by the
Company of shares of Common Stock (at an assumed public offering
price of $ per share) and the application of the net proceeds
therefrom. See "Use of Proceeds." In connection with the Exchange,
Caratec, the successor to CRX's limited partnership interest in the
Partnership, will exchange its right to receive various payments from the
Partnership and its limited partnership interest for 1,776,250 shares of
Common Stock. This transaction will result in a non-cash expense which
should not exceed $19,500,000 and which will equal the difference between
the value of the Common Stock issued to Caratec and its basis in the
Partnership. The resulting charge to accumulated deficit will be offset by
a credit to additional paid-in capital. See "Prior Partnership Status."
(3) Excludes 550,000 shares of Common Stock issuable upon the exercise of
options to be outstanding after this Offering at an estimated weighted
average exercise price of $ per share, of which 132,500 will be fully
vested and exercisable. See "Management--Equity Compensation Plan."
16
<PAGE>
DILUTION
As of March 31, 1996, the pro forma net tangible book value of the Company,
after giving effect to the Exchange, but before the Offering, was $
or $ per share of Common Stock. "Net tangible book value" per share
represents the amount of total tangible assets of the Company reduced by the
amount of its total liabilities, divided by the number of shares of Common
Stock outstanding. As of March 31, 1996, the pro forma as adjusted net
tangible book value of the Company, after giving effect to the Exchange and
the estimated net proceeds from the sale by the Company of the
shares of Common Stock offered by the Company hereby (based on an assumed
public offering price of $ per share and after deducting the
Underwriters' discounts and commissions and other estimated offering
expenses), would have been approximately $ per share of Common Stock. This
represents an immediate increase of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)....................... $
Pro forma net tangible book value per share before Offering.... $
Increase per share attributable to new investors...............
----
Pro forma net tangible book value per share after Offering.......
------
Dilution to new investors........................................ $
======
</TABLE>
- --------
(1) Before deduction of the Underwriters' discounts and commissions and other
offering expenses to be paid by the Company.
The following table summarizes on a pro forma basis as of March 31, 1996 the
differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of Common Stock purchased from the Company (based on an
assumed public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ % $ % $
New investors...........
--------- ----- ----------- -----
Total................. % $ %
========= ===== =========== =====
</TABLE>
- --------
(1) Total consideration includes the fair value of the Partnership interests
granted to employee limited partners and the fair value of the Common
Stock issued to Caratec in exchange for its right to receive various
payments from and its limited partnership interest in the Partnership. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
The above tables exclude 550,000 shares of Common Stock issuable upon the
exercise of options to be outstanding after this Offering at an estimated
weighted average exercise price of $ per share, of which 132,500 will be
fully vested and exercisable. To the extent that these options are exercised,
there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for each year in the five year
period ended December 31, 1995 have been derived from financial statements
audited by Price Waterhouse LLP, independent accountants. The balance sheets
as of December 31, 1994 and 1995 and the related statements of operations and
of cash flows for the years ended December 31, 1993, 1994 and 1995 and notes
thereto appear elsewhere in this Prospectus. The data for the three months
ended March 31, 1995 and 1996 have been derived from unaudited financial
statements of the Company included elsewhere in this Prospectus. The unaudited
financial statements include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its financial position and results of operations for those periods. Operating
results for the three months ended March 31, 1996 are not indicative of the
results that may be expected for the entire year. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements, including
the notes thereto, and the other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales........... $ 398 $ 648 $ 1,048 $ 1,478 $ 1,380 $ 415 $ 162
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------ --------
Total revenues........ 510 878 1,210 1,503 1,380 415 3,662
Cost of products sold... 375 386 366 528 531 117 136
------- ------- ------- ------- ------- ------ --------
Gross profit............ 135 492 844 975 849 298 3,526
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 341 651
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 326 626
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 62 287
------- ------- ------- ------- ------- ------ --------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 729 1,564
------- ------- ------- ------- ------- ------ --------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (431) 1,962
Interest expense to
Sharpoint Development
Corporation............ 135 234 342 443 845 192 134
------- ------- ------- ------- ------- ------ --------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $ (623) $ 1,828
======= ======= ======= ======= ======= ====== ========
Pro forma net income
(loss) per common
share(1)............... $ $
======= ========
Shares used in
computation of pro
forma net income (loss)
per common share(1)....
======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, AS OF MARCH 31, MARCH 31,
-------------------------------------------- ---------------- ------------
PRO FORMA
AS ADJUSTED
1991 1992 1993 1994 1995 1995 1996 1996(2)(3)
------- ------- ------- ------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 116 $ 26 $ 11 $ 30 $ 20 $ 84 $ 4,091 $
Working capital......... 37 (181) (392) (10) (395) 14 2,011
Total assets............ 823 750 764 784 908 781 4,835
Long-term debt and
capital lease
obligations, less
current portion........ 2,511 3,942 5,232 7,851 10,088 8,307 26
Total partners' capital
and stockholders'
equity................. (1,916) (3,615) (5,163) (7,378) (10,850) (8,001) 2,462
</TABLE>
DIVIDENDS:
Since its inception, the Company has not declared or paid any cash dividends
on its Common Stock.
- -------
(1) Pro forma net income (loss) per common share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the periods assuming that the contribution of
obligations of and interests in the Partnership to the Company in exchange
for shares of Common Stock in connection with the Exchange had
been consummated as of the first day of the applicable periods. Pro forma
net income (loss) does not reflect the elimination of the payments to CRX,
interest expense to Sharpoint or the non-cash expense ($ per share)
discussed in footnote (2) below. These payments and expenses will not
continue after the Exchange. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Prior Partnership
Status."
(2) In connection with the Exchange, Caratec, the successor to CRX's limited
partnership interest in the Partnership, will exchange its right to
receive various payments from the Partnership and its limited partnership
interest for 1,776,250 shares of Common Stock. This transaction will
result in a non-cash expense which should not exceed $19,500,000 and which
will equal the difference between the value of the Common Stock issued to
Caratec and its basis in the Partnership. The resulting charge to
accumulated deficit will be offset by a credit to additional paid-in
capital. See "Prior Partnership Status."
(3) Adjusted to reflect the sale by the Company of shares of Common
Stock (at an assumed public offering price of $ per share) and the
application of the net proceeds therefrom. See "Use of Proceeds."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
OVERVIEW
Since its inception in May 1990, the Company has been developing,
commercializing and manufacturing medical adhesive products for use in wound
closure on humans and animals. The Company's products are based on its
proprietary cyanoacrylate technology, and a substantial portion of the
Company's historical expenses has consisted of research and development and
clinical trial expenses. The Company has funded its operations with cash from
borrowings from Sharpoint, sales of its Octyldent and Nexaband products and
license and product development fees from marketing partners.
The Company has been unprofitable since its inception and has incurred net
losses in each year, including net losses of approximately $6,972,000 for the
year ended December 31, 1995. These losses have resulted in accumulated net
losses of approximately $12,872,000 as of March 31, 1996. Although the Company
had net income during the first quarter of 1996 as a result of the receipt
from Ethicon of $3,500,000 in license and product development revenues under
the supply and distribution agreement for TraumaSeal, the Company anticipates
that it will incur increased losses for the next several years, as it expects
its research and development expenses to increase in order to fund additional
clinical trials and develop new products. The Company also expects to incur
additional capital expenditures to expand its manufacturing capabilities. The
amount of future net losses and time required by the Company to reach
profitability are highly uncertain. The Company's ability to generate
significant revenue and become profitable will depend on its success in
commercializing TraumaSeal, including the receipt of all regulatory clearances
or approvals, expanding its manufacturing capabilities, developing new
products and entering into additional marketing agreements and the ability of
its marketing partners to commercialize successfully products incorporating
the Company's technologies. No assurance can be given that the Company will
generate significant revenue or become profitable on a sustained basis, if at
all.
In connection with the Exchange, obligations of and interests in the
Partnership will be contributed to the Company in exchange for an aggregate of
shares of Common Stock. As of March 29, 1996, the long-term debt of
the Partnership held by Sharpoint, including accrued interest, was contributed
to the Partnership as $11,483,000 of partners' capital. During the period from
May 1990 to June 30, 1996, CRX, as a limited partner of the Partnership,
received payments of approximately $987,000 based on net revenues pursuant to
the Partnership agreement. As part of the Exchange, Caratec, the successor to
CRX's limited partnership interest in the Partnership, will exchange its right
to receive payments based on net revenues and its right to receive, as a
limited partner in the Partnership, a percentage of the proceeds of a sale of
all or substantially all of the assets of the Partnership for 1,776,250 shares
of Common Stock. This transaction will result in a non-cash expense which
should not exceed $19,500,000 and which will equal the difference between the
value of the Common Stock issued to Caratec and its basis in the Partnership.
The resulting charge to accumulated deficit will be offset by a credit to
additional paid-in capital.
Historically, there was no provision for federal or state income taxes in
the financial statements of the Company's predecessor, Tri-Point Medical L.P.,
because income or loss generated by the Partnership was included by the
partners in their personal income tax returns. Since the Company's
incorporation on February 20, 1996, the Company has been subject to federal
and state corporate income taxes.
The Company was formed on February 20, 1996 and the assets of the
Partnership were transferred to the Company as of March 1, 1996. The net
operating losses to March 1, 1996 will not be available to the Company to
offset any future taxable income for federal income tax purposes because it
was a partnership for that period.
The Company expects to incur compensation expense in connection with options
for Common Stock granted to employees, consultants and directors because such
options have a weighted average exercise price of
19
<PAGE>
approximately $ per share below the estimated fair market value of the
Common Stock. Such expense will be approximately $323,000 upon the
consummation of the Offering, approximately $304,000 per year in the next two
years and $285,000 per year in the subsequent two years as the options vest.
Such expense could increase during a given year if the vesting of options were
to accelerate upon the occurrence of certain events. See "Management--Equity
Compensation Plan."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Total revenues for the three months ended March 31, 1996 increased to
$3,662,000 from $415,000 for the three months ended March 31, 1995. This
increase was primarily the result of the receipt of $3,500,000 in license and
product development revenues under the supply and distribution agreement for
TraumaSeal entered into with Ethicon in March 1996. This increase was
partially offset by a decrease in product sales from $415,000 for the three
months ended March 31, 1995 to $162,000 for the three months ended March 31,
1996. This decrease was attributable to decreased sales volume of Octyldent as
a result of the initial product launch and the related inventory build-up
during the three months ended March 31, 1995. The Company is unable to predict
future prospects for this product with the current marketing partner.
Cost of products sold for the three months ended March 31, 1996 increased
16% to $136,000 from $117,000 for the three months ended March 31, 1995. This
increase was primarily a result of decreased manufacturing efficiencies and
additional costs associated with the expansion of the Company's manufacturing
capabilities.
Operating expenses for the three months ended March 31, 1996 increased 115%
to $1,564,000 from $729,000 for the three months ended March 31, 1995. This
increase was primarily due to costs associated with the commencement and
conduct of clinical trials for TraumaSeal and increased financial advisory and
professional fees. Additionally, payments to CRX increased as a result of the
Company recording $3,500,000 of license and product development revenues from
Ethicon.
Interest expense for the three months ended March 31, 1996 decreased 30% to
$134,000 from $192,000 for the three months ended March 31, 1995. This
decrease resulted from an agreement to cease accruing interest as of March 1,
1996 in connection with the incorporation of the Company on February 20, 1996
and the subsequent transfer on March 1, 1996 of all assets and liabilities of
the Partnership to the Company, except for the indebtedness to Sharpoint.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues for 1995 decreased 8% to $1,380,000 from $1,503,000 for 1994.
This decrease in total revenues was the result of a decrease in product sales
revenues, which was primarily due to decreased sales volume of Octyldent as a
result of the initial product launch and the related inventory build-up during
the year ended December 31, 1994.
Cost of products sold increased 1% to $531,000 for 1995 as compared to
$528,000 for 1994. This increase was primarily a result of decreased
efficiencies and related costs associated with the expansion of the Company's
manufacturing capabilities.
Operating expenses for 1995 increased 154% to $6,976,000 from $2,747,000 for
1994. This increase was primarily a result of a non-cash compensation expense
of $3,500,000 related to the grant of limited partnership interests to
employees of the Company, as well as costs for development and preparation for
clinical trials for TraumaSeal and increased financial advisory and
professional fees. Offsetting these increases were reductions in clinical
trial costs upon the completion of such trials for Octyldent and Nexacryl.
Payments to CRX increased as a result of an increase in the stipulated minimum
amount payable to CRX under the Partnership agreement.
Interest expense for 1995 increased 91% to $845,000 from $443,000 for 1994.
This increase resulted primarily from additional long-term borrowings from
Sharpoint during 1995 and 1994 to provide working capital.
20
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues increased 24% to $1,503,000 for 1994 as compared to
$1,210,000 for 1993. This increase in total revenues was the result of an
increase in product sales revenues, which increased 41% to $1,478,000 in 1994,
from $1,048,000 for 1993. This increase in product sales revenues was
primarily the result of increased sales volume of Octyldent related to the
Actisite(R) launch by the Procter & Gamble/ALZA Partnership during 1994.
License and product development revenues for 1994 decreased 85% to $25,000
from $162,000 for 1993. The 1994 and 1993 license and product development
revenues included payments of $25,000 and $112,000, respectively, from the
Procter & Gamble/ALZA Partnership in connection with the supply agreement for
Octyldent. In addition, the Company received $50,000 in 1993 in product
development fees from Farnam.
Cost of products sold for 1994 increased 44% to $528,000 from $366,000 for
1993. This increase was primarily due to increased sales volume of Octyldent.
Operating expenses for 1994 increased 34% to $2,747,000 from $2,050,000 for
1993. This increase was primarily due to development costs associated with the
Company's nonabsorbable products, increased administrative salaries and
product royalties on Octyldent paid to On-Site Therapeutics, Inc. ("On-Site").
Payments to CRX were $150,000 each for 1994 and 1993 and represent stipulated
minimum amounts payable to CRX under the Partnership agreement. See
"Business--Products."
Interest expense for 1994 increased 30% to $443,000 from $342,000 for 1993.
This increase was primarily due to additional long-term borrowings from
Sharpoint during 1994 and 1993 to provide working capital.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through product
sales revenues, license and product development revenues and borrowings from
Sharpoint. Through March 31, 1996, the Partnership had borrowed $9,571,000
from Sharpoint, which excludes accrued interest of $932,000 converted to long-
term debt on December 31, 1994. As of March 29, 1996, all such long-term debt,
including accrued interest, was contributed as partners' capital to the
Partnership. The Company also has financed its operations by generating
product sales of $5,332,000 and license and product development revenues of
$4,036,000 from its inception to March 31, 1996.
The Company's cash and cash equivalents totaled $4,091,000 at March 31,
1996, an increase of $4,071,000 from December 31, 1995. The primary sources of
cash and cash equivalents for the three months ended March 31, 1996 were the
receipt of $4,500,000, of which $3,500,000 was recorded as license and product
development revenues, in connection with the supply and distribution agreement
with Ethicon and $440,000 in proceeds from long-term borrowings from
Sharpoint. The Company expended $869,000 in cash and cash equivalents during
the three months ended March 31, 1996 to finance the Company's operations and
for working capital requirements.
Cash used for operating activities was $2,113,000, $1,534,000 and $1,226,000
for 1995, 1994 and 1993, respectively. The cash was used primarily to fund
research and product development programs, sales and marketing efforts,
manufacturing and clinical studies and regulatory affairs.
Cash used for investing activities was $145,000, $136,000 and $79,000 for
1995, 1994 and 1993, respectively. The cash was used to acquire capital
equipment, as well as to obtain and protect patents. Although the Company has
no material commitments for capital expenditures, the Company anticipates
using approximately $ of the net proceeds from this Offering for
capital expenditures related to laboratories, office space and manufacturing
facilities. See "Use of Proceeds."
Cash provided by financing activities was $2,248,000, $1,689,000 and
$1,290,000 for 1995, 1994 and 1993, respectively. The Company's only financing
activities were borrowings from Sharpoint.
The Company expects to incur expenses related to the further research and
development of its technology and the development of current and additional
products, including outside testing and preclinical and clinical trials. The
Company also expects to incur additional capital expenditures to expand its
manufacturing capabilities. See "Use of Proceeds."
21
<PAGE>
The Company believes that existing cash and cash equivalents, which totaled
$4,091,000 as of March 31, 1996, together with net proceeds of approximately
$ from this Offering, will be sufficient to finance its capital
requirements for at least 24 months. The Company's future capital
requirements, however, will depend on numerous factors, including (i) the
progress of its research and product development programs, including clinical
studies, (ii) the effectiveness of product commercialization activities and
marketing agreements, including the development and progress of sales and
marketing efforts and manufacturing operations, (iii) the ability of the
Company to maintain existing marketing agreements and establish and maintain
new marketing agreements, (iv) the costs involved in preparing, filing,
prosecuting, defending and enforcing intellectual property rights and
complying with regulatory requirements and (v) the effect of competing
technological and market developments. If the proceeds of this Offering,
together with the Company's currently available funds and internally generated
cash flow, are not sufficient to satisfy its financing needs, the Company will
be required to seek additional funding through bank borrowings and through
additional public or private sales of its securities, including equity
securities, or through other arrangements with marketing partners. The Company
has no credit facility or other committed sources of capital. There can be no
assurance that additional funds, if required, will be available to the Company
on favorable terms. See "Risk Factors--Future Capital Needs and Uncertainty of
Additional Financing" and "Use of Proceeds."
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), was issued in March 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company adopted SFAS 121 effective January 1, 1996; the adoption of this
statement did not have a material impact on its results of operations or
financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock-based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. The Company intends to continue
to apply APB 25 for future stock options and stock-based awards; consequently,
SFAS 123 will not have an impact on the Company's results of operations or
financial position.
22
<PAGE>
BUSINESS
GENERAL
Tri-Point develops, commercializes and manufactures medical adhesive
products based on its proprietary cyanoacrylate technology. The Company's
medical adhesives can be used to close and seal wounds and incisions rapidly
and stop leakage of blood and other body fluids from injured tissue. The
Company's nonabsorbable products can be used to replace sutures and staples
for certain topical wound closure applications, while the Company's absorbable
products can potentially be used as surgical sealants and surgical adhesives
for internal wound closure and management. Tri-Point's medical adhesive
products align injured tissue without the trauma caused by suturing or
stapling and allow natural healing to proceed. In addition, Tri-Point believes
that its medical adhesive products result in lower overall procedure costs and
are easier and quicker to prepare and use than sutures or staples. The
worldwide market for sutures and staples for topical and internal applications
is currently estimated to be $2.6 billion annually, and the Company expects
that it will compete for a portion of this market.
The Company has three products for human use and has a product line for
veterinary uses, which are described below:
TraumaSeal is a topical adhesive used to close wounds from skin
lacerations and incisions. Human clinical trials for TraumaSeal
commenced in the United States in February 1996 and are expected
to be completed by late 1996. TraumaSeal may be marketed in
Canada and product launch is expected in early 1997. The Company
has entered into a marketing agreement with Ethicon for
exclusive worldwide marketing and distribution of TraumaSeal.
Octyldent is a topical sealant currently used in conjunction
with Actisite(R), a site-specific drug delivery system
manufactured by ALZA, to treat adult periodontal disease.
Octyldent received 510(k) clearance from the FDA in 1990 and is
marketed with Actisite(R) in the United States by the Procter &
Gamble/ALZA Partnership and outside the United States by ALZA.
Nexacryl is a topical sealant to be used in the repair of
corneal ulcers and lacerations. The Company received an FDA
approvable letter for Nexacryl in January 1996. If approved, the
Company believes Nexacryl will be the first cyanoacrylate
adhesive product to receive a PMA from the FDA. The Company has
entered into a marketing agreement with Chiron for exclusive
worldwide marketing and distribution of Nexacryl.
Nexaband is a product line of five topical adhesives currently
used in veterinary wound closure and management. Nexaband
products have been marketed by Farnam since 1993.
Tri-Point is also developing absorbable products for internal applications.
The Company has development programs for surgical sealants to be used to
control post-surgical leakage from cardiovascular graft, cardiovascular bypass
and bowel resection procedures, and for surgical adhesives to be used to close
internal surgical incisions and traumatic wounds. These future products
require further development, clinical trials and regulatory clearance or
approval prior to commercialization.
TECHNOLOGY OVERVIEW
Tri-Point's medical adhesive products are based on its proprietary
cyanoacrylate technology. Cyanoacrylates are a family of liquid monomers that
react under a variety of conditions to form polymer films with strong adhesive
properties. Industrial adhesives based on cyanoacrylates were first introduced
in 1958 and are widely used in the aerospace and automotive industries, as
well as in consumer products such as super glue.
Medical adhesives have not been widely used because, unlike industrial
adhesives, medical adhesives must be shown to be safe for use in humans and
approved by regulatory authorities. The major obstacles to achieving
regulatory approval have been meeting biocompatibility standards and
demonstrating sterility. Using its proprietary cyanoacrylate technology, Tri-
Point believes it has demonstrated biocompatibility as defined by ISO
Toxicology Testing Standards for the Biological Evaluation of Medical Devices.
A key element in the
23
<PAGE>
Company's compliance with these standards is its ability to manufacture highly
purified base material which allows the Company to satisfy toxicity tests. In
addition, Tri-Point's products are synthetic, thereby eliminating the risk of
contamination inherent in products such as fibrin glues or collagen-based
products, which are derived from human blood or animal tissue. Tri-Point has
also developed novel assays to demonstrate sterility, which is required for
regulatory approval and enhances the safety profile of its products.
Tri-Point's technology enables it to develop nonabsorbable formulations for
topical use and absorbable formulations for internal use. Nonabsorbable
formulations close and seal skin wounds and incisions for the duration of
healing, then fall off naturally as new skin cells fill the wound bed.
Absorbable formulations can be used to close or seal internal wounds and
degrade, in a predictable manner, into small molecules that are eliminated
from the body. Tri-Point has been able to develop absorbable formulations by
controlling biodegradability of cyanoacrylates.
The key obstacle in developing an absorbable formulation has been that
certain byproducts of the degradation process are toxic. In particular,
degradation of cyanoacrylates produces formaldehyde, which is toxic at
relatively low concentrations in the body. Tri-Point has patented a
"scavenger" process that permits degradation without a cytotoxic reaction. In
this process, the Company adds agents to its formulations that reduce
formaldehyde to biologically acceptable levels.
The Company's proprietary technology allows it to customize the physical and
chemical properties of cyanoacrylates to meet specific market needs. These
properties include viscosity, flexibility, bond strength, stability, setting
time, porosity and biodegradation. For example, TraumaSeal has been formulated
with the high bond strength of cyanoacrylates, yet has enough flexibility to
adhere and adjust as needed to the tension of the skin on different areas of
the body. Additional formulations of TraumaSeal with higher viscosity and
varied setting times may be developed to enhance ease of use. The Company's
products for the treatment of moist areas, such as the eyes, mouth and
internal tissue, may be formulated to have faster setting times to control the
flow of fluids. The Company's absorbable products may be formulated with
controlled biodegradation rates to match the healing rates of various tissues.
In addition, the Company's products perform consistently and reproducibly, do
not require special preparation or refrigeration and have shelf-lives of 18 to
24 months.
Tri-Point has also developed delivery technology to deliver TraumaSeal and
other products to wound sites in order to enhance the utility of its products.
The current TraumaSeal applicator is a small, pen-like instrument that is easy
to use and facilitates the application of the product. This applicator
contains a catalyst that controls the polymerization process and allows the
adhesive film to be applied in multiple layers, which enhances bond strength.
The Company has also developed a spray applicator for equine wound management,
which permits fast delivery of the Nexaband adhesive to a large surface area
of the animal. Tri-Point intends to continue investigating and developing
delivery technologies as various needs arise.
