As filed with the Securities and Exchange Commission on December 1, 1998
Registration No. 333-________
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARDIA, INC.
(Name of small business issuer in its charter)
MINNESOTA 3842 41-1923885
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
501 EAST HIGHWAY 13
BURNSVILLE, MINNESOTA 55337
(612) 890-1123
(Address and telephone number of registrant's principal
executive offices and principal place of business)
JOSEPH A. MARINO
CARDIA, INC.
501 EAST HIGHWAY 13
BURNSVILLE, MINNESOTA 55337
(612) 890-1123
(Name, address and telephone number of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
PATRICK DELANEY
JEFFREY N. SAUNDERS
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER
80 SOUTH EIGHTH STREET
MINNEAPOLIS, MN 55402
------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
POSSIBLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------
If this form is filed to register additional securities, for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement Number of earlier effective
Registration Statement for the same offering: [ ]
If this form is a post-effect 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 this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement Number of the earlier effective Registration Statement
for the same offering: [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 500,000 $0.01 $5,000 $75.17(1)
=================================================================================================================
Common Stock Underlying Rights,
$0.01 par value 500,000 $1.00 $500,000 $139.00
=================================================================================================================
Rights(2) 500,000 -(3) -(3) -(3)
=================================================================================================================
</TABLE>
(1) Computed based on the book value of the net assets as of September 30, 1998
contributed to the Registrant in accordance with Rule 457(f)(2) of the
Securities Act of 1933, as amended.
(2) One non-transferable right to purchase one share of Common Stock will be
issued for each share of Common Stock outstanding.
(3) Pursuant to Rule 457(g)(3), no separate registration fee is required with
respect to the Rights.
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
-------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1998
DISTRIBUTION AND
RIGHTS OFFERING
PROSPECTUS
CARDIA, INC.
DISTRIBUTION OF 375,000 SHARES OF COMMON STOCK
RIGHTS OFFERING OF 500,000 SHARES OF COMMON STOCK
$1.00 PER SHARE
<TABLE>
<S> <C>
Cardia, Inc. We develop, manufacture and intend to market Transcatheter
501 East Highway 13 Closure Devices for the repair of certain cardiac defects in
Burnsville, Minnesota 55337 children and adults. Our products are intended to reduce the
need for open heart surgery to correct certain cardiac defects.
THE DISTRIBUTION: This is the first time Cardia Common Stock will be owned by
Applied Biometrics, Inc. will distribute one share of Cardia, anyone other than Applied Biometrics, Inc., and no public
Inc. Common Stock for every 11.563 shares of Applied market currently exists for our shares.
Biometrics, Inc. Common Stock held as of _______ __, 199__.
THE RIGHTS OFFERING: The price in the Rights Offering may not reflect the market
Every person who is a Cardia, Inc. shareholder immediately price of our shares after the Rights Offering.
after the Distribution will receive the nontransferable right to
purchase one additional share of Cardia Common Stock for
each share of Cardia Common Stock he or she owns at a price
of $1.00 per share.
</TABLE>
Proposed Trading Symbol:
OTC Bulletin Board - CRDI
----------------------------
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
If You Can Afford a Complete Loss. See "Risk Factors" Beginning on Page 6 of
This Prospectus.
-------------------------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. NO
PROXIES ARE BEING SOLICITED. PLEASE DO NOT SEND A PROXY TO CARDIA OR APPLIED
BIOMETRICS.
--------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------
The date of this Prospectus is , 1999
<PAGE>
AVAILABLE INFORMATION
Cardia has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to Cardia Common Stock to be issued in the Distribution and the
Rights Offering. This prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. For further
information, reference is made hereby to the Registration Statement and the
exhibits thereto. Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the copies of
such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Copies of these
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street NW, Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, NY
10048, at CitiCorp Center, Suite 1400, 500 West Madison Street, Chicago, IL
60661, and at 5670 Wilshire Blvd., Suite 1100, Los Angeles, CA 90036, and copies
of all or any part thereof may be obtained from the Commission upon payment of
the charges prescribed by the Commission. Copies of such documents may also be
obtained from the Commission's web site (http://www.sec.gov).