The Company is building a strong portfolio of patent and trade secret
protection on the basic properties, formulations and medical uses of its
proprietary adhesive and delivery technologies. The Company has been issued
three U.S. patents relating to the Company's scavenger process for its
absorbable formulations. In addition, the Company has four patents directed to
other areas of adhesive and delivery technology. The Company has filed seven
U.S. patent applications covering other aspects of the scavenger process,
delivery technology, biodegradation rate control processes and high strength
wound closure adhesives. Counterparts of certain of these patents and patent
applications have been filed in other countries. The Company also relies on
its trade secrets and technological expertise in order to protect its
proprietary technology.
During the years ended December 31, 1993, 1994 and 1995, the Company spent
$391,000, $546,000 and $652,000, respectively, on Company-sponsored research
and development activities.
BUSINESS STRATEGY
The Company's objective is to become the leader in the medical adhesive
market by capitalizing on its proprietary cyanoacrylate technology. The
Company's strategy is to focus initially on commercializing and
24
<PAGE>
launching topical adhesive products based on its nonabsorbable formulations.
Initial target markets are topical wound closure in emergency rooms and
operating rooms and for plastic surgery procedures. The Company is also
pursuing the development and commercialization of absorbable formulations.
Implementing the Company's strategy involves the following activities:
Continue and expand research and development. Tri-Point's
initial products are all nonabsorbable, and its research and
development efforts are primarily focused on developing
absorbable adhesives, as well as product line extensions of its
nonabsorbable adhesives. The Company intends to increase its
research and development staff, significantly expand its
research facilities and acquire additional laboratory and
analytical equipment.
Seek rapid regulatory approval. The Company targets product
applications classified as medical devices that are eligible for
regulatory approval under a less time-consuming process than
that required for pharmaceuticals. The Company's laboratory,
animal and human studies have generated an extensive database
which the Company believes will facilitate the regulatory
approval process of current and future products. The Company
engages clinical research organizations to utilize the extensive
experience and technical expertise of such organizations in
planning and managing clinical trials.
Expand manufacturing capacity. The Company believes its ability
to manufacture highly purified cyanoacrylate-based medical
adhesives is a key competitive advantage. Tri-Point intends to
retain manufacturing rights to all its products and will expand
its manufacturing capacity by adding facilities, equipment and
personnel. In addition, the Company is researching other
processes to improve manufacturing capacity and efficiency.
Establish marketing partnerships. The Company seeks to market
and distribute its products through recognized market leaders to
take advantage of their resources and distribution channels. In
addition, in the future, as the Company's surgical sealant
products progress toward commercialization, the Company intends
to establish a highly focused sales force to market those
products.
25
<PAGE>
PRODUCTS
The Company's medical adhesive products are an alternative to the
traditional method of closing topical and internal wounds and incisions.
Suturing and stapling involve puncturing healthy tissue in order to align and
close the wound, may cause leakage or additional scarring at the small
puncture sites, may require anesthetics, are time-consuming to apply, and
often require return patient visits and physician time to remove the sutures
or staples. Medical adhesives may be applied quickly, do not require
anesthetics, do not induce trauma to surrounding tissues and do not require
return visits to the physician.
<TABLE>
<CAPTION>
PRODUCT MARKET STATUS MARKETING PARTNER
------------------------ ------------------------ ------------------------ ---------------------
<C> <S> <C> <C>
NONABSORBABLE
TraumaSeal Topical wound closure U.S. clinicals ongoing; Ethicon
marketable in Canada
Octyldent Periodontal sealant Marketed in U.S. and Procter & Gamble/ALZA
European Union countries Partnership; ALZA
in conjunction with
Actisite(R)
Nexacryl Corneal repair PMA pending Chiron
Nexaband (5 products) Veterinary Marketed in U.S. Farnam
ABSORBABLE
Surgical Sealants Cardiovascular graft and Preclinicals None
bypass and
bowel resection
Surgical Adhesives Internal wound closure Preclinicals None
</TABLE>
TraumaSeal
The Company's lead product, TraumaSeal, is a topical adhesive used to close
wounds from skin lacerations and incisions, minimally invasive surgery and
plastic surgery. The Company believes, based on market research, that there
are approximately five million skin lacerations and incisions annually in the
United States for which TraumaSeal could be used. In addition, there were an
estimated 7.6 million minimally invasive surgical procedures in 1995 and
approximately 1.4 million plastic surgery procedures in 1994. The Company
believes, based on industry sources, that approximately 25 million other
surgical procedures are performed annually in the United States. The Company
expects that TraumaSeal will compete for a portion of these markets as a
replacement for, or in conjunction with, sutures or staples. TraumaSeal is
intended to be used for wound closure where a 5.0 or smaller diameter suture
would normally be used and is not intended for use on the hands, feet or
crossing joints. TraumaSeal can also be used topically for lacerations or
incisions requiring subcutaneous sutures or staples. Although the purchase
cost of TraumaSeal will be greater than sutures or staples, the Company
believes that the use of TraumaSeal will result in lower overall procedure
costs because of reduced treatment time, elimination of the need for
anesthetics, simplification of post-closure wound care and elimination of
suture removal.
The Company received an IDE approval from the FDA for TraumaSeal in December
1995 and commenced controlled, randomized clinical trials in February 1996.
The clinical trials compare wound closure utilizing TraumaSeal with wound
closure utilizing sutures or staples and are being performed at ten sites
throughout the United States. As of June 30, 1996, 683 patients out of a
planned 825-patient population had been enrolled, and it is anticipated that
the clinical trials will be completed by late 1996. Tri-Point has engaged a
clinical research organization to administer the human trials.
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TraumaSeal may be marketed in Canada and is expected to be launched in
Canada in early 1997. A controlled, randomized 300-patient clinical study of
TraumaSeal conducted in Canada in late 1995 and early 1996 successfully
demonstrated TraumaSeal to be at least equivalent to nonabsorbable 5.0 or
smaller diameter sutures in wound closure and cosmetic outcome. There were no
reports of unanticipated adverse effects.
In March 1996, the Company entered into an agreement with Ethicon, a
subsidiary of Johnson & Johnson and a world leader in wound closure products,
to market and distribute TraumaSeal.
Octyldent
Octyldent, the Company's first human product introduction, is a topical
sealant used in conjunction with site-specific sustained release antibacterial
drug therapy to treat adult periodontal disease. The American Dental
Association estimated that approximately 14 million scaling and planing
procedures were performed in 1990 (the most recent year for which data are
available) in the United States to help prevent the progression of periodontal
disease. Octyldent is currently used to seal the pocket of a diseased gum
where Actisite(R), a therapeutic drug delivery system manufactured by ALZA,
has been inserted, thereby allowing the system to remain in place over a ten-
day period.
Octyldent received FDA marketing clearance in August 1990, and the FDA
issued approval to market Actisite(R) in March 1994. The Company entered into
supply agreements in 1991 and 1993 with the Procter & Gamble/ALZA Partnership
and ALZA to market Octyldent with Actisite(R) in the United States and outside
the United States, respectively. The U.S. product launch of Octyldent, sold in
combination with Actisite(R), commenced in July 1994. The
Actisite(R)/Octyldent product is marketed in several European countries, where
the first launch occurred in May 1993, and ALZA is pursuing registration and
distribution arrangements for Actisite(R) in a number of other European
markets. The Company received authorization to display the CE mark for
Octyldent in the European Union in August 1995, which will allow Octyldent to
be marketed throughout the European Union.
The Company entered into an agreement in March 1994 with On-Site pursuant to
which On-Site provides exclusive services to identify potential purchasers of
Octyldent for use in conjunction with site-specific sustained release
antibacterial drug therapy for adult periodontal disease. Under the agreement,
On-Site receives royalties on sales of Octyldent.
Nexacryl
Nexacryl is a topical sealant to be used in the repair of corneal ulcers and
lacerations. Nexacryl received orphan device status to treat a condition known
as "melting cornea" for which no FDA-approved product is presently available.
Nexacryl is applied directly to the cornea to seal fluids and allow the
corneal tissue to heal.
A clinical study of Nexacryl has been completed in which 262 patients were
treated at 23 clinical study sites with no reports of leakage or infections
attributable to Nexacryl. Based on this study, the Company filed a PMA
application with the FDA and received an approvable letter from the FDA in
January 1996 for the product. A PMA is anticipated following sterilization
validation studies, FDA inspection of the manufacturing site and FDA labeling
review. If approved, the Company believes Nexacryl will be the first
cyanoacrylate adhesive to obtain a PMA from the FDA.
The Company is developing an additional formulation of Nexacryl for use in
cataract and other related corneal procedures. There are approximately two
million cataract procedures performed in the United States each year. If
Nexacryl receives marketing approval from the FDA, the Company intends to
broaden the indication for Nexacryl to cover such procedures. The Company
believes this can be accomplished by submitting a PMA Supplement to the FDA,
which may include clinical data to be generated from a limited clinical study.
There can be no assurance that a limited clinical study will be acceptable to
the FDA or that the Company will be able to obtain a PMA Supplement for this
or any additional indication.
The Company's marketing partner for Nexacryl is Chiron.
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Nexaband Veterinary Products
The Company has five topical adhesive products sold under the Nexaband trade
name used in veterinary wound closure and management procedures. There were an
estimated 11 million surgical procedures performed on animals annually in the
United States in 1990 and for which the Company believes Nexaband products
could have been used. The Company estimates that Nexaband products were used
in approximately 1.3 million veterinary procedures in the United States in
1995.
Nexaband products seal the wound and provide a flexible, waterproof barrier
against dirt, fluids and contaminants. The adhesive falls off as the wound is
healed. The products are differentiated by type of applicator, setting time,
viscosity and packaging. Nexaband S/C is used for the topical closure of
lacerations and spay and neuter incisions. Nexaband QuickSeal is used as a
sealant for minor grooming cuts. Nexaband Pump Spray is used as a sealant for
large surface area wounds, particularly equine abrasion wounds. Nexaband
Liquid is used for wound closure in cat declawing procedures. Nexaband
Ophthalmic is used as a hemostatic agent and for the protection of damaged
corneas. The Nexaband products are distributed through Farnam, a leader in
large animal over-the-counter products and small and large animal ethical
product markets.
DEVELOPMENTAL PROGRAMS
The Company has several absorbable products under development which will
require further development, clinical trials and regulatory clearance or
approval prior to commercialization. See "--Government Regulations."
Surgical Sealants
The Company is developing an absorbable adhesive to be used as a sealant to
control post-surgical leakage at suture closure sites, a problem that is not
effectively addressed by current medical technology. Tri-Point's surgical
sealant is being developed initially for use in cardiovascular graft,
cardiovascular bypass and bowel resection surgery, of which approximately 1.2
million procedures were performed in the United States in 1992. The Company
believes its absorbable formulations could also serve as effective sealants
for repairing bladder or spleen defects, diffusing bleeding from the liver,
sealing air leakage from lung defects, repairing skin graft sites and managing
chronic skin ulcers.
The Company has initiated preliminary animal studies to test the feasibility
of absorbable formulations to prevent leakage.
A number of major medical firms are seeking to develop blood-based fibrin
products to prevent leakage at suture closure sites. The Company believes that
its surgical sealant has advantages over such products in that it will be
significantly easier to manufacture, control and manipulate than human blood,
which must be harvested, processed and screened for contaminants, and
eliminates the risk of contamination inherent in blood-derived products. In
addition, several companies are seeking to develop collagen-based products,
which are derived from animal tissue, to act as an internal sealant for human
tissue. The Company believes that its surgical sealants have similar
advantages over collagen-based products and that such products will pose many
of the same contamination risks described above. In addition, the Company
believes that its cyanoacrylate-based adhesives have greater bond strength
than either fibrin-based or collagen-based products.
Surgical Adhesives
The Company is developing absorbable adhesives for the closure of internal
surgical incisions and traumatic wounds. There were approximately 50 million
surgical procedures performed globally in 1995, with an estimated growth rate
of 2% to 3% annually. The Company believes that its absorbable adhesive for
surgical closure of soft tissue would be fast, safe and easy to use, and would
provide advantages over sutures and staples such as cost effectiveness,
enhanced wound sealing and closing, maintenance of the healing environment,
reduced trauma, pain and patient discomfort and superior tissue adherence. In
addition, the Company believes that its absorbable surgical adhesives would be
well-suited for internal closure in laparoscopic procedures.
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The Company has initiated preliminary animal studies to test the feasibility
of absorbable formulations to close internal wounds, including soft tissue
wounds.
Additional Product Opportunities
The Company believes that there are other potential medical applications for
its proprietary cyanoacrylate technology. The Company has not yet developed
any programs or committed any funds for research and development of these
potential applications. Moreover, any potential products will be subject to
extensive and rigorous regulatory review. There can be no assurance that any
funds will be available for research programs for such potential products or
that any potential products will be successfully developed, be proven to be
safe and efficacious in clinical trials, meet applicable regulatory standards,
be capable of being produced in commercial quantities at acceptable costs or
be successfully marketed.
The Company believes that many consumers of over-the-counter ("OTC") wound
closure products would prefer the sealing and wound protection characteristics
of an adhesive as compared to the wound covering capabilities of a topical
bandage. The Company believes that incorporating its topical wound closure
product, TraumaSeal, into an OTC product could provide a fundamental
differentiating characteristic and marketing advantage over products currently
offered in the OTC market.
The Company also believes that its adhesive technology could be used as a
site-specific drug delivery system to deliver growth factors to stimulate
tissue regeneration, various hormones or pharmaceuticals to promote healing,
antibiotics and antivirals to inhibit infection or chemotherapeutic agents to
slow or stop tumor growth. Based on preliminary analyses, the Company believes
that encapsulations, matrix vehicles, liquids and other formed products may be
developed from its adhesive material.
In addition, the Company believes its technology could be useful for certain
orthopedic repair procedures.
MARKETING PARTNERS
An important element of the Company's strategy is to enter into marketing
agreements to enable it to take advantage of the wide range of opportunities
created by its technology. To exploit these opportunities, the Company has
entered into the agreements described below for the supply and distribution of
certain products. The Company is dependent on its marketing partners to market
and distribute its products. Although the Company believes that its marketing
partners have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities are not within the control of the Company. See "Risk
Factors--Dependence on Marketing Partners."
Ethicon, Inc.
In March 1996, the Company entered into a renewable, eight-year supply and
distribution agreement with Ethicon, a subsidiary of Johnson & Johnson, which
provides Ethicon with exclusive worldwide rights to market, distribute and
sell TraumaSeal, the Company's nonabsorbable wound closure adhesive. The
agreement provides for certain up-front and milestone payments to the Company,
provides for the reimbursement of certain expenses associated with clinical
trials, requires Ethicon to make minimum purchases that escalate annually
after receipt of FDA or European Community approval and requires Ethicon to
pay royalties based upon net sales.
Ethicon may renew the agreement for additional one-year periods. The
agreement is terminable upon specified events, including (i) material breach
by either party, (ii) insolvency of either party and (iii) failure to obtain
regulatory approval for TraumaSeal in the United States within two years from
the date of submission of the Company's 510(k) notification or PMA. The
Company commenced human clinical trials of TraumaSeal in February 1996 and
anticipates that the trials will be completed by late 1996 and a PMA
application submitted shortly thereafter. Upon certain events of default,
including failure to provide an adequate supply of product, Ethicon may
terminate its arrangement to purchase TraumaSeal from the Company, and Ethicon
may itself then manufacture TraumaSeal and only pay the Company royalties
based on sales. See "Risk Factors--Dependence on Marketing Partners," "Risk
Factors--Limited Manufacturing Experience" and "--Manufacturing."
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Procter & Gamble/ALZA, Partners for Oral Health Care and ALZA Corporation
The Company entered into a supply agreement with the Procter & Gamble/ALZA
Partnership in March 1991, which was subsequently amended in April 1992. The
agreement grants the Procter & Gamble/ALZA Partnership the non-exclusive
worldwide rights to market and distribute Octyldent with Actisite(R), a
product manufactured by ALZA. The first shipment under this agreement was in
May 1994. In March 1993, the Company entered into a supply agreement with
ALZA, which grants ALZA non-exclusive rights to market Octyldent worldwide,
except in the United States, Canada, Mexico and Venezuela, where the Procter &
Gamble/ALZA Partnership has marketing rights. The first shipment under this
agreement was in May 1993. The agreements guarantee the Company minimum
purchases annually and provide for specified prices per unit for Octyldent,
which may be increased annually subject to certain limitations.
The agreements each have a term of three years from the first shipment date,
with automatic renewal for additional one-year periods, and each agreement is
terminable upon specified events, including (i) material breach by either
party, (ii) the publication of a scientific study, undertaken or reported by a
nationally recognized health research agency or government body, that links
any component of Octyldent to any health or safety hazard and (iii) any
revocation or suspension of the Company's 510(k) clearance for Octyldent.
Chiron Vision Corporation
The Company entered into a supply and distribution agreement with Chiron
effective July 1992, and amended in April 1995, which provides Chiron with the
exclusive rights to market, sell and distribute certain human ophthalmic
products on a worldwide basis. The agreement provides Chiron with an option to
expand its coverage to include new products. The Company received a payment
upon the execution of the agreement, and will receive a milestone payment upon
FDA marketing approval of its first ophthalmic product, Nexacryl. The
agreement guarantees the Company minimum purchases that escalate annually.
Pursuant to the agreement, pricing may be adjusted annually to reflect
increases in the U.S. Department of Labor Producer's Price Index. The
agreement has a term of 10 years from the effective date of U.S. regulatory
approval of the last-approved product. The agreement is terminable upon
specified events, including (i) material breach by either party, (ii) Chiron's
providing 30 days' notice as to any product for which FDA clearance or
approval is then pending, or (iii) Chiron's providing 180 days' notice for
products for which FDA clearance or approval is obtained. In certain
circumstances, Chiron may terminate its arrangement to purchase products from
the Company, and may itself then manufacture such products and only pay the
Company royalties based on sales.
Farnam Companies, Inc.
In December 1992, the Company entered into a renewable, seven-year
development and distribution agreement with Farnam. The Company granted Farnam
the exclusive rights to market, sell and distribute its Nexaband line of
veterinary products to the ethical veterinary market in North America. In
addition to the existing nonabsorbable Nexaband products covered by this
agreement, Farnam has exclusive rights in North America to any absorbable
veterinary adhesive products developed by the Company. Prices and minimum
sales volumes for new products will be negotiated upon product development
completion. Pursuant to the agreement, the Company received a nonrefundable
research, testing and development fee. The agreement also provides for minimum
purchases, which increase annually, and allows the Company to adjust prices
annually, but not in excess of increases in the U.S. Department of Labor
Wholesale Price Index. The agreement is terminable upon specified events,
including material breach by either party. The agreement will automatically
renew for successive one-year periods contingent on Farnam meeting required
levels of purchases.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company's success depends in large part on its ability to obtain
patents, maintain trade secret protection and operate without infringing on
the proprietary rights of third parties. The Company has seven U.S. patents
with expiration dates ranging from 2004 to 2013 and has filed applications for
seven additional U.S. patents, as well as certain patent applications outside
the United States, relating to the Company's technology. Three of the
30
<PAGE>
issued U.S. patents relate to the Company's scavenger process for its
absorbable formulations and pending U.S. patent applications relate to other
aspects of the scavenger process. In addition, the Company has four patents
directed to other areas of adhesive and delivery technology. Other U.S. patent
applications relate to the Company's delivery technology, biodegradation rate
control processes and high strength wound closure adhesives.
There can be no assurance that any of the pending patent applications will
be approved, that the Company will develop additional proprietary products
that are patentable, that any patents issued to the Company will provide the
Company with competitive advantages or will not be challenged by any third
parties or that the patents of others will not prevent the commercialization
of products incorporating the Company's technology. Furthermore, there can be
no assurance that others will not independently develop similar products,
duplicate any of the Company's products or design around the Company's
patents. Any of the foregoing results could have a material adverse effect on
the Company's results of operations and financial condition.
The commercial success of the Company also will depend, in part, on its
ability to avoid infringing patents issued to others. If the Company were
determined to be infringing any third party patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses or
cease certain activities. If the Company is required to obtain any licenses,
there can be no assurance that the Company will be able to do so on
commercially favorable terms, if at all. The Company's failure to obtain a
license for any technology that it may require to commercialize its products
could have a material adverse impact on the Company's results of operations
and financial condition.
Litigation, which could result in substantial costs to and diversion of
effort by the Company, may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company that claim technology also
claimed by the Company prepare and file patent applications in the United
States, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs to and diversion of effort
by the Company, even if the eventual outcome is favorable to the Company. Any
such litigation or interference proceeding, regardless of outcome, could be
expensive and time consuming. Litigation could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using such
technology and, consequently, could have a material adverse effect on the
Company's results of operations and financial condition.
In addition to patent protection, the Company relies on unpatented trade
secrets and proprietary technological expertise. There can be no assurance
that others will not independently develop or otherwise acquire substantially
equivalent techniques, or otherwise gain access to the Company's trade secrets
and proprietary technological expertise or disclose such trade secrets, or
that the Company can ultimately protect its rights to such unpatented trade
secrets and proprietary technological expertise. The Company relies, in part,
on confidentiality agreements with its marketing partners, employees,
advisors, vendors and consultants to protect its trade secrets and proprietary
technological expertise. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach
or that the Company's unpatented trade secrets and proprietary technological
expertise will not otherwise become known or be independently discovered by
competitors. Failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on the Company's results
of operations and financial condition.
GOVERNMENT REGULATIONS
The Company's products and operations are subject to substantial government
regulation in the United States and foreign countries.
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FDA Regulation
Most medical devices, including the Company's medical adhesives for humans,
are subject to stringent government regulation in the United States by the FDA
under the FDC Act, and, in many instances, by foreign and state governments.
The FDA regulates the clinical testing, manufacture, safety, labeling, sale,
distribution and promotion of medical devices. Included among these
regulations are premarket clearance and premarket approval requirements and
GMPs. Other statutory and regulatory requirements govern, among other things,
establishment registration and inspection, medical device listing,
prohibitions against misbranding and adulteration, labeling and postmarket
reporting. The regulatory process is lengthy, expensive and uncertain.
Securing FDA approvals and clearances may require the submission of extensive
clinical data and supporting information to the FDA. Failure to comply with
applicable requirements can result in Warning Letters, application integrity
proceedings, fines, recalls or seizures of products, injunctions, civil
penalties, total or partial suspensions of production, withdrawals of existing
product approvals or clearances, refusal to approve or clear new applications
or notifications and criminal prosecution. See "Risk Factors--FDA and Other
Government Regulation."
Under the FDC Act, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, premarket notification and adherence to GMPs). Class
II devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance and patient registries). Generally, Class
III devices must receive premarket approval from the FDA (e.g., certain life-
sustaining, life-supporting and implantable devices or new devices which have
been found not to be substantially equivalent to certain legally marketed
devices). Octyldent is a Class II medical device and TraumaSeal and Nexacryl
are Class III medical devices.
Before any new medical device may be introduced to the market, the
manufacturer generally must obtain either premarket clearance through the
510(k) premarket notification process or premarket approval through the
lengthier PMA process. A 510(k) premarket notification will be granted if the
submitted data establish that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device, or to a
Class III medical device for which the FDA has not called for PMAs. The FDA
may request extensive data, including clinical studies of the device's safety
and effectiveness, before a substantial equivalence determination can be made.
It generally takes from four to 12 months from submission to obtain 510(k)
premarket clearance, although it may take longer. A PMA application must be
filed if a product is found to be not substantially equivalent to a legally
marketed Class I or II device or if it is a Class III device for which the FDA
has called for PMAs. A PMA application must be supported by extensive data,
including laboratory, preclinical and clinical trial data, to demonstrate the
safety and efficacy of the device, as well as extensive manufacturing
information. Before initiating human clinical trials, the manufacturer often
must first obtain an IDE for the proposed medical device. Toward the end of
the PMA review process, after issuing a preliminary approvable letter, the FDA
will generally conduct an inspection of the manufacturer's facilities to
ensure compliance with GMPs. Additionally, the FDA requires sterility
validation and that final labeling be reviewed by the FDA prior to granting a
PMA. Approval of a PMA could take two or more years from the date of
submission of the application. The PMA process can be expensive, uncertain and
lengthy, and there is no guarantee of ultimate approval.
Modifications or enhancements to products that are either cleared through
the 510(k) process or approved through the PMA process that could affect
safety or effectiveness or effect a major change in the intended use of the
device may require further FDA review through new 510(k) or PMA submissions.
Additionally, certain modifications of the Company's manufacturing facilities
and processes, such as those made in preparation for commercial-scale
production of its products, will subject the Company to further FDA
inspections and review prior to final approval of such products for commercial
sale.
Medical devices also are subject to postmarket reporting requirements for
deaths or serious injuries when the device may have caused or contributed to
the death or serious injury, and for certain device malfunctions that would be
likely to cause or contribute to a death or serious injury if the malfunction
were to recur. If safety
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or efficacy problems occur after the product reaches the market, the FDA may
take steps to prevent or limit further marketing of the product. Additionally,
the FDA actively enforces regulations prohibiting marketing of devices for
indications or uses that have not been cleared or approved by the FDA.
The Company's current human medical devices are at different stages of FDA
review. Octyldent, the Company's product sold to the Proctor & Gamble/ALZA
Partnership and ALZA for use as an adhesive in conjunction with Actisite(R),
received 510(k) clearance in 1990, and is subject to GMP, postmarket reporting
and other FDA requirements. Nexacryl, the Company's ophthalmic product, has
received an approvable letter from the FDA and is pending FDA review of
sterilization validation studies, FDA inspection of the manufacturing site and
FDA labeling review before the product can receive final FDA approval for
commercialization. TraumaSeal has been in clinical trials at 10 sites around
the country since February 1996 under an IDE granted by the FDA. The Company
expects clinical trials to be completed by late 1996 and to submit a PMA
application for TraumaSeal shortly thereafter. The Company expects that it
will need to make significant modifications to its manufacturing facilities
and processes in order to manufacture TraumaSeal on a commercial scale, which
will subject the Company to an additional FDA inspection of its manufacturing
facility prior to final approval for commercial sales of this product.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMAs to market its products in the United States for
their intended use, on a timely basis, if at all, and delays in receipt of or
failure to receive such clearances or approvals, the loss of previously
received clearances or approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on the Company's
results of operations and financial condition. See "Risk Factors--Limited
Manufacturing Experience" and "Risk Factors--FDA and Other Government
Regulation."
Foreign Regulatory Matters
In order for the Company to market its products in Europe, Canada and
certain other foreign jurisdictions, the Company must obtain required
regulatory approvals or clearances and otherwise comply with extensive
regulations regarding safety and manufacturing processes and quality. These
regulations, including the requirements for approvals or clearances to market,
may differ from the FDA regulatory scheme. The time required to obtain
approval or clearance for sale of the Company's products in foreign countries
may be longer or shorter than that required for FDA clearance or approval, and
the requirements may differ. In addition, there may be foreign regulatory
barriers other than premarket approval or clearance. There can be no assurance
that the Company will obtain regulatory approvals in such countries or that it
will not be required to incur significant costs in obtaining or maintaining
its foreign regulatory approvals. Delays in receipt of approvals to market the
Company's products in foreign countries, failure to receive such approvals or
the future loss of previously received approvals could have a material adverse
effect on the Company's results of operations and financial condition.
Previous FDA requirements for device exports provided that the FDA must
first give export approval for an unapproved device. In April 1996, the United
States Congress passed and the President signed new FDA legislation that
provides that a non-FDA approved medical device can be exported to any
country, provided that the device (i) complies with the laws of that country
and (ii) has valid marketing authorization or the equivalent from the
appropriate authority in a "listed country." The listed countries are
Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa and
countries in the European Union and the European Economic Area. Export of
devices that do not have marketing authorization in a listed country will
continue to require FDA export approval.
Medical devices that are marketed or put into service within the European
Union are required to comply with Council Directive 93/42/EEC, the medical
devices directive ("MDD"). Compliance with the MDD entitles a device to make
use of the CE mark and allows the device to be marketed, put into service and
circulated freely within the European Union. Medical devices that have not
obtained the right to affix the CE mark but which conform with the
requirements in force in an individual Member State on December 31, 1994, may
nonetheless be marketed and put into service in that Member State during a
five-year transition period, expiring June 13,
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1998. After the expiration of this transition period, the Company's medical
devices will not be able to be marketed or put into service anywhere in the
European Union without having complied with the MDD and obtained the right to
affix the CE mark.
The Company received authorization to display the CE mark for Octyldent in
the European Union in August 1995. The Company plans to pursue the right to
affix the CE mark on TraumaSeal, as well as on future human products that the
Company may develop. There can be no assurance that the Company will be
successful in obtaining the right to affix the CE mark on any additional
medical devices. Failure to obtain the right to affix the CE mark on its
medical devices could have a material adverse effect on the Company's results
of operations and financial condition. See "Risk Factors--FDA and Other
Government Regulation."
Environmental Regulations
The Company's activities involve the controlled use of hazardous materials
and chemicals. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such material and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials comply in
all material respects with the standards prescribed by such laws and
regulations, risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and such liability could have
a material adverse effect on the Company's results of operations and financial
condition and potentially could exceed the resources of the Company.
Environmental protection has been an area of substantial concern in recent
years, and regulation of activities involving the use and disposal of
potentially hazardous materials has increased. There can be no assurance that
such regulation will not increase in the future or that the Company will not
be required to incur significant costs to comply with environmental laws and
regulations in the future.
SALES AND MARKETING
Currently, the Company's nonabsorbable adhesive products are marketed and
sold by its marketing partners. The Company has entered into marketing
agreements with Ethicon for worldwide distribution of TraumaSeal, the topical
adhesive that seals wounds from skin lacerations and incisions, plastic
surgery and skin puncture sites from minimally invasive surgery such as
laparoscopy; with the Procter & Gamble/ALZA Partnership and ALZA for worldwide
distribution of Octyldent, the topical sealant which is sold in conjunction
with Actisite(R), a site-specific sustained release product for adult
periodontal disease; with Chiron for worldwide distribution of Nexacryl, the
topical sealant for use in repair of corneal ulcers and abrasions; and with
Farnam for distribution in North America of Nexaband, the Company's veterinary
line of products.
The Company's future products, which will primarily be absorbable
formulations, will be sold through additional marketing partners or a direct
sales force in the United States and other distributors outside the United
States. The Company intends to develop its own internal sales capacity as its
absorbable products progress toward commercialization.
MANUFACTURING
The Company has devoted considerable resources to the development of
manufacturing processes and technologies capable of providing its products
with clinical efficacy, ease of use and suitable shelf life. The Company has
developed a manufacturing process designed to produce a highly purified base
material which is not achievable by other existing methodologies. The Company
relies heavily on internal trade secrets and technological expertise and
expects to keep aspects of its manufacturing process in-house and, where
applicable, seek patent protection for specific manufacturing applications.
The Company currently manufactures all of its products in a 15,000 square
foot facility located adjacent to its corporate offices in Raleigh, North
Carolina. This facility integrates production, bottling, labeling and
packaging capabilities for products currently being marketed.
34
<PAGE>
As production requirements increase with the receipt of additional product
approvals and clearances and the initiation of new clinical trials, additional
personnel, equipment and space will be necessary in virtually all phases of
the production process. The Company is formulating plans for a significant
expansion of its manufacturing capabilities in conjunction with the
anticipated future launch of TraumaSeal in Canada and, eventually, the United
States and Europe, as well as for the manufacture of additional products which
may be commercialized in the future by the Company. Such expansion and scale-
up is expected to occur over the next two years. The Company expects to invest
resources in chemical manufacturing equipment and packaging machinery.
Production of commercial-scale quantities may involve technical challenges for
the Company and will require significant scale-up expenses for additions to
facilities and personnel. There can be no assurance that the Company will be
able to achieve large-scale manufacturing capabilities or to manufacture its
products in a cost-effective manner or in quantities necessary to allow the
Company to achieve profitability. If the Company is unable to expand
sufficiently its manufacturing capacity to meet Ethicon's requirements for
TraumaSeal as set forth under their agreement, Ethicon may itself then
manufacture TraumaSeal and only pay the Company royalties on sales. See "--
Marketing Partners."
The Company presently purchases cyanoacetate, the primary raw material used
in the manufacture of the Company's medical adhesives, from one source. The
Company has the capability of manufacturing cyanoacetate if necessary, and
cyanoacetate may be available from a second supplier. The Company would be
required to qualify the quality assurance systems of an additional supplier
prior to its use as a source of supply. The other raw materials used in
manufacturing and packaging the Company's products are readily available from
multiple sources, as are its process equipment and controls.
The Company presently hires filling and packaging employees on a temporary
basis, and the Company expects that a significant portion of the Company's
future packaging requirements will be completed by outside providers.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company competes with many domestic and foreign competitors in various
rapidly evolving and technologically advanced fields in developing its
technology and products, including medical device, pharmaceutical and
biopharmaceutical companies. In the worldwide wound closure market, the
Company's products will compete with the suture products of Ethicon, the world
leader in the wound closure market, and American Home Products Corporation.
The Company also believes its products will compete with the staple products
of United States Surgical Corporation and Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson. In addition, there are two other
cyanoacrylate-based topical adhesives with which the Company's products may
compete, neither of which is approved for sale in the United States. B. Braun
GmbH markets Histoacryl(R) as a topical closure adhesive for small lacerations
and incisions in low skin tension areas of the body. Loctite Corporation has
recently test marketed a similar adhesive in the United Kingdom. In the
surgical sealants market, the Company's products will compete with the fibrin-
based sealants of Immuno AG and Behringwerke AG, and most likely with fibrin-
based sealants being developed by Baxter Healthcare Corporation and Bristol-
Myers Squibb Company. The Company's surgical sealants also may compete with
collagen-based hemostatic products of, among others, Collagen Corporation,
Fusion Medical Technologies, Inc. and MedChem Products Inc., a division of
C.R. Bard Inc. In addition, the Company's surgical sealants may compete with
protein-based products being developed by such biotechnology companies as
Protein Polymer Technologies, Inc. Many of the Company's competitors and
potential competitors have substantially greater financial, technological,
research and development, marketing and personnel resources than the Company.
In addition to those mentioned above, other recently developed technologies or
procedures are, or may in the future be, the basis of competitive products.
There can be no assurance that the Company's competitors will not succeed in
developing alternative technologies and products that are more effective,
easier to use or more economical than those which have been or are being
developed by the Company or that would render the Company's technology and
products obsolete and noncompetitive in these fields. These competitors may
also have greater experience in developing products, conducting clinical
trials, obtaining regulatory approvals, and manufacturing and marketing such
products.
35
<PAGE>
Certain of these competitors may obtain patent protection, approval or
clearance by the FDA or product commercialization earlier than the Company,
any of which could materially adversely affect the Company. Furthermore, if
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which it currently has limited experience. Finally,
under the terms of the Company's marketing agreements, the Company's marketing
partners may pursue parallel development of other technologies or products,
which may result in a marketing partner developing additional products that
will compete with the Company's products.
SCIENTIFIC ADVISORS
The Company has established a team of scientific advisors (the "Scientific
Advisors") who provide consulting services to the Company. The Scientific
Advisors consist of independent professionals who meet on an individual basis
with management when so requested. The Scientific Advisors have recognized
expertise in relevant sciences or clinical medicine and advise the Company
about present and long-term scientific planning, research and development.
There is no fixed term of service for the Scientific Advisors. Current
members may resign or be removed at any time, and additional members may be
appointed. Members do not serve on an exclusive basis with the Company, are
not under contract (other that with respect to confidentiality obligations)
and are not obligated to present corporate opportunities to the Company. To
management's knowledge, none of the members is working on the development of
competitive products. Inventions or products developed by a Scientific Advisor
who is not otherwise affiliated with the Company will not become the Company's
property, but will remain the Scientific Advisor's property.
Scientific Advisors who are not affiliated with the Company receive up to
$5,000 per year for their services. All members receive reimbursement for
expenses incurred in traveling to and attending meetings on behalf of the
Company. One of the Scientific Advisors, Anthony V. Seaber, previously
purchased an interest in the Partnership that will be exchanged for shares of
Common Stock in connection with the Exchange. The current Scientific Advisors
and their professional affiliations are as follows:
<TABLE>
<CAPTION>
NAME AFFILIATION
- ------------------------------------------- ---------------------------------------------
<S> <C>
Robert E. Clark, M.D., Ph.D................ Director of the Dermatologic Surgical Unit
Duke University Medical Center
Gary N. Foulks, M.D........................ Director of the Ophthalmology Unit
Duke University Medical Center
James V. Quinn, M.D., CCCFP................ Department of Emergency Medicine
University of Ottawa, Canada
Frederick Reno, Ph.D....................... Toxicology Consultant
Anthony V. Seaber.......................... Director of Orthopedic Research Laboratories
Duke University Medical Center
Dean M. Toriumi, M.D....................... Associate Professor Plastic and
Reconstructive Surgery College of Medicine at
University of Illinois-Chicago
</TABLE>
36
<PAGE>
EMPLOYEES
As of June 30, 1996, the Company had 36 full-time employees, of whom 25 were
dedicated to research, development, manufacturing, quality control and
regulatory affairs and nine were dedicated to administrative activities. Four
members of the Company's research and development staff have doctoral or
advanced degrees. The Company intends to recruit additional personnel in
connection with the research, development and manufacturing of its products.
None of the Company's employees is represented by a union, and the Company
believes relationships with its employees are good.
FACILITIES
The Company leases and occupies approximately 15,000 square feet of office,
laboratory and manufacturing space in Raleigh, North Carolina. These facilities
are leased through August 1998. The Company believes that it will require
additional space in late 1997 for, among other things, expanded manufacturing
capacity, and is beginning site selection for nearby rental property.
LEGAL PROCEEDINGS
The Company is currently not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names, ages and titles of the persons who are
the executive officers and directors of the Company as of June 30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Rolf D. Schmidt.................... 63 Chairman of the Board of Directors
Robert V. Toni..................... 56 President and Chief Executive Officer and Director
J. Blount Swain.................... 39 Vice President of Finance and Chief Financial Officer
Jeffrey G. Clark................... 42 Vice President of Research and Development
Joe B. Barefoot.................... 46 Vice President of Regulatory Affairs and Quality Assurance
Dennis C. Carey, Ph.D.(1)(2)....... 46 Director
Michael K. Lorelli(2).............. 45 Director
F. William Schmidt(2).............. 56 Director
Randy H. Thurman(1)................ 46 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Rolf D. Schmidt, a co-founder of the Company, has served as Chairman of the
Board of Directors of the Company since February 1996. Mr. Schmidt has served
as Chief Executive Officer and Chairman of Performance Sports Apparel, Inc.
since 1995. In 1986, a significant portion of the business of Sharpoint, Inc.,
a developer and manufacturer of surgical needles and sutures co-founded by Mr.
Schmidt and his brother, F. William Schmidt, was sold to its primary
distributor, Alcon Laboratories, Inc. In 1991, the remainder of Sharpoint,
Inc.'s business was sold to a management group. Since 1990, Mr. Schmidt has
invested primarily in and devoted substantial time and attention to
healthcare-related entities, including the Company. Mr. Schmidt is a senior
level executive who brings over 30 years of engineering and management
experience to the Company.
Robert V. Toni has served as President and Chief Executive Officer of the
Company since June 1994 and as a director of the Company since February 1996.
From 1989 to 1994, Mr. Toni was General Manager and Vice President of Sales
and Marketing for IOLAB Corporation, a Johnson & Johnson company that marketed
and manufactured surgical devices, equipment and pharmaceuticals for the
ophthalmic market. From 1987 to 1989, he served as President of Cooper Vision-
CILCO, and also served as its Executive Vice President of Operations and Chief
Financial Officer from 1984 to 1987. Mr. Toni holds a B.S. degree in Finance
from Iona College.
J. Blount Swain has served as Vice President of Finance and Chief Financial
Officer of the Company since September 1992. From 1983 until 1992, Mr. Swain
was Chief Financial Officer and Treasurer of The Record Bar, Inc., a national
music retailing entity. Prior to 1983, Mr. Swain served as a Senior Accountant
with Price Waterhouse in Raleigh, North Carolina. Mr. Swain holds a B.S.
degree from the University of North Carolina at Chapel Hill and is a certified
public accountant.
Jeffrey G. Clark has served as Vice President of Research and Development of
the Company since 1990. Prior to that time, Mr. Clark spent seven years at
Sharpoint, Inc., where he developed bioabsorbable and polypropylene suture
technology. From 1977 to 1983, Mr. Clark worked at Extracorporeal Inc., a
division of Johnson & Johnson. Mr. Clark holds a M.S. degree in Organic
Chemistry from Drexel University.
Joe B. Barefoot has served as Vice President of Regulatory Affairs and
Quality Assurance of the Company since 1990. From 1986 to 1990, Mr. Barefoot
managed the quality assurance program and regulatory submissions for
Sharpoint, Inc. From 1982 to 1986, he was a member of the quality assurance
staff at C.R. Bard Inc. Prior to that time, he was a member of the quality
assurance staff at Becton, Dickinson & Co. Mr. Barefoot holds a B.S. degree in
Microbiology from Emporia State University.
38
<PAGE>
Dennis C. Carey, Ph.D has served as a director of the Company since May
1996. Mr. Carey has served as a Managing Director of Spencer Stuart, an
executive search firm, since 1988, and oversees the firm's board consulting
practice. Prior to joining Spencer Stuart, he served as a National Practice
Director for The Hay Group, a global compensation firm, and was Secretary of
Labor to former Governor Pierre S. duPont, IV of Delaware. Mr. Carey holds a
Ph.D. in finance and administration from the University of Maryland. He was a
co-founder of The Director's Institute at The Wharton School of the University
of Pennsylvania and serves on its board of directors.
Michael K. Lorelli has served as a director of the Company since May 1996.
Mr. Lorelli has served as President-North/Latin Americas Division for
Tambrands, Inc., a feminine protection products company, since 1994. From 1986
to 1994, Mr. Lorelli held a number of executive positions with Pepsi-Cola
U.S.A., most recently as President, Pizza Hut International Division. Mr.
Lorelli is a director of Trident International and is an advisor to Rosenbluth
International. He also serves as a trustee of Sarah Lawrence College. Mr.
Lorelli received his M.B.A. from New York University.
F. William Schmidt, a co-founder of the Company, has served as a director of
the Company since February 1996. Mr. Schmidt co-founded Sharpoint, Inc. with
his brother, Rolf D. Schmidt, and completed the design work on production and
manufacturing equipment that led to product development within that company.
In 1986, a significant portion of the business of Sharpoint, Inc. was sold to
its primary distributor, Alcon Laboratories, Inc. In 1991, the remainder of
Sharpoint, Inc.'s business was sold to a management group. Since 1990, Mr
Schmidt has primarily invested in and devoted substantial time and attention
to healthcare-related entities, including the Company. Mr. Schmidt brings 25
years of management and business experience to the Company.
Randy H. Thurman has served as a director of the Company since May 1996. Mr.
Thurman also serves as Chief Executive Officer of Health Care Strategies 2000,
a health care consulting firm that he founded in 1995. From 1993 to 1995, Mr.
Thurman held a number of executive positions with Corning Incorporated, most
recently as Chairman and Chief Executive Officer of Corning Life Sciences,
Inc., a company engaged in providing clinical testing and pharmaceutical
services, laboratory products and research software. From 1985 to 1993, he
held a number of executive positions with Rhone-Poulenc Rorer, Inc., most
recently as President of Rhone-Poulenc Rorer Pharmaceuticals, Inc. Mr. Thurman
received his M.A. from Webster University. Mr. Thurman is also a director of
Enzon, Inc.
The Company's Board of Directors is divided into three classes. Members of
one class are elected each year to serve a three-year term and until their
successors have been elected and qualified or until their earlier resignation
or removal. The terms of Dennis C. Carey and F. William Schmidt will expire at
the 1997 annual meeting of stockholders, the terms of Michael K. Lorelli and
Rolf D. Schmidt will expire at the 1998 annual meeting and the terms of Randy
H. Thurman and Robert V. Toni will expire at the 1999 annual meeting.
The Board of Directors has recently established the Audit Committee and the
Compensation Committee. Mr. Thurman serves as Chair of the Audit Committee and
Mr. Carey serves as Chair of the Compensation Committee. The Audit Committee
will be responsible for recommending to the Board of Directors the engagement
of the independent auditors of the Company, reviewing with the independent
auditors the scope and results of the audits, reviewing the accounting
controls, operating, capital and research and development budgets and other
financial matters of the Company and reviewing the audit practices of the
internal auditors. The Compensation Committee will be responsible for
reviewing and approving compensation arrangements for the officers of the
Company, for recommending to the Board of Directors the compensation of the
Company's chief executive officer and non-employee directors, for recommending
stock option plans in which officers of the Company are eligible to
participate and for determining grants under and administering the Company's
Equity Compensation Plan.
The executive officers are currently elected annually by the Board of
Directors and hold office until their successors have been chosen and
qualified, or until death, resignation or removal by the Board of Directors.
See "--Employment Agreements."
39
<PAGE>
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company
receive annual compensation of $24,000 and $1,500 for each meeting of the
Board of Directors attended in person or participated in telephonically. In
addition, each non-employee director who becomes a director after the adoption
of the Company's Equity Compensation Plan will receive a one-time grant of
options to purchase 25,000 shares of Common Stock and each non-employee
director in office immediately before and after the annual election of
directors will receive options to purchase 5,000 shares of Common Stock. See
"--Equity Compensation Plan."
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-term
compensation of the Company's Chief Executive Officer and the three most
highly compensated executive officers other than the Chief Executive Officer
who were executive officers as of December 31, 1995 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDED ($)(3)
- --------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert V. Toni.......... 1995 198,000 50,000 64,473(2) -- 1,273
President and Chief
Executive Officer
J. Blount Swain......... 1995 130,000 -- 14,481 -- 805
Vice President of
Finance and Chief
Financial Officer
Jeffrey G. Clark........ 1995 120,000 -- 14,481 -- 719
Vice President of
Research and
Development
Joe B. Barefoot......... 1995 90,000 -- 10,861 -- 463
Vice President of
Regulatory Affairs and
Quality Assurance
</TABLE>
- --------
(1) Includes the tax value of interests in the Partnership (the "Partnership
Interests") granted on December 31, 1995 to the Chief Executive Officer
and the Named Officers. The aggregate tax value of the Partnership
Interests on the date of grant to the Chief Executive Officer and the
Named Officers totaled $61,545. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations."
(2) Includes payment for relocation expenses and a payment to cover the
related income tax liability in the aggregate amount of $42,751.
(3) Represents Company-paid life insurance premiums and 401(k) retirement plan
matching contributions.
The Chief Executive Officer and the Named Officers have not received from
the Company or exercised any stock options or stock appreciation rights during
the fiscal year ended December 31, 1995 or any prior fiscal years. See "--
Equity Compensation Plan."
EMPLOYMENT AGREEMENTS
Messrs. Toni, Swain, Clark and Barefoot each entered into an employment
agreement with the Company in May 1996. The term of each agreement is from May
1, 1996 to May 31, 1999, with automatic one-year extensions unless 60 days'
prior notice is given by either party. The agreements provide for base
salaries of not
40
<PAGE>
less than $215,000, $138,450, $127,200 and $95,850, respectively, which
salaries may be increased as determined by the Compensation Committee or the
Board of Directors. Each agreement also provides for an annual bonus of 20% of
base salary and a maximum of 60% of base salary to be awarded based on
performance milestones to be established for each calendar year by the
Compensation Committee based on the recommendation of the Chief Executive
Officer. In connection with their employment agreements, the Company has
granted to Messrs. Toni, Swain, Clark and Barefoot, respectively, options to
purchase 66,600, 43,050, 40,100 and 30,458 shares of Common Stock under the
Equity Compensation Plan at an exercise price equal to the price per share to
the public in the Offering less $3.00. The option grants will be effective
only upon the consummation of the Exchange. The options have a term of ten
years and, provided their employment has not been terminated for "cause" (as
defined in the employment agreements), will vest in five equal annual
installments, commencing as of the date of grant. See "--Equity Compensation
Plan."
If, following a "change in control" (as defined in each agreement), any of
Messrs. Toni, Swain, Clark or Barefoot is terminated other than for "cause"
(as defined in each agreement) or terminates his employment for "good reason"
(as defined in each agreement), he will be entitled to receive all accrued and
any pro rata incentive compensation to the date of termination and a
continuation of his then current annual salary, incentive compensation and
benefits for three years after such termination. In the event of termination
for "cause," Messrs. Toni, Swain, Clark and Barefoot are entitled to a
continuation of base salary, incentive compensation and benefits for a period
of eighteen months in the case of Mr. Toni and one year for the others. The
Company has agreed to indemnify Messrs. Toni, Swain, Clark and Barefoot to the
maximum extent permitted by applicable law against all costs, charges and
expenses incurred by each in connection with any action, suit or proceeding to
which he may be a party or in which he may be a witness by reason of his being
an officer, director or employee of the Company or any subsidiary or affiliate
of the Company. Messrs. Toni, Swain, Clark and Barefoot have each agreed not
to compete with the Company for two years after termination of their
employment with the Company.
CONSULTING AGREEMENT
In May 1996, the Company entered into a consulting agreement with Steven A.
Kriegsman to provide consulting services to the Company for an annual
compensation of $120,000, payable monthly. Under the agreement, the Company
has granted to Mr. Kriegsman a nonqualified stock option to purchase 50,000
shares of Common Stock under the Company's Equity Compensation Plan at an
exercise price equal to the price per share to the public in the Offering less
$3.00. The option shall be effective only upon the consummation of the
Exchange, have a term of ten years and, provided that the agreement has not
been terminated for "cause" (as defined in the agreement), will vest in five
equal annual installments commencing as of the date of grant. Mr. Kriegsman
has agreed to provide consultation at the times requested by the Company in
relation to new business development, strategic planning and assistance with
strategic alliances. The consulting term shall be for five years, unless
terminated earlier for "cause," or on the event of Mr. Kriegsman's death or
disability. In the event that Mr. Kriegsman dies or becomes disabled during
the term, the Company must continue to pay his compensation to his executors,
legal representatives or administrators or to him, as applicable, as if the
consulting term were not terminated. The Company is permitted to obtain life
insurance on Mr. Kriegsman's life to fund such obligation.
EQUITY COMPENSATION PLAN
The Company maintains the 1996 Equity Compensation Plan (the "Plan"),
adopted by the Board of Directors on May 28, 1996 (the "effective date"). The
Plan provides for grants of stock options to selected officers (including
officers who are also directors) of the Company or its subsidiaries, other
employees of the Company or its subsidiaries and independent contractors and
consultants who perform valuable services for the Company or its subsidiaries.
Non-employee directors of the Company are entitled to receive formula stock
option grants under the Plan. In addition, the Plan provides for grants of
restricted stock and stock appreciation rights ("SARs") (herein, together with
grants of stock options, collectively, "Grants") to participants other than
non-employee directors of the Company. By encouraging stock ownership, the
Company seeks to attract, retain and motivate such participants and to
encourage such participants to devote their best efforts to the business and
financial success of the Company.
41
<PAGE>
General. Subject to adjustment in certain circumstances as discussed below,
the Plan authorizes up to 1,000,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. If and to the extent Grants under the Plan
expire or are terminated for any reason without being exercised, or the shares
subject to a Grant are forfeited, the shares of Common Stock subject to such
Grant will again be available for grant under the Plan.
Administration of the Plan. The Plan is administered and interpreted by a
committee (the "Committee") of the Board of Directors consisting of not fewer
than two persons appointed by the Board of Directors from among its members,
each of whom must be a "disinterested person" as defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" as defined by section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Committee has the sole authority to
determine (i) persons to whom Grants may be made under the Plan, (ii) the
type, size and other terms and conditions of each Grant, (iii) the time when
the Grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for vesting and the acceleration of
vesting, and (iv) any other matters arising under the Plan. The Committee has
full power and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan, and for conduct of its business as it
deems necessary or advisable, in its sole discretion. The Board of Directors
has appointed the Compensation Committee to serve as this Committee.
Grants. Grants under the Plan may consist of (i) options intended to qualify
as incentive stock options ("ISOs") within the meaning of section 422 of the
Code or (ii) so-called "nonqualified stock options" that are not intended to
so qualify ("NQSOs"). In addition, Grants under the Plan may also consist of
grants of (i) restricted stock or (ii) SARs.
Eligibility for Participation. Grants may be made to any employee (including
officers and directors) of, or independent contractors and consultants to, the
Company or its subsidiaries. Non-employee directors of the Company are
entitled only to formula grants of NQSOs. Consultants to the Company are not
eligible to receive ISOs under the Plan. As of June 30, 1996, 36 employees
were eligible for Grants under the Plan. During any calendar year, no
participant may receive Grants under the Plan for more than 75,000 shares of
Common Stock. After the Offering, 550,000 options will be outstanding under
the Plan and held by all participants as a group, at an estimated weighted
average exercise price of $ per share, of which 132,500 will be fully
vested and exercisable.
Options. The option price of any ISO granted under the Plan will not be less
than the fair market value of the underlying shares of Common Stock on the
date of grant, except that the option price of an ISO granted to an employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries may not be less than 110% of the fair
market value of the underlying shares of Common Stock on the date of grant.
The option price of a NQSO may be greater than, equal to or less than the fair
market value of the underlying shares of Common Stock on the date of grant.
The Committee will determine the term of each option; provided, however, that
the exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries may not exceed five years from the date of grant. A participant
may pay the option price (i) in cash, (ii) with the approval of the Committee,
by delivering shares of Common Stock owned by the participant and having a
fair market value on the date of exercise equal to the option price or (iii)
by a combination of the foregoing. The participant may instruct the Company to
deliver the shares of Common Stock due upon the exercise to a designated
broker instead of to the participant.
Formula Option Grants to Non-Employee Directors. Non-employee directors are
entitled to receive NQSOs pursuant to the formula grants under the Plan.
According to the formula grants, each non-employee director who first becomes
a member of the Board of Directors on or after the effective date of the Plan
and before the consummation of the Offering of Common Stock contemplated
hereby (a "pre-IPO initial grant") will receive a grant of a NQSO to purchase
25,000 shares of Common Stock as of the date the non-employee director first
becomes a member of the Board of Directors (which is the date of grant);
provided that such NQSO will become effective as of the consummation of the
Exchange, and, if the Exchange does not occur on or prior to
42
<PAGE>
September 30, 1996, any pre-IPO initial grants shall be null and void. Each
non-employee director who first becomes a member of the Board of Directors
after the consummation of the Offering will receive a grant of a NQSO to
purchase 25,000 shares of Common Stock as of the date the non-employee
director first becomes a member of the Board of Directors. Thereafter, on each
date on which the Company holds its annual meeting of stockholders, each non-
employee director in office immediately before and after the annual election
of directors will receive a grant of a NQSO to purchase 5,000 shares of Common
Stock. The option price of a NQSO granted pursuant to a formula grant under
the Plan will be the fair market value of a share of Common Stock on the date
of grant. The term of each such option shall be ten years, and each such
option shall be exercisable with respect to 50% of the shares on the date of
grant and an additional 25% on each of the next two anniversaries of the date
of the grant.
Restricted Stock. The Committee may issue shares of Common Stock to
participants other than non-employee directors of the Company pursuant to the
Plan. Shares may be issued for cash consideration or for no cash
consideration, as the Committee determines. The number of shares of Common
Stock granted to each participant shall be determined by the Committee,
subject to the maximum limit described above. Grants of restricted stock will
be made subject to such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the Committee may
determine in its sole discretion.
Stock Appreciation Rights. The Committee may grant SARs to participants
other than non-employee directors of the Company in tandem with any stock
option pursuant to the Plan. Unless the Committee determines otherwise, the
exercise price of a SAR will be the greater of (i) the exercise price of the
related stock option or (ii) the fair market value of a share of Common Stock
on the date of grant of the SAR. When the participant exercises a SAR, the
participant will receive the amount by which the fair market value of the
Common Stock on the date of exercise exceeds the exercise price of the SAR.
The participant may elect to have such amount paid in cash or in shares of
Common Stock, subject to Committee approval. To the extent a participant
exercises a SAR, the related option shall terminate. Similarly, upon exercise
of a stock option, the related SAR, if any, shall terminate.
Amendment and Termination of the Plan. The Board of Directors may amend or
terminate the Plan at any time; provided, however, that, the Board of
Directors may not amend the Plan, without stockholder approval, to (i)
increase (except for increases due to the adjustments discussed below) the
aggregate number of shares of Common Stock for which Grants may be made
thereunder, or the individual limit of shares of Common Stock for which Grants
may be made to any single individual under the Plan, (ii) modify the
requirements as to eligibility to participate in the Plan or (iii) make any
amendment that requires stockholder approval pursuant to Rule 16b-3 of the
Exchange Act or Section 162(m) of the Code. The Plan will terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
terminated earlier by the Board of Directors or extended by the Board of
Directors with approval of the stockholders.
Adjustment Provisions. Subject to the change of control provisions below, in
the event of certain transactions identified in the Plan, the Committee may
appropriately adjust (i) the number of shares of Common Stock (and the option
price per share) subject to the unexercised portion of any outstanding options
or SARs, (ii) the number of shares of Common Stock covered by outstanding
Grants, (iii) the number of shares of Common Stock for which Grants may be
made under the Plan and (iv) the individual limit of shares for which Grants
may be made to any individual under the Plan, and such adjustments shall be
effective and binding for all purposes of the Plan.
Change of Control of the Company. In the event of a change of control,
unless the Committee determines otherwise, all options, restricted stock and
SARs will become fully vested. Unless the Committee determines otherwise, each
participant will be provided with advance written notice by the Company prior
to the change of control (to the extent possible) and will have the right,
within a designated period after such notice, to exercise the options and SARs
in full or to surrender the options and SARs in exchange for a payment by the
Company, in cash or Common Stock as determined by the Committee, in an amount
equal to the excess of the then fair market value of the shares of Common
Stock over the option exercise price. Any options or SARs not timely exercised
or surrendered will terminate unless exchanged or substituted with options or
SARs of the successor corporation.
43
<PAGE>
A change of control is defined as (i) a tender offer, merger or other
transaction as a result of which any person or group (other than Rolf D.
Schmidt, F. William Schmidt or any entity controlled by either or both of
them) becomes the owner, directly or indirectly, of more than 50.1% of the
Common Stock or the combined voting power of the Company's then outstanding
securities, (ii) a liquidation or a sale of substantially all of the Company's
assets, or (iii) if, during any period of two consecutive years, the
individuals who, at the beginning of such period, constituted the Board of
Directors cease to constitute a majority of the Board of Directors, except as
otherwise provided in the Plan.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration includes amounts received upon the exercise of stock options
granted under the Plan and the value of shares received when shares of
restricted stock become vested (or such other time when income is recognized).
An exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to a
plan approved by stockholders that meets certain requirements. The Plan has
been approved by the stockholders and is intended to allow grants of options
thereunder to meet the requirements of "performance-based compensation."
Grants of restricted stock generally will not qualify as "performance-based
compensation."
CERTAIN TRANSACTIONS
The Partnership is currently the sole stockholder of the Company.
Simultaneously with the execution and delivery by the Company of the
Underwriting Agreement, in the Exchange, obligations of and interests in the
Partnership will be contributed to the Company in exchange for an aggregate of
shares of Common Stock pursuant to the Contribution and Exchange
Agreement and the Partnership will cease to exist. See "Prior Partnership
Status."
Rolf D. Schmidt and F. William Schmidt, directors and founders of the
Company, and three partnerships controlled by one or both of them, will
receive, as successors to Sharpoint's economic interest in the Partnership,
5,453,750 shares of Common Stock in the Exchange. From the inception of the
Partnership until March 29, 1996, Sharpoint, the general partner of the
Partnership, provided the Company with loans in an aggregate principal amount
of $10,502,000, which accrued interest at rates ranging from 9.5% to 9.75%. On
March 29, 1996, in contemplation of the Exchange, Sharpoint contributed this
debt, together with the accrued interest thereon, in the aggregate amount of
$11,483,000, to the Partnership as partners' capital. The Schmidts are the
only stockholders of Sharpoint.
Caratec, the successor to the limited partnership interest of CRX, will
receive in the Exchange 1,776,250 shares of Common Stock in exchange for
certain rights to payments it had under the Partnership agreement and for its
limited partnership interest. Under the Partnership agreement, CRX was
entitled to receive payments based on net revenues, subject to annual minimum
payments of $150,000 in 1992, 1993 and 1994 and $250,000 thereafter. These
payments aggregated approximately $987,000 as of June 30, 1996. CRX also was
entitled as a limited partner in the Partnership to payment of a percentage of
the proceeds of a sale of all or substantially all of the assets of the
Partnership. See "Prior Partnership Status" and "Principal and Selling
Stockholders."
44
<PAGE>
PRIOR PARTNERSHIP STATUS
The Company was incorporated in Delaware on February 20, 1996. From May 10,
1990 to February 29, 1996, the business of the Company was conducted by the
Partnership. As of March 1, 1996, all of the assets and liabilities of the
Partnership, except for the indebtedness to Sharpoint, were transferred to the
Company in exchange for one share of Common Stock. The Partnership is
currently the sole stockholder of the Company. Simultaneously with the
execution and delivery by the Company of the Underwriting Agreement, in the
Exchange, obligations of and interests in the Partnership will be contributed
to the Company in exchange for an aggregate of shares of Common
Stock to be issued to 13 individuals and entities. Upon consummation of the
Exchange, the Partnership will cease to exist. As of March 29, 1996, the long-
term debt, including accrued interest, of the Partnership held by Sharpoint,
the general partner of the Partnership and a corporation controlled by Rolf D.
Schmidt and F. William Schmidt, was contributed to the Partnership as
$11,483,000 of partners' capital. All obligations of and interests in the
Partnership held by Sharpoint and its successors will be contributed to the
Company in exchange for shares of Common Stock in connection with the
Exchange. Under the Partnership agreement, CRX was entitled to receive
payments based on net revenues, subject to annual minimum payments of $150,000
in 1992, 1993 and 1994 and $250,000 thereafter. These payments aggregated
approximately $987,000 as of June 30, 1996. CRX also was entitled as a limited
partner in the Partnership to payment of a percentage of the proceeds of a
sale of all or substantially all of the assets of the Partnership. In
connection with the Exchange, Caratec, the successor to CRX's limited
partnership interest in the Partnership, will exchange its right to receive
various payments from the Partnership and its limited partnership interest for
1,776,250 shares of Common Stock. This transaction will result in a non-cash
expense which should not exceed $19,500,000 and which will equal the
difference between the value of the Common Stock issued to Caratec and its
basis in the Partnership. The resulting charge to accumulated deficit will be
offset by a credit to additional paid-in capital. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and "Principal and Selling Stockholders."
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of June 30, 1996, assuming the
consummation of the Exchange as of that date, by (i) each person known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each of the Selling Stockholders, (iii) each of the Named Officers, (iv) each
of the Company's directors and (v) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED BENEFICIALLY
PRIOR TO OWNED
OFFERING(1) AFTER OFFERING
------------------- SHARES ---------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT TO BE SOLD NUMBER PERCENT
------------------------ --------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Rolf D. Schmidt(2)(3).............. 3,026,831 31.5%
F. William Schmidt(3)(4)........... 3,026,831 31.5%
Caratec, L.L.C.(5)................. 1,776,250 18.5%
Robert V. Toni(6).................. 733,320 7.6%
J. Blount Swain(6)................. 488,610 5.1%
Jeffrey G. Clark(6)................ 488,020 5.1%
Joe B. Barefoot(6)(7).............. 367,247 3.8%
Dennis C. Carey(6)................. 12,500 *
Michael K. Lorelli(6).............. 12,500 *
Randy H. Thurman(6)................ 12,500 *
All directors and executive
officers as a group
(9 persons)(8).................... 7,568,447 78.2%
</TABLE>
- --------
* Less than 1%.
(1) Nature of ownership consists of sole voting and investment power unless
otherwise indicated. The number of shares of Common Stock indicated
assumes the Exchange has been consummated as of June 30, 1996 and
includes shares of Common Stock issuable upon the exercise of stock
options to be outstanding upon the Exchange or exercisable within 60 days
after the Exchange.
(2) The address of the stockholder is 205 Sweltzer Road, Sinking Springs, PA
19608. Includes 2,246,945 shares held by Cacoosing Partners, L.P., a
limited partnership of which Mr. Rolf D. Schmidt is the sole general
partner, and for which shares he is deemed to have sole voting and
investing power. Also includes 599,912 shares held by OMI Partners, L.P.,
a limited partnership of which Rolf D. Schmidt and F. William Schmidt are
the sole general partners, and for which shares they are deemed to share
voting and investment power.
(3) Assumes the Underwriters' over-allotment option is not exercised. In the
event that the Underwriters' over-allotment option is exercised in full,
Rolf D. Schmidt will sell shares of Common Stock, F. William
Schmidt will sell shares of Common Stock and OMI Partners, L.P.
will sell shares of Common Stock. See footnotes (2) and (4) as to
the Schmidts' beneficial ownership of the shares held by OMI Partners,
L.P.
(4) The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes 2,246,945 shares held by Triangle Partners, L.P., a limited
partnership of which Mr. F. William Schmidt is the sole general partner,
and for which shares he is deemed to have sole voting and investing
power. Also includes 599,912 shares held by OMI Partners, L.P., a limited
partnership of which Rolf D. Schmidt and F. William Schmidt are the sole
general partners, and for which shares they are deemed to share voting
and investment power.
(5) The address of the stockholder is 206 Erskine Court, Cary, NC 27511.
Caratec is a limited liability company which held a limited partnership
interest in Tri-Point Medical L.P. prior to the Exchange. CRX and the
stockholders of CRX are stockholders of Caratec.
(6) Includes the following shares of Common Stock issuable upon the exercise
of stock options to be outstanding upon the Exchange or exercisable
within 60 days after the Exchange: Mr. Robert V. Toni--
46
<PAGE>
13,320; Mr. J. Blount Swain--8,610; Mr. Jeffrey G. Clark--8,020; Mr. Joe B.
Barefoot--6,092; Mr. Dennis C. Carey--12,500; Mr. Michael K. Lorelli--
12,500; and Mr. Randy H. Thurman--12,500.
(7) Includes 1,155 shares of Common Stock issuable upon the exercise of stock
options to be outstanding upon the Exchange or exercisable within 60 days
after the Exchange by Ms. Debra Genovese-Barefoot. Ms. Genovese-Barefoot
is the spouse of Mr. Joe B. Barefoot. Mr. Barefoot disclaims beneficial
ownership of such shares.
(8) Includes 74,697 shares of Common Stock issuable upon the exercise of
stock options to be outstanding upon the Exchange or exercisable within
60 days after the Exchange.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 37,000,000 shares,
including 35,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). Immediately after the sale of the shares of Common Stock
offered hereby, there will be issued and outstanding shares of
Common Stock and no shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a
plurality of the votes cast, with the Board of Directors being divided into
three classes, as nearly equal in number as possible, initially of two
directors each, each class of which, after a transitional period, will serve
for a term of three years and until their successors have been elected and
qualified. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election and may exert considerable influence over the management
and policies of the Company. The Company's Restated Certificate of
Incorporation (the "Certificate") may generally be amended as permitted by
law. However, certain fundamental transactions, including the amendment of
certain anti-takeover provisions in the Certificate, amendment of the By-Laws
by the stockholders, the sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, or the merger, consolidation,
division, reorganization, recapitalization, dissolution, liquidation or
winding up of the Company, require either: (i) the affirmative vote of 75% of
the directors then in office and the minimum affirmative vote of the
stockholders entitled to vote thereon required by law and the express terms of
any class or series of shares or (ii) the affirmative vote of the holders of
75% of the voting power of all then outstanding shares entitled to vote in the
election of directors, voting as a single class, and, in addition, the
affirmative vote of the number of shares of any class or series, if any, as
shall at the time of such approval be required by law or the express terms of
any such class or series of shares. Except as otherwise required by law, all
other matters are determined by a majority of the votes cast. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock
(none of which is currently outstanding). Upon the liquidation, dissolution or
winding up of the Company, subject to any preferential liquidation rights of
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably the net assets of the Company available after the payment of
all debts and other liabilities. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The shares of
Common Stock which will be outstanding upon the consummation of the Exchange
and the shares offered by the Company in the Offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. See "Risk Factors--Control by
Existing Stockholders; Anti-Takeover Provisions" and "--Preferred Stock."
PREFERRED STOCK
The Company also has authorized 2,000,000 shares of Preferred Stock which
the Board of Directors has discretion to issue in such series and with such
preferences and rights as it may designate without the approval of the holders
of Common Stock. Such preferences and rights may be superior to those of the
holders of Common Stock. For example, the holders of Preferred Stock may be
given a preference in payment upon liquidation of the Company, or for the
payment or accumulation of dividends before any distributions are made to the
holders of Common Stock. As of the date of this Prospectus, no Preferred Stock
has been designated or issued by the Company, and the Company has no plans,
agreements or understandings for the issuance of any shares of Preferred
Stock. For a description of the possible anti-takeover effects of the
Preferred Stock, see "Risk Factors--Control by Existing Stockholders; Anti-
Takeover Provisions" and "--Certain Anti-Takeover Provisions."
48
<PAGE>
LIMITATION OF LIABILITY
The Company's Certificate provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability (i) for any
breach of such person's duty of loyalty, (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law and (iv) for any transaction resulting in
receipt by such person of an improper personal benefit.
The Company has applied for directors' and officers' liability insurance to
provide directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts to
be effective contemporaneously with this Offering. At present, there is no
pending litigation or proceeding, and the Company is not aware of any
threatened litigation or proceeding, involving any director, officer, employee
or agent where indemnification will be required or permitted under the
Certificate or By-Laws.
CERTAIN ANTI-TAKEOVER PROVISIONS
Classified Board and Other Matters
The Company's Board of Directors is divided into three classes, each of
which, after a transitional period, will serve for three years, with one class
being elected each year. Under the Delaware General Corporation Law and the
provisions of the Certificate, stockholders may remove a director only for
cause and, in accordance with the Certificate, only with the approval of 75%
of the voting power of the then outstanding shares entitled to vote in the
election of directors, voting as a single class. Vacancies on the Board of
Directors may be filled only by a vote of the majority of the directors then
in office, though less than a quorum, or by a sole remaining director. The
Certificate and the By-Laws provide that special meetings of stockholders of
the Company may be called only by the Board of Directors or the Chairman of
the Board. The Certificate and By-Laws also provide that no action required or
permitted to be taken by the stockholders at any annual or special meeting of
the stockholders of the Company may be taken without a meeting. The
classification of the Board of Directors, the limitations on the removal of
directors and the filling of vacancies, and the prohibitions against calling
of special meetings by stockholders and stockholder action without a meeting
could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from acquiring, control of the Company.
In addition, the Company's supermajority voting provisions for certain
fundamental corporate transactions, including, among others, amendment of
certain anti-takeover provisions in the Certificate and amendment of the By-
Laws by the stockholders, and the ability of the Board of Directors to
establish the rights of, and to issue, substantial amounts of Preferred Stock
without the need for stockholder approval, which Preferred Stock, among other
things, may be used to create voting impediments with respect to changes in
control of the Company or to dilute the stock ownership of holders of Common
Stock seeking to obtain control of the Company, may have the effect of
discouraging, delaying or preventing a change in control of the Company. See
"Risk Factors--Control by Existing Stockholders; Anti-Takeover Provisions,"
"--Common Stock" and "--Preferred Stock."
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates
of such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate
value in excess of 10% of the consolidated assets of the corporation, and
certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation) between an interested
stockholder and a corporation. The prohibition is for a period of three years
commencing on the date the interested stockholder becomes an interested
stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder; (ii) the interested stockholder
49
<PAGE>
acquired at least 85% of the voting stock of the corporation (other than stock
held by directors who are also officers or by certain employee stock plans) in
the transaction in which it becomes an interested stockholder; or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. See "Risk Factors--Control by Existing
Stockholders; Anti-Takeover Provisions."
REGISTRATION RIGHTS
Pursuant to two registration rights agreements that will become effective
upon the consummation of the Exchange, the Company has granted to the holders
of shares of Common Stock (the "Registrable Securities") certain
rights with respect to the registration of the Registrable Securities under
the Securities Act. Of the shares subject to such registration rights,
shares of Common Stock ( shares if the Underwriters' over-
allotment option is exercised in full) are to be sold by the Selling
Stockholders in the Offering. See "Principal and Selling Stockholders."
Pursuant to a registration rights agreement, Caratec, which will be, upon
the consummation of the Exchange, the holder of 1,776,250 shares of Common
Stock (the "Caratec Registrable Securities"), may require, on two occasions
during the five-year period commencing six months after the consummation of
this Offering, that the Company register all or a portion of the Caratec
Registrable Securities for public resale under the Securities Act, provided,
among other limitations, that the anticipated aggregate gross proceeds will
not be less than $100,000. Of the 1,776,250 shares subject to such
registration rights, shares are to be sold by Caratec in the Offering.
Pursuant to a registration rights agreement with Rolf D. Schmidt, F. William
Schmidt and three partnerships controlled by one or both of them, who will
hold, upon the consummation of the Exchange, 179,974, 179,974, 2,246,945,
2,246,945 and 599,912 shares of Common Stock, respectively (the "Schmidt
Registrable Securities"), and four employees of the Company who will hold,
upon the consummation of the Exchange, 720,000, 480,000, 480,000 and 360,000
shares of Common Stock, respectively (the "Employee Registrable Securities"),
each of the holders of the Schmidt Registrable Securities may require, on two
occasions during the five-year period commencing six months after the
consummation of this Offering, that the Company use its best efforts to
register all or a portion of the Schmidt Registrable Securities held by such
holder for public resale under the Securities Act, and each of the holders of
the Employee Registrable Securities, subject to certain exceptions and
limitations, may require, on one occasion after the later of (i) the
expiration of six months after the consummation of this Offering or (ii) the
termination of such employee's employment, that the Company use its best
efforts to register all or a portion of such holder's Employee Registrable
Securities for public resale under the Securities Act. Of the 7,493,750 shares
subject to such registration rights, shares are to be sold by the
Schmidts in the Offering ( shares, including shares to be sold by
a partnership controlled by the Schmidts, if the Underwriters' over-allotment
option is exercised in full).
In addition, in the event the Company elects to register any Common Stock
under the Securities Act, either for its own account or for the account of any
other stockholders, the Company, during the five-year period commencing six
months after the consummation of the Offering, is required to notify the
holders of the Caratec Registrable Securities, the Schmidt Registrable
Securities and the Employee Registrable Securities (collectively, the
"Registrable Securities") of the proposed registration and, subject to certain
marketing and other limitations, is required, upon request, to use its best
efforts to include in such registration any Registrable Securities requested
to be included.
All registration expenses under the registration rights agreements are to be
borne by the Company and all selling expenses are to be borne by the holders
of the securities being registered.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for the Common
Stock. Except as described below, no shares of Common Stock outstanding prior
to the Offering will be available for sale immediately after the Offering due
to certain legal and contractual restrictions on resale. Sales of substantial
amounts of Common Stock in the public market following this Offering could
adversely affect the market price of the Common Stock and adversely affect the
Company's ability to raise capital at a time and on terms favorable to the
Company.
Of the shares to be outstanding after this Offering (assuming
that the Underwriters' over-allotment option is not exercised),
shares of Common Stock to be issued to certain stockholders in the Exchange
and not sold in this Offering will constitute "restricted securities," as
defined in Rule 144 under the Securities Act. Such securities may be sold only
if registered under the Securities Act or sold in accordance with an available
exemption from registration. These shares will be eligible for sale in the
public market beginning two years after the Exchange, subject to the volume
limitations and other requirements of Rule 144. Of the shares,
shares of Common Stock will be held by "affiliates" of the Company,
as defined in Rule 144(a). For purposes of Rule 144, an "affiliate" of an
issuer is a person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
such issuer.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an "affiliate," is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (approximately shares after giving effect to this Offering), or
the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not an affiliate
at any time during the 90 days preceding a sale, and who has beneficially
owned shares for at least three years, is entitled to sell such shares under
Rule 144(k) without regard to the volume limitations, manner of sale
provisions or public information requirements.
In addition, after the Offering, there will be outstanding options to
purchase 550,000 shares of Common Stock, of which 132,500 will be fully vested
and exercisable. An additional 450,000 shares are reserved for issuance under
the Equity Compensation Plan. The Company intends to register the shares of
Common Stock issuable and reserved for issuance under the Equity Compensation
Plan as soon as practicable following the date of this Prospectus.
All directors and executive officers and certain other stockholders of the
Company who will beneficially own an aggregate shares of Common
Stock upon completion of this Offering, and the Company, with certain limited
exceptions, have agreed, as described below under "Underwriting," with the
Underwriters not to offer for sale, sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of Lehman Brothers Inc.
Certain holders of shares of Common Stock to be outstanding prior
to the Offering, of which shares are to be sold by the Selling
Stockholders in the Offering, will be entitled to certain registration rights
with respect to such shares, which registration rights will become effective
contemporaneously with the Offering. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have an adverse effect on the market
price for the Common Stock. Such rights may not be exercised prior to the
expiration of 180 days from the date of this Prospectus. See "Description of
Capital Stock--Registration Rights."
51
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement, of which this Prospectus is a part, the Underwriters named below
(the "Underwriters"), for whom Lehman Brothers Inc. and Sands Brothers & Co.,
Ltd. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to each Underwriter,
the aggregate number of shares of Common Stock set forth opposite the name of
each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc...............................................
Sands Brothers & Co., Ltd.........................................
---------
Total.........................................................
=========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the
cover page hereof, and to certain dealers at such initial public offering
price less a selling concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other Underwriters or to certain other
brokers or dealers. After the initial offering to the public, the offering
price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby
are subject to approval of certain legal matters by counsel and to certain
other conditions, including the condition that no stop order suspending the
effectiveness of the Registration Statement is in effect and no proceedings
for such purpose are pending or threatened by the Securities and Exchange
Commission (the "Commission") and that there has been no material adverse
change or any development involving a prospective material adverse change in
the condition of the Company from that set forth in the Registration Statement
otherwise than as set forth or contemplated in this Prospectus, and that
certain certificates, opinions and letters have been received from the Company
and its counsel, the Selling Stockholders and their counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company, the Selling Stockholders and the Underwriters have agreed in
the Underwriting Agreement to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
The Company and the Selling Stockholders have granted to the Underwriters an
option to purchase up to an additional shares of Common Stock,
of which shares will be sold by the Selling Stockholders, exercisable solely
to cover over-allotments, at the initial public offering price, less the
underwriting discounts and commissions shown on the cover page of this
Prospectus. Such option may be exercised at any time until 30 days after the
date of the Underwriting Agreement. To the extent that the option is
exercised, each Underwriter will be committed to purchase a number of the
additional shares of Common Stock proportionate to each Underwriter's initial
commitment as indicated in the preceding table.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
52
<PAGE>
All directors and executive officers and certain other stockholders of the
Company who will beneficially own an aggregate shares of Common
Stock upon completion of this Offering have agreed not to offer for sale, sell
or otherwise dispose of (or enter into any transaction that is designed to
result in the disposition of), directly or indirectly, other than to the
Underwriters pursuant to the Underwriting Agreement, shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, for a period of 180 days from the date of this Prospectus without the
prior written consent of Lehman Brothers Inc. Except for the Common Stock to
be sold in the Offering, the Company has agreed, with certain limited
exceptions relating to the grant of options and issuance of Common Stock
pursuant to the Equity Compensation Plan, not to offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is
designed to, or expected to, result in the disposition at any time in the
future of), directly or indirectly, any shares of Common Stock or other
capital stock or any securities convertible into or exchangeable or
exercisable for, or any rights to acquire, Common Stock or other capital
stock, prior to the expiration of 180 days from the date of this Prospectus
without the prior written consent of Lehman Brothers Inc.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. The material factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to the prevailing market conditions, will be the Company's
historical performance, capital structure, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's
management and consideration of the above factors in relation to market values
of companies in related businesses.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are summaries of the material provisions thereof. For
further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Copies of each contract or document referred to
herein are filed as exhibits to the Registration Statement. Copies of the
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C. or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
REPORTS TO SECURITY HOLDERS
The Company intends to distribute to its stockholders annual reports
containing audited financial statements and will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
53
<PAGE>
TRI-POINT MEDICAL L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Balance Sheet as of December 31, 1994 and 1995 and as of March 31, 1996
(unaudited) and Pro Forma Balance Sheet as of March 31, 1996
(unaudited)............................................................ F-3
Statement of Operations for the years ended December 31, 1993, 1994 and
1995 and for the three month periods ended March 31, 1995 and 1996
(unaudited)............................................................ F-4
Statement of Partners' Capital (Deficit) for the years ended December
31, 1993, 1994 and 1995 and for the three month periods ended March 31,
1995 and March 31, 1996 (unaudited).................................... F-5
Statement of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the three month periods ended March 31, 1995 and 1996
(unaudited)............................................................ F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Tri-Point Medical L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' capital (deficit) and of cash flows present fairly,
in all material respects, the financial position of Tri-Point Medical L.P.
(the Partnership) at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Raleigh, North Carolina
June 3, 1996
F-2
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- MARCH 31, 1996
1994 1995 1996 PRO FORMA
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash...................... $ 30,038 $ 19,698 $4,090,839 $4,090,839
Accounts receivable (Note
8)....................... 129,710 266,253 112,785 112,785
Inventories (Note 4)...... 119,319 119,158 83,705 83,705
Prepaid expenses.......... 22,625 26,918 71,665 71,665
----------- ------------ ---------- ----------
Total current assets.... 301,692 432,027 4,358,994 4,358,994
----------- ------------ ---------- ----------
Furniture, fixtures and
equipment (Note 3)......... 433,123 417,887 419,793 419,793
Less--accumulated
depreciation and
amortization............... (148,724) (142,083) (142,515) (142,515)
----------- ------------ ---------- ----------
284,399 275,804 277,278 277,278
----------- ------------ ---------- ----------
Intangible assets, net of
accumulated amortization of
$295,063 and $326,441 at
December 31, 1994 and 1995,
respectively, and $329,060
at March 31, 1996 (Note
5)......................... 198,001 200,164 199,057 199,057
----------- ------------ ---------- ----------
Total assets............ $ 784,092 $ 907,995 $4,835,329 $4,835,329
=========== ============ ========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable.......... $ 184,886 $ 513,717 $ 909,670 $ 909,670
Accrued payroll and
vacation................. 54,353 28,023 72,243 72,243
Deferred revenue (Note
10)...................... -- 77,794 1,069,358 1,069,358
Payable to CRX Medical,
Inc. (Note 2)............ 70,263 195,275 287,454 287,454
Capital lease obligations
(Note 7)................. 2,012 11,956 9,095 9,095
----------- ------------ ---------- ----------
Total current
liabilities............ 311,514 826,765 2,347,820 2,347,820
Notes payable to Sharpoint
Development Corporation
(Notes 6 and 10)........... 7,846,800 10,062,300 -- --
Accrued interest payable to
Sharpoint Development
Corporation (Notes 6 and
10)........................ -- 842,857 -- --
Capital lease obligations
(Note 7)................... 3,563 25,899 25,899 25,899
----------- ------------ ---------- ----------
Total liabilities....... 8,161,877 11,757,821 2,373,719 2,373,719
----------- ------------ ---------- ----------
Partners' capital
(deficit).................. (7,377,785) (10,849,826) 2,461,610 --
Common stock, $.01 par
value, 35,000,000 shares
authorized, 9,600,000
shares issued and
outstanding................ -- -- -- 96,000
Additional paid-in capital.. -- -- -- 2,365,610
----------- ------------ ---------- ----------
Total partners' capital
(deficit) and
stockholders' equity... (7,377,785) (10,849,826) 2,461,610 2,461,610
----------- ------------ ---------- ----------
Total liabilities and
partners' capital
(deficit) and
stockholders' equity... $ 784,092 $ 907,995 $4,835,329 $4,835,329
=========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ---------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product sales (Note 8).. $ 1,047,868 $ 1,478,109 $ 1,380,081 $ 415,162 $ 162,173
License and product
development revenues
(Notes 8 and 10)....... 161,551 25,000 -- -- 3,500,000
----------- ----------- ----------- --------- ----------
Total revenues........ 1,209,419 1,503,109 1,380,081 415,162 3,662,173
----------- ----------- ----------- --------- ----------
Cost of products sold... 366,239 527,644 530,546 117,399 135,743
----------- ----------- ----------- --------- ----------
Gross profit.......... 843,180 975,465 849,535 297,763 3,526,430
----------- ----------- ----------- --------- ----------
Research, development
and regulatory affairs
expenses............... 862,758 1,230,771 1,637,241 341,009 650,852
Selling and
administrative expenses
(Note 1)............... 1,036,900 1,366,603 5,088,979 325,669 626,404
Payments to CRX Medical,
Inc.................... 150,000 150,000 250,000 62,500 287,454
----------- ----------- ----------- --------- ----------
Total operating
expenses............. 2,049,658 2,747,374 6,976,220 729,178 1,564,710
----------- ----------- ----------- --------- ----------
Income (loss) from
operations............. (1,206,478) (1,771,909) (6,126,685) (431,415) 1,961,720
Interest expense to
Sharpoint Development
Corporation............ 341,559 442,783 845,356 191,940 133,500
----------- ----------- ----------- --------- ----------
Net income (loss)....... $(1,548,037) $(2,214,692) $(6,972,041) $(623,355) $1,828,220
=========== =========== =========== ========= ==========
Unaudited pro forma data
(Note 9):
Net income (loss) per
common share........... $ (.69) $ .18
=========== ==========
Weighted average common
shares outstanding..... 10,150,000 10,150,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1996 (UNAUDITED) (NOTE 1)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL (DEFICIT)
--------------------------------------------
GENERAL PARTNER LIMITED PARTNERS
--------------- ----------------------------
SHARPOINT
DEVELOPMENT
CORPORATION EMPLOYEES CRX MEDICAL, INC. TOTAL
--------------- ---------- ----------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993................... $ (3,616,056) -- $1,000 $ (3,615,056)
Net loss................ (1,548,037) -- -- (1,548,037)
------------ ---------- ------ ------------
BALANCE AT DECEMBER 31,
1993................... (5,164,093) -- 1,000 (5,163,093)
Net loss................ (2,214,692) -- -- (2,214,692)
------------ ---------- ------ ------------
BALANCE AT DECEMBER 31,
1994................... (7,378,785) -- 1,000 (7,377,785)
Capital contribution.... -- $3,500,000 -- 3,500,000
Net loss................ (6,972,041) -- -- (6,972,041)
------------ ---------- ------ ------------
BALANCE AT DECEMBER 31,
1995................... (14,350,826) 3,500,000 1,000 (10,849,826)
Conversion of debt and
accrued interest to
partners' capital (Note
9) (unaudited)......... 11,483,216 -- -- 11,483,216
Net income (unaudited).. 1,307,177 521,043 -- 1,828,220
------------ ---------- ------ ------------
BALANCE AT MARCH 31,
1996 (UNAUDITED)....... $ (1,560,433) $4,021,043 $1,000 $ 2,461,610
============ ========== ====== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ---------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:--
Net income (loss)...... ($1,548,037) ($2,214,692) ($6,972,041) ($623,355) $1,828,220
Adjustments to
reconcile net income
(loss) to net cash
provided (used) by
operating activities:
Amortization expense.. 65,438 66,555 31,378 17,003 2,619
Depreciation expense.. 41,984 43,817 51,208 11,738 10,770
Employee Limited
Partnership
interest............. -- -- 3,500,000 -- --
Net loss on disposals
of fixed assets...... 18,302 4,129 55,161 -- 11,252
Net loss on disposals
of intangibles....... -- -- 13,559 -- --
Change in accounts
receivable........... (30,434) 57,659 (136,543) 57,206 153,468
Change in
inventories.......... (53,326) (23,223) 161 (6,087) 35,453
Change in prepaid
expenses............. 7,745 (13,736) (4,293) 7,499 (44,746)
Change in accounts
payable and accrued
expenses............. (32,813) 126,648 302,501 (24,195) 440,173
Change in deferred
revenue.............. -- -- 77,794 -- 991,564
Change in accrued
payable to CRX
Medical, Inc. ....... (36,512) (24,026) 125,012 (7,763) 92,179
Change in accrued
interest due to
Sharpoint Development
Corporation.......... 341,693 442,775 842,857 191,291 138,058
----------- ----------- ----------- --------- ----------
Net cash provided (used)
by operating
activities............. (1,225,960) (1,534,094) (2,113,246) (376,663) 3,659,010
----------- ----------- ----------- --------- ----------
Cash flows from
investing activities:
Additions to furniture,
fixtures and
equipment............. (60,186) (69,771) (97,774) (24,747) (23,496)
Additions to intangible
assets................ (18,583) (66,424) (47,100) (4,422) (1,512)
----------- ----------- ----------- --------- ----------
Net cash used by
investing activities... (78,769) (136,195) (144,874) (29,169) (25,008)
----------- ----------- ----------- --------- ----------
Cash flows from
financing activities:
Proceeds from notes
payable to Sharpoint
Development
Corporation........... 1,290,000 1,683,500 2,215,500 460,000 440,000
Change in capital lease
obligation............ -- 5,575 32,280 -- (2,861)
----------- ----------- ----------- --------- ----------
Net cash provided by
financing activities... 1,290,000 1,689,075 2,247,780 460,000 437,139
----------- ----------- ----------- --------- ----------
Increase (decrease) in
cash................... (14,729) 18,786 (10,340) 54,168 4,071,141
Cash at beginning of
period................. 25,981 11,252 30,038 30,038 19,698
----------- ----------- ----------- --------- ----------
Cash at end of period... $ 11,252 $ 30,038 $ 19,698 $ 84,206 $4,090,839
=========== =========== =========== ========= ==========
</TABLE>
Non-Cash Transactions:
On December 31, 1994, accrued interest of $931,641 was converted to long-
term debt.
On December 31, 1995, the partnership agreement was amended to admit a
new class of limited partners. The fair value of the partnership
interest was reflected as a contribution to partners' capital.
On March 29, 1996, notes payable of $10,502,301 and related accrued
interest of $980,915 was converted to partners' capital.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Tri-Point Medical L.P. (the Partnership) was organized on May 10, 1990 to
develop, commercialize and manufacture, principally in the U.S., a line of
medical adhesives (cyanoacrylates) used primarily for human and veterinary
wound closure. Sharpoint Development Corporation (SDC), the general partner,
contributed $350,000 in cash for its general partner interest. SDC has
provided financing for the Partnership through various notes payable (Note 6).
The Partnership purchased the assets and product technology of CRX Medical,
Inc. (CRX) in 1990 for $700,000 and a limited partnership interest. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventories...................................................... $ 37,351
Property and equipment........................................... 248,637
Patents and trademarks........................................... 281,500
Non-compete agreements........................................... 100,000
Organization costs............................................... 10,000
Goodwill......................................................... 15,000
Prepaid expense.................................................. 7,512
--------
$700,000
========
</TABLE>
CRX contributed $1,000 for its limited partnership interest. The partnership
agreement requires that a percentage of the proceeds received by the
Partnership or its successors upon the sale of all or substantially all of the
net assets of the Partnership or its successors be paid to CRX (see unaudited
pro forma information in Note 9). The partnership agreement also stipulates
that CRX will receive payments based on net sales volume and gross margin,
subject to annual minimum amounts (see related parties section in Note 2).
On December 31, 1995, the partnership agreement was amended to admit certain
employee limited partners as a new class of limited partners who are entitled
to receive 28.5% of partnership income after payments to CRX. The general
partner receives the remainder of the income and all losses of the
Partnership. For financial statement purposes, compensation expense classified
as selling and administrative expenses and contributed capital in the amount
of $3,500,000 were recognized as of December 31, 1995 representing the
estimated fair value of the partnership interest granted to the employee
limited partners.
During 1995, approximately ninety-five percent of the Partnership's revenues
were from domestic sales; the remaining five percent was earned from the
western European market. Human products generated approximately seventy-five
percent of revenues while veterinary products comprised the remaining twenty-
five percent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are stated at cost. Depreciation expense
is computed using the straight-line method over estimated useful lives ranging
between four and ten years. Expenditures for repairs and maintenance are
charged to expense as incurred.
F-7
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Intangible assets
Amounts incurred to secure patents and the estimated fair value of
registered patents acquired from CRX are capitalized and amortized over the
remaining life of the patent on a straight-line basis. Costs are capitalized
until either the related patent is accepted, in which case it is amortized, or
it is rejected and written off. Other intangible assets acquired from CRX were
amortized over a five year life on a straight-line basis.
Costs associated with the organization and formation of the Partnership,
primarily legal costs, were capitalized and amortized over a five year period.
Income taxes
No provision for federal or state income taxes is necessary in the financial
statements of the Partnership for the years ended December 31, 1993, 1994 or
1995 because, as a partnership, it is not subject to federal or state income
taxes and the tax effect of its activities accrues to the partners. A
provision for federal or state income tax for the quarter ended March 31, 1996
is not considered necessary since Tri-Point Medical Corporation (Note 9) does
not expect to have a tax liability for the full year ending December 31, 1996
in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
The tax returns of the Partnership are subject to examination by federal and
state tax authorities. If such examinations occur and result in changes with
respect to the Partnership's qualification or to distributable Partnership
income or loss, the tax liability of the respective partners would be changed
accordingly.
Significant differences between the Partnership's financial statement basis
and the tax basis are as follows:
The financial statement basis loss exceeds the tax basis loss by
approximately $3,900,000 for the year ended December 31, 1995, which is
primarily due to the non-deductibility of certain expenses for tax
purposes.
The Partnership's net assets on a tax basis exceed those reported under
the financial statement basis by approximately $200,000 at December 31,
1995. The difference can be attributed to temporary tax deduction
differences.
The partners' capital account in total is the same for both financial
statement and tax reporting.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Related parties
The Partnership had notes payable to its general partner, SDC, until March
29, 1996. Details of the debt agreements are summarized in Note 6.
Beginning in 1992, CRX, a limited partner, received payments of 4% of
adjusted net sales of veterinary products. CRX also received a minimum of 2%
and a maximum of 8% of adjusted net sales of human products depending on the
gross margin on those sales. At the end of 1992, 1993 and 1994, such
percentage-based payments to CRX were less than $150,000, the stipulated
minimum, and the difference was paid at that time. For each year thereafter,
such payments to CRX were required to be no less than $250,000 until the
Partnership terminates in 2020 (see unaudited pro forma information in Note
9). These payments were expensed in the period earned.
F-8
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For tax purposes, CRX was allocated net income up to the amount of payments
received as described above. The general partner and employee limited partners
were allocated the remainder of any net income after allocation to CRX. The
general partner is allocated 100% of all losses.
During 1993, 1994 and 1995, the Partnership paid a consulting fee to an
individual who is also a shareholder of CRX amounting to $108,660, $116,390
and $20,510, respectively.
Fair value of financial instruments
As required by Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments," the estimated fair
value of current assets and current liabilities approximates the financial
statement carrying value at December 31, 1995.
The estimated fair value of the notes payable to SDC cannot be readily
determined since the notes are payable to a related party who is also the
general partner. See Note 6 for the carrying amount, interest rate and
maturity dates of the notes payable.
Interim financial information
Interim financial information for the three month periods ended March 31,
1995 and 1996 included herein is unaudited; however, in the opinion of the
Partnership, the interim financial information includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods. The results of operations
for the three months ended March 31, 1996 are not indicative of the results to
be expected for the year.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), was issued in March 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Partnership adopted SFAS 121 effective January 1, 1996; the adoption of this
statement did not have a material impact on its results of operations or
financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock-based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. Tri-Point Medical Corporation
intends to continue to apply APB 25 for future stock options and stock-based
awards; consequently, SFAS 123 will not have an impact on the Company's
results of operations or financial positions.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
F-9
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment..................... $ 129,406 $ 134,327 $ 152,299
Machinery and equipment..................... 269,442 208,273 192,207
Leasehold improvements...................... 27,609 27,405 27,405
Machinery and equipment under capital leases
(Note 7)................................... 6,666 47,882 47,882
--------- --------- ---------
433,123 417,887 419,793
Accumulated depreciation and amortization... (148,724) (142,083) (142,515)
--------- --------- ---------
$ 284,399 $ 275,804 $ 277,278
========= ========= =========
</TABLE>
4. INVENTORY
Inventory includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Packaging......................................... $ 42,205 $ 34,574 $30,064
Raw materials..................................... 22,624 22,840 20,185
Work-in-process................................... 32,103 45,408 24,905
Finished goods.................................... 22,387 16,336 8,551
-------- -------- -------
$119,319 $119,158 $83,705
======== ======== =======
</TABLE>
5. INTANGIBLES
Intangible assets include the following:
<TABLE>
<CAPTION>
NON-COMPETE ORGANIZATION
PATENTS TRADEMARKS AGREEMENTS COSTS GOODWILL TOTAL
-------- ---------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net book value at
January 1, 1994........ $134,688 $10,889 $ 26,667 $ 21,805 $ 4,083 $198,132
1994 additions.......... 66,424 -- -- -- -- 66,424
1994 amortization....... (19,244) (8,000) (20,000) (16,311) (3,000) (66,555)
-------- ------- -------- -------- ------- --------
Net book value at
December 31, 1994...... 181,868 2,889 6,667 5,494 1,083 198,001
1995 additions.......... 47,100 -- -- -- -- 47,100
1995 disposals.......... (13,559) -- -- -- -- (13,559)
1995 amortization....... (15,245) (2,889) (6,667) (5,494) (1,083) (31,378)
-------- ------- -------- -------- ------- --------
Net book value at
December 31, 1995...... 200,164 -- -- -- -- 200,164
1996 additions
(unaudited)............ 1,512 -- -- -- -- 1,512
1996 amortization
(unaudited)............ (2,619) -- -- -- -- (2,619)
-------- ------- -------- -------- ------- --------
Net book value at March
31, 1996 (unaudited)... $199,057 -- -- -- -- $199,057
======== ======= ======== ======== ======= ========
Amortization period in
years.................. 5-17 5 5 5 5
</TABLE>
F-10
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE AND RELATED ACCRUED INTEREST
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Sharpoint Development
Corporation; interest payable
annually on December 31 at 9.5%,
principal payable on December 31,
1997; secured by substantially all
Partnership assets.................. $ 7,846,800 $ 7,846,800 --
Various notes payable to Sharpoint
Development Corporation; interest
payable annually on December 31 at
various rates ranging from 9.5% to
9.75%, principal payable on various
dates between January 1998 and
December 1998; secured by
substantially all Partnership
assets.............................. -- 2,215,500 --
----------- ----------- ------
$ 7,846,800 $10,062,300 --
=========== =========== ======
</TABLE>
As of December 31, 1995, the Partnership had not paid any of the accrued
interest; however, SDC has provided a waiver of this requirement until March
15, 1997. On March 29, 1996, notes payable of $10,502,301 and accrued interest
of $980,915 were converted to partners' capital by SDC.
7. LEASES
The Partnership leases office and manufacturing space and equipment under
operating leases which expire at various dates through 1998. Rent expense
related to these leases was approximately $88,000, $98,000 and $93,000 for
1993, 1994 and 1995, respectively. Rent expense for the three months ended
March 31, 1995 and 1996 was approximately $21,276 and $26,037, respectively.
The Partnership leases equipment under capital leases. The lease terms are
four years and the Partnership has the option to purchase the equipment at the
end of the leases.
Future minimum lease payments under noncancellable capital leases and
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996...................................................... $15,246 $119,626
1997...................................................... 14,078 124,552
1998...................................................... 12,436 19,596
1999...................................................... 2,206 --
------- --------
Total minimum lease payments.............................. 43,966 $263,774
========
Less amount representing interest......................... (6,111)
-------
Present value of future minimum lease payments............ $37,855
=======
</TABLE>
F-11
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. MAJOR CUSTOMERS
A seven year marketing agreement with Farnam Companies, Inc. (Farnam) was
signed in December 1992. This agreement gives Farnam exclusive rights to
market, sell and distribute the Partnership's veterinary products in North
America.
Revenues from Farnam aggregated approximately $402,000 or 33%, $400,000 or
27% and $370,000 or 27% of total revenue for the years ended December 31,
1993, 1994 and 1995, respectively, and approximately $83,426 or 20% and
$137,990 or 4% of total revenue for the three months ended March 31, 1995 and
1996, respectively.
The Partnership has a non-exclusive supply agreement with Procter &
Gamble/ALZA, Partners for Oral Health Care (Procter & Gamble/ALZA) for
Octyldent, an adhesive used in conjunction with a periodontal drug delivery
product. Net revenues under this agreement amounted to approximately $-0-,
$1,110,000 or 73% and $1,010,000 or 73% of total revenues during 1993, 1994
and 1995, respectively, and approximately $331,736 or 80% and $24,183 or 1% of
total revenues for the three months ended March 31, 1995 and 1996,
respectively. Accounts receivable related to these revenues were approximately
$45,000 and $243,500 at December 31, 1994 and 1995, respectively.
Two customers other than Farnam or Procter & Gamble/ALZA accounted for
approximately $250,000 or 20% of total revenues during 1993.
9. UNAUDITED PRO FORMA INFORMATION
On May 31, 1996, a contribution and exchange agreement was executed among
SDC, assignees of SDC's economic interest in the Partnership, the successor to
CRX's limited partnership interest and the employee limited partners whereby
each of these parties exchanged their Partnership interests for shares of
Common Stock of the Company (see Note 10), subject to the completion of an
initial public offering by the Company. Under this agreement, individuals and
entities representing SDC, CRX and the employee limited partners will receive
5,453,750, 1,776,250 and 2,370,000 shares of Common Stock of the Company,
respectively. In conjunction with the issuance to CRX of Common Stock in the
Company, CRX has agreed to surrender its rights to receive a percentage of
sales-based payments (Note 2) and a percentage of capital transaction proceeds
(Note 1). The Company will record a non-cash expense related to this issuance
which should not exceed $19,500,000 and which will be offset by a credit to
additional paid-in capital.
Pro forma net income (loss) per share includes the effect of the exchange
and Common Stock equivalents for stock options granted at prices below the
anticipated initial public offering price per share in the twelve months
preceding the offering as if outstanding for all periods presented.
A tax provision related to the unaudited pro forma results of operations for
the three month period ended March 31, 1996 is not considered necessary
because Tri-Point Medical Corporation does not expect to have a tax liability
for the full year ending December 31, 1996.
10. SUBSEQUENT EVENTS
Tri-Point Medical Corporation (the Company) was incorporated on February 20,
1996 as a wholly-owned subsidiary of Tri-Point Medical L.P. and all of the
assets of Tri-Point Medical L.P. were transferred at net book value to the
Company on March 1, 1996. The Company also assumed all liabilities of Tri-
Point Medical L.P. except for the indebtedness to SDC and accrued interest
thereon.
F-12
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On March 20, 1996, the Company entered into an eight-year exclusive supply
and distribution rights agreement with Ethicon, Inc. (Ethicon), a subsidiary
of Johnson & Johnson, whereby the Company will supply Ethicon with a product
for human topical wound closure. In consideration, Ethicon paid the Company
$4,500,000 and agreed to pay additional amounts upon written notification of
U.S. regulatory approval for the product. Of the $4,500,000, $3,500,000 is a
non-refundable licensing fee and $1,000,000 will be offset against either
future product purchases or royalties to be paid by Ethicon on product sales
and has been classified as deferred revenue on the accompanying balance sheet.
Ethicon also agreed to advance the Company additional amounts for direct costs
incurred in connection with clinical studies of the product, which amounts
will be credited against future royalties to be paid by Ethicon. Upon U.S. or
European Community approval of the product, Ethicon is obligated to purchase
certain minimum quantities annually at a predetermined price based on average
selling prices.
On March 29, 1996, notes payable and related accrued interest to SDC in the
amounts of $10,502,301 and $980,915, respectively, were contributed to
partners' capital.
The Company entered into employment agreements with four officers in May
1996 which provide for aggregate annual base compensation of approximately
$580,000 plus performance-based bonuses. The term of each agreement is from
May 1, 1996 to May 31, 1999, with automatic one-year extensions unless 60
days' prior notice is given by either party.
In May 1996 the Company entered into a five-year agreement with a consultant
which provides for annual compensation of $120,000 and includes a grant of
options for 50,000 shares of Common Stock under the Equity Compensation Plan.
On May 28, 1996, the Company adopted an Equity Compensation Plan which
provides for grants of stock options to selected officers, directors,
employees and consultants. The Company expects to grant options for 550,000
shares of Common Stock in connection with a planned 1996 initial public
offering of Common Stock which will result in compensation expense because
such options will have exercise prices below market value. Based upon the
expected vesting schedules, such expense will aggregate approximately
$1,500,000 with $323,000 recognized upon consummation of the offering,
$304,000 per year over the first two years and $285,000 per year over the next
two years.
F-13
<PAGE>
TraumaSeal and Nexacryl will not be commercially
available in the U.S. until FDA approvals are
received. There is no assurance of such approvals.
[TRI-POINT MEDICAL
CORPORATION LOGO]
EMERGENCY ROOM
TRAUMASEAL
TraumaSeal closes wounds with
[PHOTO OF CHILD [PHOTO OF an easily-applied liquid ad-
WITH PARENT AT APPLICATION OF hesive. TraumaSeal does not
EMERGENCY ROOM] TRAUMASEAL] require injections of anes-
thetics, suturing procedures,
adhesive tape or antibiotic
ointment. Patients do not
have to make return visits to
have stitches removed.
OPERATING ROOM
TRAUMASEAL
The Company is inves-
tigating the use of
TraumaSeal for the
closure of surgical
wounds. The Company [PHOTO OF [PHOTO OF
believes that an OPERATING APPLICATION
adhesive surgical ROOM] OF TRAUMASEAL]
closure can reduce
pain and discomfort
for patients--and
translate into less
time spent in the
operating room for
patients and medical
staff.
[PHOTO OF DOCTOR]
PERIODONTAL
OCTYLDENT
Tri-Point's Octyldent
periodontal adhesive
is a topical sealant
used in conjunction
with a site specific [PHOTO OF [PHOTO OF
sustained release PERIODONTIST APPLICATION
anti-bacterial drug WITH PATIENT] OF OCTYLDENT]
therapy to treat
adult periodontal
disease.
OPHTHALMOLOGY
NEXACRYL
Nexacryl is a topical
sealant to be used in
the repair of corneal
ulcers and abrasions.
[PHOTO OF [PHOTO OF
APPLICATION OF OPHTHALMOLOGIST
NEXACRYL] WITH PATIENT]
Various medical supplies depicted are not products of the Company.
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 38
Certain Transactions..................................................... 44
Prior Partnership Status................................................. 45
Principal and Selling Stockholders....................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 51
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Reports to Security Holders.............................................. 53
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
SHARES
[LOGO OF TRI-POINT
MEDICAL CORPORATION APPEARS HERE]
TRI-POINT MEDICAL
CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
LEHMAN BROTHERS
SANDS BROTHERS & CO., LTD.
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by the Company:
<TABLE>
<S> <C>
Registration fee............................................. $ 15,465.00
NASD filing fee.............................................. 4,985.00
Transfer agent and registrar fees............................ 10,000.00
Printing and engraving....................................... 100,000.00
Legal fees................................................... 345,000.00
Blue Sky fees and expenses................................... 25,000.00
Nasdaq National Market listing fee........................... 48,625.00
Accounting fees.............................................. 160,000.00
Miscellaneous................................................ 15,925.00
-----------
Total.................................................... $725,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner the person reasonably believed
to be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. In the case of an action by or in
the right of the corporation, no indemnification may be made with respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the court of
chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually or reasonably incurred by such person in connection
therewith.
B. As permitted by the Delaware General Corporation Law, the Company has
included a provision in its Restated Certificate of Incorporation (Exhibit 3.1
hereto) that, subject to certain limitations, eliminates the ability of the
Company and its stockholders to recover monetary damages from a director of
the Company for breach of fiduciary duty as a director. Article VI of the
Company's By-Laws (Exhibit 3.2 hereto) provides for indemnification of the
Company's directors and officers and advancement of expenses to the extent
otherwise permitted by Section 145. In addition, the Company has agreed to
indemnify certain executive officers of the Company pursuant to the terms of
their employment agreements to the maximum extent permitted by applicable law
against all costs, charges and expenses incurred by each in connection with
any action, suit or proceeding to which he may be party or in which he may be
a witness by reason of his being an officer, director or employee of the
Company or any subsidiary or affiliate of the Company.
C. Reference is made to Section 10 of the Underwriting Agreement (Exhibit 1
hereto) which provides for indemnification among the Company, the Selling
Stockholders and the Underwriters.
II-1
<PAGE>
D. As authorized by Section 145 of the Delaware General Corporation Law and
Article VI of the Company's By-Laws, the Company has applied for, on behalf of
its directors and officers, insurance protection against certain liabilities
arising out of the discharge of their duties, as well as insurance covering
the Company for indemnification payments made to its directors and officers
for certain liabilities, to be effective contemporaneously with this offering.
The premiums for such insurance are to be paid by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Described below are the only transactions within the past three years in
which the Company issued securities which were not registered under the
Securities Act.
On February 29, 1996, all of the assets and liabilities of the Partnership,
except for the indebtedness to Sharpoint, were transferred to the Company in
exchange for one share of Common Stock issued to the Partnership, which is
currently the sole stockholder of the Company. As of the Exchange, obligations
of and interests in the Partnership will be contributed to the Company in
exchange for an aggregate of shares of Common Stock. In addition, on
May 30, 1996, options to purchase an aggregate of 550,000 shares of Common
Stock were granted to employees, non-employee directors and three consultants.
These options will become effective only upon the consummation of the
Exchange, will expire on May 30, 2006, will vest in five equal annual
installments in the case of employees and consultants, and 50% on the date of
grant and 25% on each successive anniversary of the date of grant in the case
of non-employee directors, and, except for the non-employee director options,
have an exercise price equal to the per share price to the public in the
Offering less $3.00. The non-employee director options have an exercise price
of $10.00.
The Company believes that the issuance of shares and grants of options
described above did not and will not involve a public offering and were or
will be exempt from registration under Section 4(2) of the Securities Act
because such issuances and grants were made to a limited group of persons,
each of whom was believed to have been a sophisticated investor or had a pre-
existing business or personal relationship with the Company or its management
and because each such person was purchasing for investment without a view to
further distribution. Restrictive legends were and will be placed on stock
certificates and are contained in stock option agreements evidencing the
securities described above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** By-Laws.
5*** Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1** Office-Warehouse Lease Agreement, dated as of November 7, 1995,
between AP Southeast Portfolio Partners, L.P. and Tri-Point Medical
Corporation.
10.2+** Adhesive Supply Agreement, dated as of March 14, 1991, between Procter
& Gamble/ALZA, Partners for Oral Health Care and Tri-Point Medical
Corporation.
10.3+** Amendment No. 1, dated as of April 13, 1992, to Adhesive Supply
Agreement, dated as of March 14, 1991, between Procter & Gamble/ALZA,
Partners for Oral Health Care and Tri-Point Medical Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4+** Adhesive Supply Agreement, dated as of March 26, 1993, between ALZA
Corporation and Tri-Point Medical Corporation.
10.5+** Supply and Distribution Agreement, dated as of July 14, 1992,
between Chiron Vision Corporation and Tri-Point Medical
Corporation.
10.6+** First Amendment, dated as of April 25, 1995, to Supply and
Distribution Agreement, dated as of July 14, 1992, between Chiron
Vision Corporation and Tri-Point Medical Corporation.
10.7+** Licensing and Distribution Agreement, dated as of December 7, 1992,
between Farnam Companies, Inc. and Tri-Point Medical Corporation.
10.8+** Supply and Distribution Rights Agreement, dated as of March 20,
1996, between Ethicon, Inc. and Tri-Point Medical Corporation.
10.9++** 1996 Equity Compensation Plan.
10.10++** Employment Agreement, dated as of May 31, 1996, between Robert V.
Toni and Tri-Point Medical Corporation.
10.11++** Employment Agreement, dated as of May 31, 1996, between J. Blount
Swain and Tri-Point Medical Corporation.
10.12++** Employment Agreement, dated as of May 31, 1996, between Jeffrey G.
Clark and Tri-Point Medical Corporation.
10.13++** Employment Agreement, dated as of May 31, 1996, between Joe B.
Barefoot and Tri-Point Medical Corporation.
10.14++** Consulting Agreement, dated as of May 31, 1996, between Steven A.
Kriegsman and Tri-Point Medical Corporation.
10.15** Registration Rights Agreement, dated as of May 31, 1996, between
Caratec, L.L.C. and Tri-Point Medical Corporation.
10.16** Registration Rights Agreement, dated as of May 31, 1996, among
Cacoosing Partners, L.P., OMI Partners, L.P., Triangle Partners,
L.P., F. William Schmidt, Rolf D. Schmidt, Robert V. Toni, J.
Blount Swain, Jeffrey G. Clark, Joe B. Barefoot and Tri-Point
Medical Corporation.
10.17** Contribution and Exchange Agreement, dated as of May 31, 1996, among
Cacoosing Partners, L.P., OMI Partners, L.P., Triangle Partners,
L.P., F. William Schmidt, Rolf D. Schmidt, Caratec, L.L.C., Robert
V. Toni, J. Blount Swain, Jeffrey G. Clark, Joe B. Barefoot,
Jeffery C. Basham, Jeffrey C. Leung, Anthony V. Seaber and Tri-
Point Medical Corporation.
10.18* Amendment, dated June 18, 1996, to Office-Warehouse Lease Agreement,
dated as of November 7, 1995, between AP Southeast Portfolio
Partners, L.P. and Tri-Point Medical Corporation.
11*** Statement re: Computation of Per Share Earnings.
23.1* Consent of Price Waterhouse LLP.
23.2*** Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page to the Registration
Statement No. 333-5425).
27** Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Securities and Exchange Commission (the "Commission")
pursuant to an application for confidential treatment filed with the
Commission pursuant to Rule 406 under the Securities Act.
++ Compensation plans and arrangements for executives and others.
(b) Financial Statement Schedules.
None.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
RALEIGH, NORTH CAROLINA, ON JULY 23, 1996.
TRI-POINT MEDICAL CORPORATION
/s/ J. Blount Swain
By: _________________________________
J. BLOUNT SWAIN
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS AND BY J. BLOUNT SWAIN AS ATTORNEY-IN-FACT FOR THE SPECIFIC
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME CAPACITY DATE
---- -------- ----
* President and Chief July 23, 1996
- ------------------------------------- Executive Officer
ROBERT V. TONI (principal executive
officer) and Director
/s/ J. Blount Swain Vice President and Chief
- ------------------------------------- Financial Officer July 23, 1996
J. BLOUNT SWAIN (principal financial and
accounting officer)
* Chairman of the Board and July 23, 1996
- ------------------------------------- Director
ROLF D. SCHMIDT
* Director July 23, 1996
- -------------------------------------
F. WILLIAM SCHMIDT
* Director July 23, 1996
- -------------------------------------
DENNIS C. CAREY
* Director July 23, 1996
- -------------------------------------
MICHAEL K. LORELLI
* Director July 23, 1996
- -------------------------------------
RANDY H. THURMAN
* By: /s/ J. Blount Swain
--------------------------
J. BLOUNT SWAIN
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<C> <S> <C>
1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** By-Laws.
5*** Opinion of Morgan, Lewis & Bockius LLP regarding
legality of the shares of Common Stock being
registered.
10.1** Office-Warehouse Lease Agreement, dated as of
November 7, 1995, between AP Southeast Portfolio
Partners, L.P. and Tri-Point Medical Corporation.
10.2+** Adhesive Supply Agreement, dated as of March 14,
1991, between Procter & Gamble/ALZA, Partners for
Oral Health Care and Tri-Point Medical Corporation.
10.3+** Amendment No. 1, dated as of April 13, 1992, to
Adhesive Supply Agreement, dated as of March 14,
1991, between Procter & Gamble/ ALZA, Partners for
Oral Health Care and Tri-Point Medical Corporation.
10.4+** Adhesive Supply Agreement, dated as of March 26,
1993, between ALZA Corporation and Tri-Point Medical
Corporation.
10.5+** Supply and Distribution Agreement, dated as of July
14, 1992, between Chiron Vision Corporation and Tri-
Point Medical Corporation.
10.6+** First Amendment, dated as of April 25, 1995, to
Supply and Distribution Agreement, dated as of July
14, 1992, between Chiron Vision Corporation and Tri-
Point Medical Corporation.
10.7+** Licensing and Distribution Agreement, dated as of
December 7, 1992, between Farnam Companies, Inc. and
Tri-Point Medical Corporation.
10.8+** Supply and Distribution Rights Agreement, dated as of
March 20, 1996, between Ethicon, Inc. and Tri-Point
Medical Corporation.
10.9++** 1996 Equity Compensation Plan.
10.10++** Employment Agreement, dated as of May 31, 1996,
between Robert V. Toni and
Tri-Point Medical Corporation.
10.11++** Employment Agreement, dated as of May 31, 1996,
between J. Blount Swain and
Tri-Point Medical Corporation.
10.12++** Employment Agreement, dated as of May 31, 1996,
between Jeffrey G. Clark and
Tri-Point Medical Corporation.
10.13++** Employment Agreement, dated as of May 31, 1996,
between Joe B. Barefoot and
Tri-Point Medical Corporation.
10.14++** Consulting Agreement, dated as of May 31, 1996,
between Steven A. Kriegsman and Tri-Point Medical
Corporation.
10.15** Registration Rights Agreement, dated as of May 31,
1996, between Caratec, L.L.C. and Tri-Point Medical
Corporation.
10.16** Registration Rights Agreement, dated as of May 31,
1996, among Cacoosing Partners, L.P., OMI Partners,
L.P., Triangle Partners, L.P., F. William Schmidt,
Rolf D. Schmidt, Robert V. Toni, J. Blount Swain,
Jeffrey G. Clark, Joe B. Barefoot and Tri-Point
Medical Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<C> <S> <C>
10.17** Contribution and Exchange Agreement, dated as of May
31, 1996, among Cacoosing Partners, L.P., OMI
Partners, L.P., Triangle Partners, L.P., F. William
Schmidt, Rolf D. Schmidt, Caratec, L.L.C., Robert
V. Toni, J. Blount Swain, Jeffrey G. Clark, Joe
Barefoot, Jeffery C. Basham, Jeffrey C. Leung,
Anthony V. Seaber and Tri-Point Medical
Corporation.
10.18* Amendment, dated June 18, 1996, to Office-Warehouse
Lease Agreement, dated as of November 7, 1995,
between AP Southeast Portfolio Partners, L.P. and
Tri-Point Medical Corporation.
11*** Statement re: Computation of Per Share Earnings.
23.1* Consent of Price Waterhouse LLP.
23.2*** Consent of Morgan, Lewis & Bockius LLP (included in
its opinion filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page to the
Registration Statement No. 333-5425).
27** Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++ Compensation plans and arrangements for executives and others.
<PAGE>
---------
TRI-POINT MEDICAL CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____ __, 1996
Lehman Brothers Inc.
Sands Brothers & Co., Ltd.,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Tri-Point Medical Corporation, a Delaware corporation (the
"Company"), and certain stockholders of the Company named in Schedule 2
hereto (the "Firm Selling Stockholders"), propose to sell an aggregate of
_________ shares (the "Firm Stock") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"). Of the _________ shares of the
Firm Stock, _________ are being sold by the Company and _______ by the Firm
Selling Stockholders. In addition, the Company and certain stockholders of
the Company named in Schedule 3 hereto (the "Option Selling Stockholders,"
together with the Firm Selling Stockholders, the "Selling Stockholders")
propose to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional _______ shares of
the Common Stock on the terms and for the purposes set forth in Section 3
(the "Option Stock"). The Firm Stock and the Option Stock, if purchased,
are hereinafter collectively called the "Stock." This is to confirm the
agreement concerning the purchase of the Stock from the Company and the
Selling Stockholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
1
<PAGE>
(a) A registration statement on Form S-1, and an amendment
thereto, with respect to the Stock have (i) been prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under
the Securities Act. Copies of such registration statement and the
amendment thereto have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters. As used
in this Agreement, "Effective Time" means the date and the time as of
which such registration statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission;
"Effective Date" means the date of the Effective Time. The
information, if any, included in the prospectus filed by the Company
in accordance with Rule 430A and Rule 424(b) of the Rules and
Regulations that was omitted from the prospectus included in such
registration statement at the time it became effective but that is
deemed, pursuant to paragraph (b) of Rule 430A, to be part of such
registration statement at the time it becomes effective is referred to
herein as the "Rule 430A Information." Each prospectus used before
the time such registration statement became effective, and any
prospectus that omits the Rule 430A Information that is used after
such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "Preliminary Prospectus." Such
registration statement, as amended at the time it became effective and
including, if applicable, the Rule 430A Information, is herein called
the "Original Registration Statement." Any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and the
Original Registration Statement and any Rule 462(b) Registration
Statement are herein referred to collectively as the "Registration
Statement." The prospectus included in the Original Registration
Statement at the time it became effective is herein called the
"Prospectus," except that, if the final prospectus first furnished to
the Underwriters after the execution of this Agreement for use in
connection with the offering of the Stock differs from the prospectus
included in the Original Registration Statement at the time it became
effective (whether or not such prospectus is required to be filed
pursuant to Rule 424(b)), the term "Prospectus" shall refer to the
final prospectus first furnished to the Underwriters for such use.
The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they become
effective or are filed with the Commission, as the case may be,
conform in all respects to the requirements of the Securities Act and
the Rules and Regulations and do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) 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 not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or
the Prospectus in reliance upon and in conformity with written
information furnished to the Company
2
<PAGE>
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification (except where the failure to so
qualify would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the
Company, taken as a whole), and has all power and authority necessary
to own or hold its properties and to conduct the business in which it
is engaged. The Company has no subsidiaries.
(d) (i) The Section 351 Agreement for Contribution of Assets
to Wholly-owned Subsidiary, the Bill of Sale and Assignment and the
Assumption Agreement, each dated February 29, 1996, and each between
Tri-Point Medical L.P. (the "Partnership") and the Company
(hereinafter, collectively, the "Asset Transfer Documents"), (ii) the
subscription agreement, dated February 29, 1996, between the
Partnership and the Company (the "Subscription Agreement"), (iii) the
U.S. trademark application assignment and Canadian trademark
assignment for TraumaSeal(Trademark), the comprehensive patent
assignment and the U.S. trademark registrations assignment, each dated
March 19, 1996, (the "Patent/Trademark Assignments"), relating to the
assignment of certain patents and trademarks by the Partnership to the
Company, and (iv) the contribution and exchange agreement dated as of
May 31, 1996, among Sharpoint Development Corporation, Robert V. Toni,
J. Blount Swain, Jeffrey G. Clark, Joe B. Barefoot, Jeffery C. Basham,
Jeffrey C. Leung, Anthony V. Seaber, Caratec, L.L.C., Cacoosing
Partners, L.P., OMI Partners, L.P., Triangle Partners, L.P., F. W.
Schmidt and Rolf D. Schmidt and the Company (the "Contribution and
Exchange Agreement")(such agreements described in clauses (i)-(iv) are
hereinafter, collectively, the "Reorganization Agreements" and the
actions taken pursuant to such agreements are hereunder, collectively,
the "Reorganization"), are in full force and effect, the Company has
performed all of its obligations thereunder required to be performed
on or prior to the date hereof, and there has been no breach or
violation by the Company of any of the terms or provisions of or
default by the Company under the Reorganization Agreements.
(e) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus.
(f) The unissued shares of the Stock to be issued and sold
by the Company to the Underwriters hereunder have been duly and
validly authorized and, when issued and delivered against payment
therefor as provided herein, will be duly and validly issued, fully
paid and non-assessable; and the Stock will conform to the description
thereof
3
<PAGE>
contained in the Prospectus. As of the Exchange (as defined in the
Registration Statement) after giving effect to the Reorganization
Agreements, all interests in the Partnership will have been
transferred to the Company, free and clear of all liens, encumbrances,
equities or claims, and the Partnership will cease to exist.
(g) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and perform its
obligations hereunder; all corporate action required to be taken by
the Company for the due and proper authorization, issuance, sale and
delivery of the Shares has been duly and validly taken; and this
Agreement has been duly authorized, executed and delivered by the
Company and constitutes the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or in law) and except as
enforcement of Section 10 of this Agreement may be limited by
applicable law.
(h) The execution, delivery and performance of this
Agreement and each of the Reorganization Agreements by the Company,
and the consummation of the transactions contemplated hereby and
pursuant to the Reorganization will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company
is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such actions
result in any violation of the provisions of the restated certificate
of incorporation or by-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its properties or
assets; and except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
or any of the Reorganization Agreements by the Company and the
consummation of the transactions contemplated hereby and pursuant to
the Reorganization.
(i) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
4
<PAGE>
(j) Except as described in the Prospectus, the Company has
not sold or issued any shares of Common Stock during the six-month
period preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the Securities
Act, other than shares issued pursuant to employee benefit plans,
qualified stock options plans or other employee compensation plans or
pursuant to outstanding options, rights or warrants.
(k) The Company has not sustained, since the date of the
latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital stock or
long-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus.
(l) The financial statements (including the related notes
and supporting schedules) filed as part of the Registration Statement
or included in the Prospectus present fairly the financial condition
and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(m) Price Waterhouse LLP, who have certified certain
financial statements of the Company, whose report appears in the
Prospectus and who have delivered the initial letter referred to in
Section 9(i) hereof, are independent public accountants with respect
to the Company as required by the Securities Act and the Rules and
Regulations.
(n) The Company owns no real property and has good and
marketable title to all personal property owned by it, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company; and
all real property and buildings held under lease by the Company is
held by it under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.
(o) The Company carries, or is covered by, insurance in
such amounts and covering such risks as is reasonable and customary
for the conduct of its business and the value of its properties and as
is customary for companies engaged in similar businesses in similar
industries, including but not limited to product liability insurance
and business disruption insurance.
5
<PAGE>
(p) The Company owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of its business and
has no reason to believe that the conduct of its business will
conflict with, and has not received any notice of any claim of
conflict with, any such rights of others.
(q) Except as described in the Prospectus, there are no
legal or governmental proceedings pending to which the Company is a
party or of which any property or assets of the Company is the subject
which, if determined adversely to the Company, might have a material
adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company; and to
the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others.
(r) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(s) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(t) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would be expected to
cause the loss of such qualification.
(u) The Company has filed all federal, state and local
income and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company which has had (nor does the
Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, might have) a material adverse effect on the
financial position,
6
<PAGE>
stockholders' equity, results of operations, business or prospects of
the Company.
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and
records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals.
(x) The Company is not (i) in violation of its restated
certificate of incorporation or by-laws, (ii) in default in any
material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained
in any material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject or (iii)
in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or
to the conduct of its business.
(y) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company (or, to the knowledge of the Company, any of its
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit,
except for
7
<PAGE>
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all
such violations and remedial actions, a material adverse effect on the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment
surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by
the Company or with respect to which the Company has knowledge, except
for any such spill, discharge, leak, emission, injection, escape,
dumping or release which would not have or would not be reasonably
likely to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings and
releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company; and the terms "hazardous wastes", "toxic
wastes", "hazardous substances" and "medical wastes" shall have the
meanings specified in any applicable local, state, federal and foreign
laws or regulations with respect to environmental protection.
(aa) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
(ab) Except as described in the Registration Statement and
the Prospectus, (i) there are no outstanding warrants or options
issued by the Company to purchase any shares of the capital stock of
the Company, (ii) there are no statutory, contractual, preemptive or
other rights to subscribe for or to purchase any Common Stock that do
not by their terms terminate upon the First Delivery Date (as defined
in Section 5 below), and (iii) there are no restrictions upon transfer
of Common Stock pursuant to the Company's certificate of incorporation
or by-laws.
(ac) The Company has all necessary corporate power and
authority to execute and deliver the Reorganization Agreements and to
perform its obligations thereunder; all corporate action required to
be taken by the Company for the due and proper authorization,
issuance, exchange and delivery of Common Stock pursuant to the
Reorganization Agreements has been duly and validly taken; and the
Reorganization Agreements have been duly authorized, executed and
delivered by the Company and constitute valid and legally binding
agreements of the Company, enforceable against the Company in
accordance with their terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or in
law).
(ad) On the First Delivery Date, the Exchange will have been
consummated as contemplated by the Contribution and Exchange Agreement
and as described in the
8
<PAGE>
Prospectus.
(ae) The Company has not taken, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares.
(af) The Company has complied and will comply with all of
the provisions of Florida H.B. 1771, codified as Section 517.075 of
the Florida Statutes, and all regulations promulgated thereunder
relating to issuers doing business in Cuba.
(ag) The issuance and sale of the Common Stock in the
Reorganization did not and will not require registration under the
Securities Act.
(ah) The Company believes that it has satisfied all
applicable regulatory requirements for marketing TraumaSeal in
Canada.
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder, severally and not jointly,
represents, warrants and agrees that:
(a) The Selling Stockholder has, and immediately prior to
the First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have, good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder on such date, free and
clear of all liens, encumbrances, equities or claims; and upon
delivery of such shares and payment therefor pursuant hereto, good and
valid title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all
other similar agreements executed by the other Selling Stockholders,
the "Custody Agreements") with [Robert V. Toni], as custodian (the
"Custodian"), for delivery under this Agreement, certificates in
negotiable form (with signature guaranteed by a commercial bank or
trust company having an office or correspondent in the United States
or a member firm of the New York or American Stock Exchanges)
representing the shares of Stock to be sold by the Selling Stockholder
hereunder.
(c) The Selling Stockholder has duly and irrevocably
executed and delivered a power of attorney (the "Power of Attorney"
and, together with all other similar agreements executed by the other
Selling Stockholders, the "Powers of Attorney") appointing the
Custodian and one or more other persons, as attorneys-in-fact, with
full power of substitution, and with full authority (exercisable by
any one or more of them) to execute and deliver this Agreement and to
take such other action as may be necessary or desirable to carry out
the provisions hereof on behalf of the Selling Stockholder.
9
<PAGE>
(d) The Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement; the execution, delivery and performance of this
Agreement, the Power of Attorney and the Custody Agreement by the
Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which the Selling Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property or assets of the
Selling Stockholder is subject, nor will such actions result, in the
case of a Selling Stockholder that is a partnership, in any violation
of the provisions of the partnership agreement of the Selling
Stockholder or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Selling Stockholder or the property or assets of the Selling
Stockholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody Agreement by the
Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby.
(e) The Registration Statement and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) 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 not
misleading; provided that representation or warranty is made only as
to information contained in or omitted from the Registration Statement
or the Prospectus in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling
Stockholder specifically for inclusion therein.
(f) The Selling Stockholder has no reason to believe that
the representations and warranties of the Company contained in Section
1 hereof are not materially true and correct, is familiar with the
Registration Statement and the Prospectus (as amended or supplemented)
and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement, as of the effective date,
or the Prospectus (or any amendment or supplement thereto), as of the
applicable filing date, which has adversely affected or may adversely
affect the business of the Company and is not prompted to sell shares
of Common Stock by any information concerning the Company which is not
set forth in the Registration Statement and the Prospectus.
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(g) The Selling Stockholder 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 the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
(h) The Selling Stockholder had full right, power and
authority to enter into the Contribution and Exchange Agreement and to
perform its obligations thereunder, and the Selling Stockholder has
performed all of its obligations thereunder required to be performed
on or prior to the date hereof.
In addition to the above representations and warranties by the Selling
Stockholders, Rolf D. Schmidt and F. William Schmidt (the "Principal
Selling Stockholders") represent, warrant and agree that:
(i) The Registration Statement and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) 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 not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or
the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or
on behalf of any Underwriter specifically for inclusion therein.
(j) On ________, 1996, the Partnership purchased one share
of Common Stock pursuant to the Subscription Agreement. The
Partnership had full right, power and authority to enter into the
Subscription Agreement; the execution, delivery and performance of the
Subscription Agreement were duly and validly authorized and approved
by the Partnership, and the Subscription Agreement constituted the
legal, valid and binding obligation of the Partnership.
(k) The Partnership had full right, power and authority to
enter into, to perform the obligations to be performed by it under,
and to consummate the transactions and other acts contemplated by the
Asset Transfer Documents; the execution, delivery and performance of
the Asset Transfer Documents were duly and validly authorized and
approved by the Partnership, the Asset Transfer Documents constituted
the legal, valid and binding obligations of the Partnership; the Asset
Transfer Documents were duly executed and delivered by the duly
authorized agents of the Partnership, and on the First Delivery Date,
the transactions contemplated thereby will have been duly and validly
consummated.
(l) The Patent/Trademark Agreements were duly executed and
delivered by the duly authorized agents of the Partnership and
constituted, legal, valid and binding
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obligations of the Partnership enforceable against the Partnership in
accordance with their terms except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or in
law).
3. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms
and conditions of, this Agreement, the Company agrees to sell _________
shares of the Firm Stock and each Firm Selling Stockholder hereby agrees to
sell the number of shares of the Firm Stock set opposite its name in
Schedule 2 hereto, severally and not jointly, to the several Underwriters
and each of the Underwriters, severally and not jointly, agrees to purchase
the number of shares of the Firm Stock set opposite that Underwriter's name
in Schedule 1 hereto. Each Underwriter shall be obligated to purchase from
the Company, and from each Firm Selling Stockholder, that number of shares
of the Firm Stock which represents the same proportion of the number of
shares of the Firm Stock to be sold by the Company, and by each Firm
Selling Stockholder, as the number of shares of the Firm Stock set forth
opposite the name of such Underwriter in Schedule 1 represents of the total
number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase and agrees to sell up to _______ shares of Option Stock. Each
Option Selling Stockholder grants to the Underwriters an option to purchase
and agrees to sell up to the number of shares of Option Stock set forth
next to its name on Schedule 3 hereto. If the option is exercised as to
only a portion of the Option Stock, the Company and Option Selling
Stockholders will sell their pro rata portions of the Option Stock to be
purchased by the Underwriters. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall
be purchased severally for the account of the Underwriters in proportion to
the number of shares of Firm Stock set opposite the name of such
Underwriters in Schedule 1 hereto. The respective purchase obligations of
each Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no Underwriter shall be obligated to purchase
Option Stock other than in 100 share amounts. The price of both the Firm
Stock and any Option Stock shall be $_____ per share.
The Company, the Firm Selling Stockholders and the Option Selling
Stockholders shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all the
Stock to be purchased on such Delivery Date as provided herein.
4. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the
Firm Stock, the
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several Underwriters propose to offer the Firm Stock for sale upon the
terms and conditions set forth in the Prospectus.
It is understood that _______ shares of the Firm Stock will
initially be reserved by the several Underwriters for offer and sale upon
the terms and conditions set forth in the Prospectus and in accordance with
the rules and regulations of the National Association of Securities
Dealers, Inc. to employees and persons having business relationships with
the Company who have heretofore delivered to the Representatives offers or
indications of interest to purchase shares of Firm Stock in form
satisfactory to the Representatives, and that any allocation of such Firm
Stock among such persons will be made in accordance with timely directions
received by the Representatives from the Company; provided, that under no
circumstances will the Representatives or any Underwriter be liable to the
Company or to any such person for any action taken or omitted in good faith
in connection with such offering to employees and persons having business
relationships with the Company and its subsidiaries. It is further
understood that any shares of such Firm Stock which are not purchased by
such persons will be offered by the Underwriters to the public upon the
terms and conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York, at 10:00 A.M., New York City time, on
the third full business day following the date of this Agreement (fourth,
if the pricing occurs after 4:30 P.M. (New York City time) on any given
day) or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First
Delivery Date, the Company and the Firm Selling Stockholders shall deliver
or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or
upon the order of the Company and the Firm Selling Stockholders of the
purchase price by certified or official bank check or checks payable in
immediately available funds; provided that the amount of such payment shall
be reduced by one day's interest on the amount of gross proceeds at the
Underwriters' cost of borrowing such funds plus any other expenses
associated with such payment of immediately available funds. Time shall be
of the essence, and delivery at the time and place specified pursuant to
this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names
and in such denominations as the Representatives shall request in writing
not less than two full business days prior to the First Delivery Date. For
the purpose of expediting the checking and packaging of the certificates
for the Firm Stock, the Company and the Custodian shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 3 may be exercised by written
notice being given by the Representatives to the Company and the Attorney-
in-Fact of the Option Selling Stockholders. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option
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<PAGE>
is being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when
the shares of Option Stock are to be delivered; provided, however, that
this date and time shall not be earlier than the First Delivery Date nor
earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the
date on which the option shall have been exercised. The date and time the
shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery
Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this
Section 5 (or at such other place as shall be determined by agreement
between the Representatives and the Company) at 10:00 A.M., New York City
time, on the Second Delivery Date. On the Second Delivery Date, the Company
and the Option Selling Stockholders shall deliver or cause to be delivered
the certificates representing the Option Stock to the Representatives for
the account of each Underwriter against payment to or upon the order of the
Company and the Option Selling Stockholders of the purchase price by
certified or official bank check or checks payable in immediately available
funds; provided that the amount of such payment shall be reduced by one
day's interest on the amount of gross proceeds at the Underwriters'
cost of borrowing such funds plus any other expenses associated with such
payment of immediately available funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Representatives shall request in the aforesaid written
notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company and the Custodian shall make
the certificates representing the Option Stock available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New
York City time, on the business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required
by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus except as permitted herein; to advise the Representatives,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
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<PAGE>
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus;
and, if the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Stock or
any other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to amend
or supplement the Prospectus in order to comply with the Securities
Act, to notify the Representatives and, upon their request, to prepare
and furnish without charge to each Underwriter and to any dealer in
securities as many copies as the Representatives may from time to time
reasonably request of an amended or supplemented Prospectus which will
correct such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission (i) any amendment to
the Registration Statement (including any filing under Rule 462(b)) or
supplement to the Prospectus or (ii) any Prospectus pursuant to Rule
424 of the Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain the
consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver
to the Representatives an earnings
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<PAGE>
statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule
158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock; except that in no event shall the Company
be obligated in connection therewith to qualify as a foreign
corporation or execute a general consent for service of process.
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other than
the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than the
grant of options pursuant to option plans existing on the date
hereof), without the prior written consent of Lehman Brothers Inc.;
and to cause each officer and director of the Company to furnish to
the Representatives, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, offer for sale, sell or otherwise dispose of
(or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock for a period of 180
days from the date of the Prospectus, without the prior written
consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of
the Stock on the National Market System and to use its best efforts to
complete that listing, subject only to official notice of issuance and
evidence of satisfactory distribution, prior to the First Delivery
Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the
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<PAGE>
Underwriters and receive and consider its comments thereon, and to
deliver promptly to the Representatives a signed copy of each report
on Form SR filed by it with the Commission; and
(l) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus.
7. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:
(a) To comply with the terms of the lock-up agreement it has
executed that places restrictions on sales of Common Stock in
accordance with the terms thereof.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody
for the Selling Stockholder, is subject to the interest of the
Underwriters and the other Selling Stockholders thereunder, that the
arrangements made by the Selling Stockholder for such custody are to
that extent irrevocable, and that the obligations of the Selling
Stockholder hereunder shall not be terminated by any act of the
Selling Stockholder, by operation of law, by the death or incapacity
of any individual Selling Stockholder or, in the case of a trust, by
the death or incapacity of any executor or trustee or the termination
of such trust, or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States
person.)
8. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any
taxes payable in that connection; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the
Registration Statement and any amendments and exhibits thereto; (c) the
costs of distributing the Registration Statement as originally filed and
each amendment thereto and any post-effective amendments thereof
(including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as
provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the
offering, purchase, sale and delivery of the stock; (e) the fees and
expenses, if any, of the Custodian (and any other attorney-in-fact) and
costs of delivering and distributing the Custody Agreements and the Powers
of Attorney; (f) the filing fees and expenses incident to securing any
required review by the National Association of Securities Dealers, Inc. of
the terms of sale of the Stock; (g) any applicable listing or other fees;
(h) the fees and expenses of qualifying the Stock under the securities laws
of the several jurisdictions as provided in Section 6(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (j) all costs and expenses of the
17
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Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of shares of the Stock by the
Underwriters to employees and persons having business relationships with
the Company, as described in Section 4; and (k) all other costs and
expenses incident to the performance of the obligations of the Company
under this Agreement; provided that, except as provided in this Section 8
and in Section 14, the Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on
the Stock which they may sell and the expenses of advertising any offering
of the Stock made by the Underwriters, and the Selling Stockholders shall
pay the fees and expenses of their counsel and any transfer taxes payable
in connection with their respective sales of Stock to the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when
made and on each Delivery Date, of the representations and warranties of
the Company and the Selling Stockholders contained herein, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a) hereof; the Original
Registration Statement shall have become effective and the
Representatives shall have been informed thereof, not later than the
first full business day next following the date of this Agreement, or
such later date as shall be consented to in writing by the
Representatives; and if the Company has elected to rely on Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective not later than the earlier of (i) 10:00 P.M. Eastern Time on
the date of this Agreement, and (ii) the time confirmations are sent
or given as specified in Rule 462(b)(2), or with respect to the
Original Registration Statement, or such later date as shall be
consented to in writing by the Representatives; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information in
the Registration Statement or the Prospectus or otherwise shall have
been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Shearman & Sterling, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Custody
Agreements, the Powers of Attorney, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to
this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, and the
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Company and the Selling Stockholders shall have furnished to such
counsel all documents and information that they may reasonably request
to enable them to pass upon such matters.
(d) Morgan, Lewis & Bockius LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business
and is in good standing as a foreign corporation in North
Carolina and has all power and authority necessary to own or hold
its properties and to conduct its business as described in the
Prospectus; and to such counsel's knowledge the Company has no
subsidiaries;
(ii) The Reorganization Agreements have been duly
authorized, executed and delivered by the Company and constitute
valid and binding agreements of the Company enforceable against
the Company in accordance with their terms, except as enforcement
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or in law)
and on the First Delivery Date, the transactions contemplated
thereby will have been duly and validly consummated;
(iii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
(iv) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the voting
or transfer of, any shares of the Stock pursuant to the Company's
restated certificate of incorporation or by-laws or any agreement
or other instrument known to such counsel;
(v) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or of which
any property or assets of the Company is the subject which, if
determined adversely to the Company, might have a material
adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company; and,
to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental
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authorities or threatened by others;
(vi) Such counsel has been orally advised by the staff of
the Commission that the Original Registration Statement and the
Rule 462(b) Registration Statement, if any, were declared
effective or automatically became effective, as applicable, under
the Securities Act as of the date and time specified in such
opinion, and such counsel may assume for purposes of its opinion
that the Underwriters have complied with Rule 462(b)(2) under the
Securities Act. The Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein, to such counsel's knowledge, and no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose is pending or
threatened by the Commission;
(vii) The Registration Statement (including the Rule 430A
Information, if applicable) and the Prospectus and any further
amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and
related schedules therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations;
(viii) To such counsel's knowledge, there are no
contracts or other documents which are required to be described
in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations
which have not been described or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
(ix) This Agreement has been duly authorized, executed
and delivered by the Company;
(x) The statements in the Registration Statement and the
Prospectus under the captions "Business--Marketing Partners",
"Description of Capital Stock", "Prior Partnership" and "Shares
Eligible for Future Sale", insofar as such statements describe
statutes, regulations, legal or governmental proceedings,
contracts or other documents referred to therein are accurate in
all material respects and fairly summarize the information called
for with respect to such documents and matters and, insofar as
such statements constitute matters of law or legal conclusions,
have been reviewed by such counsel and fairly present the
information disclosed therein in all material respects;
(xi) Effective upon the execution of this Agreement, the
Exchange as contemplated by the Contribution and Exchange
Agreement and as described in the Prospectus was consummated;
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(xii) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby and the
Reorganization will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel
to which the Company is a party or by which the Company is bound
or to which any of the property or assets of the Company is
subject, nor will such actions result in any violation of the
provisions of the restated certificate of incorporation or by-
laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities
laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and the
Reorganization;
(xiii) Except as described in the Prospectus, to such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act; and
(xiv) The issuance and sale of the Common Stock in the
Reorganization did not and will not require registration under
the Securities Act.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York, the
Commonwealth of Pennsylvania and the General Corporation Law of the
State of Delaware and that such counsel is not admitted in the State
of Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that such counsel has acted as counsel
to the Company in connection with the Reorganization and has acted as
counsel to the Company in connection with the preparation of the
Registration Statement, and such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent accountants for the Company in
which the contents of the Registration Statement and the Prospectus
and related matters were
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discussed and, while such counsel has no particular expertise with
respect to the technical information contained in the Registration
Statement and Prospectus, does not represent the Company with respect
to intellectual property matters, relies as to judgment in respect of
materiality to the Company of any matter on, among other things, the
advice of the Chief Executive Officer and Chief Financial Officer of
the Company and is not passing upon and does not assume responsibility
for the factual accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, no facts have
come to such counsel's attention that would cause it to have reason to
believe that the Registration Statement at the Effective Date
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its
issue date or on the date hereof, contained or contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; it being
understood that such counsel expresses no opinion or belief as to the
financial statement and other financial information contained therein
or omitted therefrom.
(e) The respective counsel for each of the Selling Stockholders
shall have furnished to the Representatives their written opinion, as
counsel to each of the Stockholders for whom they are acting as
counsel, addressed to the Underwriters and dated the First Delivery
Date with respect to the Firm Selling Stockholders and dated the
Second Delivery Date with respect to the Option Selling Stockholders
in form and substance reasonably satisfactory to the Representatives,
to the effect that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and
the Custody Agreement; the execution, delivery and performance of
this Agreement, the Power of Attorney and the Custody Agreement
by each Selling Stockholder and the consummation by each Selling
Stockholder of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which
any Selling Stockholder is a party or by which any Selling
Stockholder is bound or to which any of the property or assets of
any Selling Stockholder is subject, nor will such actions result
in any violation of, in the case of a Selling Stockholder that is
a partnership, the partnership agreement of any Selling
Stockholder or any statute or any order, rule or regulation known
to such counsel of any court or governmental agency or body
having jurisdiction over any Selling Stockholder or the property
or assets of any Selling Stockholder; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and
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performance of this Agreement, the Power of Attorney or the
Custody Agreement by any Selling Stockholder and the consummation
by any Selling Stockholder of the transactions contemplated
hereby and thereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder;
(iii) A Power-of-Attorney and a Custody Agreement have been
duly authorized, executed and delivered by each Selling
Stockholder and constitute valid and binding agreements of each
Selling Stockholder, enforceable in accordance with their
respective terms except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or in law) and except as enforcement of
Section 10 of this Agreement may be limited by applicable law;
(iv) Immediately prior to such Delivery Date, each Selling
Stockholder had good and valid title to the shares of Stock to be
sold by such Selling Stockholder under this Agreement, free and
clear of all liens, encumbrances, equities or claims, and full
right, power and authority to sell, assign, transfer and deliver
such shares to be sold by such Selling Stockholder hereunder;
(v) Good and valid title to the shares of Stock to be sold
by each Selling Stockholder under this Agreement, free and clear
of all liens, encumbrances, equities or claims, has been
transferred to each of the several Underwriters; and
(vi) Each Selling Stockholder has full right, power and
authority to enter into the Contribution and Exchange Agreement
and to perform its obligations thereunder, and each Selling
Stockholder has performed all of its obligations thereunder
required to be performed on or prior to the date hereof.
In addition, counsel to the Principal Selling Stockholders shall
have furnished to the Representatives its written opinion, addressed
to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the
effect that:
(1) The Partnership had full right, power and authority to
enter into the Subscription Agreement; the execution, delivery
and performance of the Subscription Agreement were duly and
validly authorized and approved by the Partnership, and the
Subscription Agreement constituted the legal, valid and binding
obligation of the Partnership;
(2) The Partnership had full right, power and authority to
enter into, to perform the obligations to be performed by them
under, and to consummate the
23
<PAGE>
transactions and other acts contemplated by the Asset Transfer
Documents; the execution, delivery and performance of the Asset
Transfer Documents were duly and validly authorized and approved
by the Partnership, the Asset Transfer Documents constituted the
legal, valid and binding obligations of the Partnership, and on
the First Delivery Date, the transactions contemplated thereby
will have been duly and validly consummated; and
(3) The Patent/Trademark Assignments were duly executed and
delivered by the duly authorized agents of the Partnership and
constituted valid and binding agreements of the Partnership
enforceable against the Partnership in accordance with their
terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in
general and subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or in law) and except as enforcement of Section 10 of this
Agreement may be limited by applicable law.
In rendering such opinions, such counsel to the Selling
Stockholders or Principal Selling Stockholders may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
jurisdiction of the relevant Selling Stockholders and the General
Corporation Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware, provided that if such counsel is
not admitted in the State of New York such counsel may assume that the
laws of the State of New York are the same as the laws of the
jurisdiction of the relevant Selling Stockholders for purposes of its
opinion and (ii) in rendering the opinion in Section 9(e)(iv) above,
rely upon a certificate of each Selling Stockholder in respect of
matters of fact as to ownership of and liens, encumbrances, equities
or claims on the shares of Stock sold by such Selling Stockholder,
provided that such counsel shall furnish copies thereof to the
Representatives and state that it believes that both the Underwriters
and it are justified in relying upon such certificate.
(f) Oliff & Berridge shall have furnished to the Representatives
its written opinion, as special patent counsel for the Company,
addressed to the Underwriters (and stating that it may be relied upon
by counsel to the Underwriters) and dated such Delivery Date to the
effect that:
(i) Such counsel has reviewed the statements set forth
in the Registration Statement and the Prospectus under the
captions "Risk Factors--Patents and Proprietary Technology"
and "Business--Patents, Trademarks and Proprietary Rights,"
such statements accurately summarize the matters described
therein and nothing has come to the attention of such
counsel which leads them to believe that (A) the information
set forth in the Registration Statement, or in any amendment
thereto, under the captions referred to above as of the time
the Registration Statement became effective under the
Securities Act, and as of Delivery Date, contained an
24
<PAGE>
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) the
information set forth in the Prospectus, or in any
supplement thereto, under the captions referred to above as
of its issue date and as of such Delivery Date, contained an
untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements
therein, in the light of the circumstances under which they
are made, not misleading;
(ii) Such counsel has no knowledge of any facts that
would form a basis for the belief that the Company lacks any
rights or licenses to use all technology and know-how
necessary to conduct its business as described in the
Prospectus;
(iii) No facts have come to the attention of such
counsel that would form a basis for the belief that any of
the patents owned by the Company is unenforceable or
invalid. Such counsel is not aware of any valid patent
held by others that is infringed by the activities of the
Company described in the Prospectus or by the manufacture,
use or sale of any product, device, instrument or other
material made and used by the Company and such counsel is
not aware of any pending or threatened action, suit,
proceeding or claim by others that the Company is infringing
or otherwise violating any patents, trade secrets,
trademarks, service marks or other proprietary information
or materials of others; and
(iv) Such counsel has no knowledge of any legal or
governmental proceedings or interference proceedings pending
relating to patents, foreign patents, applications, foreign
applications, trade secrets, trademarks, service marks or
other proprietary information or materials of the Company,
and to such counsel's knowledge no such proceedings are
threatened or contemplated by such governmental authorities
or others.
(g) The Representatives shall have received from Hyman,
Phelps & McNamara, P.C., a written opinion, as Special FDA
Counsel to the Company, dated such Delivery Date, to the effect
that such counsel is not aware of any facts or information which
would lead such counsel to believe that:
(i) The statements set forth in the Registration
Statement and the Prospectus under the captions "Risk
Factors--FDA and Other Government Regulation" and "Business
--Government Regulations" insofar as such statements relate
to requirements under the Federal Food, Drug and Cosmetic
Act (the "Act") and implementing regulations (1) misstate
the law in any material respects; or (2) contain an untrue
statement of a material fact or omit to state a material
fact necessary in order to make such statements, in light of
the circumstances under which they are made,
25
<PAGE>
not misleading; and
(ii) The Company is not in all material respects in
substantial compliance with the Act and applicable
implementing regulations.
(h) The Representatives shall have received from Shearman &
Sterling, counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(i) At the time of execution of this Agreement, the
Representatives shall have received from Price Waterhouse LLP a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date hereof
(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 hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(j) With respect to the letter of Price Waterhouse LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities
Act and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of
the Commission, (ii) stating, as of the date of the bring-down 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 the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(k) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations and warranties of the Company in
Section 1 are
26
<PAGE>
true and correct as of such Delivery Date; the Company has
complied with all its agreements contained herein; and the
conditions set forth in Sections 9(a) and 9(o) have been
fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B)
since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration
Statement or the Prospectus.
(l) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the First Delivery Date a
certificate, dated the First Delivery Date, signed by, or on behalf
of, the Selling Stockholder (or the Custodian or one or more
attorneys-in-fact) stating that the representations and warranties of
the Selling Stockholder contained herein are true and correct as of
the First Delivery Date and that the Selling Stockholder has complied
with all agreements contained herein to be performed by the Selling
Stockholder at or prior to the First Delivery Date.
(m) (i) The Company shall not have sustained since the date
of the latest audited financial statements included in the Prospectus
any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus that
would, in the Representatives' sole and exclusive judgment, make the
offering or delivery of the Stock impracticable or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is, in the judgment of the Representatives, so
material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(n) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission,
by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United
States shall have
27
<PAGE>
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or
(iv) there shall have occurred such a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as, in each case, to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(o) The National Market System shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who
controls any Underwriter within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to
which that Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based
upon any written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities laws of
any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading
or (iii) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the Stock
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), and shall
reimburse each Underwriter and each such officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably
incurred by that Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to defend against
28
<PAGE>
any such loss, claim, damage, liability or action as such expenses are
incurred; 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 arises out of, or is based upon, any untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any such
amendment or supplement, or in any Blue Sky Application, in reliance upon
and in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein; provided further, that the
Company shall not be liable under clauses (i), (ii) and (iii) above to the
extent that any such loss, claim, damage, or liability of such Underwriter
results from the fact that a copy of the Prospectus was not sent or given
to such person by such Underwriter as required and within the time required
by the Securities Act and if the untrue statement or omission shall have
been corrected in the Prospectus, subject to the following: (a) the burden
of showing that a copy of the Prospectus was not so sent or given shall be
on the Company and (b) the failure to deliver a copy of the Prospectus does
not result from non-compliance by the Company with Section 6(c)(ii) hereof.
The foregoing indemnity agreement is in addition to any liability which the
Company may otherwise have to any Underwriter or to any officer, employee
or controlling person of that Underwriter.
(b) The Selling Stockholders, severally and not jointly, shall
indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee
or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
shall reimburse each Underwriter, its officers and employees and each such
controlling person for any legal or other expenses reasonably incurred by
that Underwriter, its officers and employees or controlling person in
connection with investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Selling Stockholders shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in
any such amendment or supplement in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically
for inclusion therein; provided further, that the Selling Stockholders
shall not be liable under clauses (i) and (ii) above to the extent that any
such loss, claim, damage, or liability of such Underwriter results from the
fact that a copy of the Prospectus was not sent or given to such person by
such Underwriter as required and within the time required by the Securities
Act and if the untrue statement or omission shall have been corrected in
the Prospectus,
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<PAGE>
subject to the following: (a) the burden of showing that a copy of the
Prospectus was not so sent or given shall be on the Selling Stockholders
and (b) the failure to deliver a copy of the Prospectus does not result
from non-compliance by the Company with Section 6(c)(ii) hereof and;
provided still further, that the liability of any Selling Stockholder shall
be limited to the amount of the net proceeds (after deducting the
Underwriters' discount but before deducting expenses) received by such
Selling Stockholder from the sale of its Stock pursuant to this Agreement.
The foregoing indemnity agreement is in addition to any liability which the
Selling Stockholders may otherwise have to any Underwriter or any officer,
employee or controlling person of that Underwriter.
In making a claim for indemnification or contribution under this
Section 10 by the Company or any Selling Stockholder, the indemnified
parties may proceed against either (1) both the Company and such Selling
Stockholders jointly or (2) the Company only, but may not proceed solely
against such Selling Stockholders. No Selling Stockholder that is not a
Principal Selling Stockholder or an affiliate of a Principal Selling
Stockholder (a "Non-Principal Selling Stockholder") shall be required to
provide indemnification or contribution under this Section 10 until the
indemnified parties shall have first made a demand on the Company with
respect to such loss, claim, damage, liability or expense, and the Company
shall have either rejected such demand or failed to make such requested
payment within 60 days after receipt of such demand, provided that no such
prior demand on the Company need be made if (A) the Company files a
petition for relief under the United States Bankruptcy Code (the
"Bankruptcy Code"), (B) an order for relief is entered against the Company
in an involuntary case under the Bankruptcy Code, (C) the Company makes an
assignment for the benefit of its creditors, or (D) any court order or
approves the appointment of a receiver or custodian for the Company or a
substantial portion of its assets. Notwithstanding anything to the
contrary contained herein, the provisions of this paragraph shall not apply
to any claim for indemnity against a Non-Principal Selling Stockholder if
the indemnified parties are entitled to seek indemnity against a Non-
Principal Selling Stockholder with respect to liability resulting from
written information concerning such Non-Principal Selling Stockholder
furnished to the Company by or on behalf of such Non-Principal Selling
Stockholder.
(c) Each Underwriter, severally and not jointly, shall indem-
nify and hold harmless the Company, its officers and employees, each of its
directors, the Selling Stockholders, and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer, employee, Selling Stockholder or controlling person may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or in any Blue Sky Application
any material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such
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<PAGE>
Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company, or any such director,
officer, employee, Selling Stockholder or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 10 except to the extent it has been materially prejudiced by such
failure and, provided further that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 10. If any such claim
or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 10
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that an indemnified party shall have the
right to employ counsel to represent jointly it and those other indemnified
parties who may be subject to liability arising out of any claim in respect
of which indemnity may be sought under this Section 10 if, in the
reasonable judgment of such indemnified party, it is advisable for it and
those other indemnified parties be jointly represented by separate counsel,
and in that event the fees and expenses of such separate counsel shall be
paid by the indemnifying parties. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall
not be unreasonably withheld), settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b)
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<PAGE>
or 10(c) in respect of any loss, claim, damage or liability, or any action
in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be 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 Stock 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 the Selling Stockholders on the one hand and the Underwriters
on the other with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and
the Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of
the Stock purchased under this Agreement (before deducting expenses)
received by the Company and the Selling Stockholders, on the one hand, and
the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the
offering of the shares of the Stock under this Agreement, 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 whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Selling Stockholders or the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct
or prevent such 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 Section 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
into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in
this Section shall be deemed to include, for purposes of this Section
10(e), any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 10(e), no Underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Stock underwritten by it and distributed to
the public was offered to the public exceeds the amount of any damages
which such Underwriter has otherwise paid or become liable to pay by reason
of any untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 10(e), no Selling
Stockholder shall be required to contribute any amount in excess of the
amount by which its total amount of the net proceeds (after deducting the
Underwriters' discount but before deducting expenses) received by such
Selling Stockholder from the sale of its Stock pursuant to this Agreement
exceeds the amount of any damages which such Selling Stockholder has
otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 10(e) are several in
proportion
32
<PAGE>
to their respective underwriting obligations and not joint.
(f) The Underwriters severally confirm that the statements with
respect to the public offering of the Stock by the Underwriters set forth
on the cover page of, the legend concerning over-allotments on the inside
front cover page of and the concession and reallowance figures appearing
under the caption "Underwriting" in, the Prospectus are correct, and the
Company acknowledges that these statements constitute the only information
concerning such Underwriters furnished in writing to the Company by or on
behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
11. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date
in the respective proportions which the number of shares of the Firm Stock
set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters in
Schedule 1 hereto; provided, however, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Stock on such
Delivery Date if the total number of shares of the Stock which the
defaulting Underwriter or Underwriters agreed but failed to purchase on
such date exceeds 9.09% of the total number of shares of the Stock to be
purchased on such Delivery Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase more than 110% of the number
of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 3. If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have
the right, but shall not be obligated, to purchase, in such proportion as
may be agreed upon among them, all the Stock to be purchased on such
Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares
which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the
Second Delivery Date, the obligation of the Underwriters to purchase, and
of the Company to sell, the Option Stock) shall terminate without liability
on the part of any non-defaulting Underwriter or the Company or the Selling
Stockholders, except that the Company will continue to be liable for the
payment of expenses to the extent set forth in Sections 8 and 14. As used
in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed
in Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock
which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have to the Company and the Selling Stockholders
for damages caused by its default. If other underwriters are obligated or
agree to purchase the Stock of a defaulting or withdrawing Underwriter,
either the Representatives or the Company may postpone the Delivery Date
for up to seven full business days in order to effect any changes that in
the opinion of counsel for the
33
<PAGE>
Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or
arrangement.
12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by
the Company and the Selling Stockholders prior to delivery of and payment
for the Firm Stock if, prior to that time, any of the events described in
Sections 9(m) or 9(n), shall have occurred or if the Underwriters shall
decline to purchase the Stock for any reason permitted under this
Agreement.
13. Reimbursement of Underwriters' Expenses. If the Company or
any Selling Stockholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of
the Company or the Selling Stockholder(s) to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company or the
Selling Stockholder(s) is not fulfilled, the Company and the Selling
Stockholder(s) that so fails or is responsible for such non-fulfillment
will reimburse the Underwriters for all reasonable out-of-pocket expenses
(including fees and disbursements of counsel) incurred by the Underwriters
in connection with this Agreement and the proposed purchase of the Stock,
and upon demand the Company and such Selling Stockholder(s) shall pay the
full amount thereof to the Representative(s). If this Agreement is
terminated pursuant to Section 11 by reason of the default of one or more
Underwriters, neither the Company nor any Selling Stockholder shall be
obligated to reimburse any defaulting Underwriter on account of those
expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy to Sands Brothers & Co.,
Ltd., 90 Park Avenue, New York, New York 10016, Attention: Steven
Sands (Fax: 212-697-8035), and with a copy, in the case of any notice
pursuant to Section 10(d), to the Director of Litigation, Office of
the General Counsel, Lehman Brothers Inc., 3 World Financial Center,
10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: [_________] (Fax: (919) 790-
1041);
(c) if to any Selling Stockholders, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling Stockholder
at the address set forth on Schedule 2 hereto;
provided, however, that any notice to an Underwriter pursuant to Section
10(d) shall be delivered or sent by mail, telex or facsimile transmission
to such Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto
34
<PAGE>
by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof.
The Company and the Selling Stockholders shall be entitled to act and rely
upon any request, consent, notice or agreement given or made on behalf of
the Underwriters by Lehman Brothers Inc. on behalf of the Representatives
and the Company and the Underwriters shall be entitled to act and rely upon
any request, consent, notice or agreement given or made on behalf of the
Selling Stockholders by the Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the
Company, the Selling Stockholders and their respective successors. This
Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders
contained in this Agreement shall also be deemed to be for the benefit of
the person or persons, if any, who control any Underwriter within the
meaning of Section 15 of the Securities Act and (B) the indemnity agreement
of the Underwriters contained in Section 10(c) of this Agreement shall be
deemed to be for the benefit of directors of the Company, officers of the
Company who have signed the Registration Statement, any person controlling
the Company or any Selling Stockholder within the meaning of Section 15 of
the Securities Act and Selling Stockholders. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 16, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained
herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless
of any investigation made by or on behalf of any of them or any person
controlling any of them.
17. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on which
the New York Stock Exchange, Inc. is open for trading and (b) "subsidiary"
has the meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
Each party irrevocably agrees that any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the
federal courts of the United States of America located in the City of New
York or the courts of the State of New York in each case located in the
Borough of Manhattan in the City of New York (collectively, the "Specified
Courts"), and irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any
such court (a "Related Judgment"), as to which such jurisdiction is non-
exclusive) of such courts in any such suit, action or proceeding. The
parties further agree that
35
<PAGE>
service of any process, summons, notice or document by mail to such party's
address set forth above shall be effective service of process for any
lawsuit, action or other proceeding brought in any such court. The parties
hereby irrevocably and unconditionally waive any objection to the laying of
venue of any lawsuit, action or other proceeding in the Specified Courts,
and hereby further irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such lawsuit, action or other
proceeding brought in any such court has been brought in an inconvenient
forum.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the
meaning or interpretation of, this Agreement.
36
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the Underwriters, please indicate
your acceptance in the space provided for that purpose below.
Very truly yours,
TRI-POINT MEDICAL CORPORATION
By --------------------------------------
Title
---------------------------------
The Selling Stockholders named in Schedule 2
to this Agreement
By
--------------------------------------
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
SANDS BROTHERS & CO., LTD.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
-------------------------------------------
Authorized Representative
37
<PAGE>
SCHEDULE 1
Underwriters
------------ Number of
Shares
--------
Lehman Brothers Inc. . . . . . . . . . . . .
Sands Brothers & Co., Ltd. . . . . . . . . .
-------
Total
===================
38
<PAGE>
SCHEDULE 2
Number of Shares
Name and address of Firm Selling Stockholder of Firm Stock
-------------------------------------------- -----------------
Caratec, L.L.C............................................
Rolf D. Schmidt...........................................
F. William Schmidt........................................
Total
=====
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<PAGE>
SCHEDULE 3
Number of Shares
Name and address of Option Selling Stockholder of Option Stock
---------------------------------------------- ------------------
Rolf D. Schmidt..........................................
F. William Schmidt.......................................
OMI Partners, L.P........................................
Total
========
40
<PAGE>
[LETTERHEAD OF CROCKER REALTY TRUST APPEARS HERE]
June 18, 1996
Mr. Robert Toni
Tri-Point Medical Corporation
5265 Capital Blvd.
Raleigh, NC 27616
RE: One North Commerce Center Office-Warehouse Lease
Dear Mr. Toni:
Please accept this letter from Landlord granting Tri-Point Medical Corporation a
six month extension of the existing Lease Agreement dated November 7, 1995
between AP Southeast Portfolio Partners, L.P. and Tri-Point Medical, L.P. The
Expiration Date shall change to August 31, 1998. The rental rate during this six
month extension shall be $6.35 per square foot or $7,925.86 per month. All other
terms and conditions of the original lease shall remain in full force and
effect.
Please sign below to acknowledge your acceptance of the extension terms, and
return two originals to my attention. If you have any questions, please call me
at 704/529-5386.
Sincerely,
/s/ Robert J. Holmes, Jr.
Robert J. Holmes, Jr.
Vice- President
RJH, Jr.//shp
cc: Mr. Howard Sadkin
Corporate Realty Advisors
Acknowledged: /s/ Robert V. Toni
------------------
Ti-Point Medical Corporation
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of our report dated
June 3, 1996, relating to the financial statements of Tri Point Medical L.P.,
which appears in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data".
Price Waterhouse LLP
Raleigh, North Carolina
July 23, 1996