Following the Distribution, Cardia will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and will file annual, quarterly and other reports with the
Commission. The Company will also be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish audited
financial statements to its shareholders in connection with its Annual Meeting
of Shareholders.
---------------------------------
NO PERSON IS AUTHORIZED BY CARDIA TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety, including
the discussion of certain factors set forth under "Risk Factors."
THE DISTRIBUTION
Applied Biometrics, Inc., a Minnesota corporation ("ABI"), will make a
distribution (the "Distribution") of shares of the Common Stock of Cardia, Inc.,
a Minnesota Corporation ("Cardia" or the "Company"), to the shareholders of ABI
as a dividend. The Distribution is described in more detail below:
DISTRIBUTING ENTITY. Applied Biometrics, Inc., a Minnesota corporation.
SHARES TO BE DISTRIBUTED. Approximately 375,000 shares of Common Stock
of Cardia, Inc., a Minnesota corporation ("Cardia" or the "Company"),
representing 75% of the outstanding shares of Cardia Common Stock, will be
distributed to the shareholders of ABI. Immediately prior to the effective date
of this Prospectus, Joseph A. Marino, the Chairman and Chief Executive Officer
of ABI and Cardia, purchased 25% of the outstanding shares of Cardia Common
Stock at a price of $1.00 per share, which is equal to the Subscription Price in
the Rights Offering described below.
DISTRIBUTION RATIO. One share of Cardia Common Stock will be
distributed to ABI shareholders for every 11.563 shares of ABI Common Stock held
on the Record Date. Fractional shares will be rounded to the nearest whole
share. No payment need be made by, or will be accepted from, ABI shareholders
for Cardia Common Stock. Furthermore, ABI shareholders will not be required to
surrender or exchange ABI Common Stock to receive Cardia Common Stock.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION. Cardia has been formed
to pursue the further development and commercialization of certain Transcatheter
Closure Devices (TCDs). The TCD business is very different from ABI's cardiac
output measurement business. The primary purposes of the Distribution are to
enable ABI to conserve its liquid assets of approximately $3 million to continue
to pursue its cardiac output measurement business, to enable Cardia to raise
immediately needed working capital through the Rights Offering of its Common
Stock which will immediately follow the Distribution (described below), and to
permit ABI's shareholders to participate in both companies. The Distribution is
also intended to permit ABI and Cardia each to:
o adopt strategies and pursue objectives appropriate to its
specific business;
o enable management to concentrate attention and financial
resources on its core business;
o make acquisitions and enter into transactions with strategic
partners by issuing its own equity securities;
o implement incentive compensation arrangements that are more
directly based on results of operations of its separate
business; and
o be recognized and evaluated by the financial community as a
separate and distinct business.
BUSINESS STRATEGY OF CARDIA. No significant market currently exists for
Cardia's TCDs. Cardia is marketing and selling a TCD for the correction of
patent ductus arteriosus (PDA) defects on an experimental basis in Europe. The
Company is currently focusing significant development and regulatory approval
efforts on a TCD for the correction of patent foramen ovale (PFO) defects in
adults. Cardia believes the market for PFO closure devices will be
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significantly larger than that for PDA closure devices. Initial development and
regulatory approval efforts will take place in Europe.
INITIAL ASSETS OF CARDIA. The initial assets of Cardia will consist of
inventory, accounts receivable, fixed assets, intellectual property relating to
the TCD business and cash of $125,000. Concurrently with the Distribution,
Cardia will commence a Rights Offering which is described in detail below.
Joseph A. Marino, the Chairman and Chief Executive Officer of ABI and Cardia,
has guaranteed to Cardia that he will purchase the number of shares of Cardia
Common Stock necessary to obtain subscriptions for not less than 400,000 shares
in the Rights Offering. Accordingly, following the Distribution and the Rights
Offering, the minimum beginning shareholders' equity of Cardia will be $670,403.
RECORD DATE. Close of business on ____________ ____, 199_.
DISTRIBUTION DATE. As soon as practicable after completion of the
Rights Offering described below.
DISTRIBUTION AGENT. Norwest Bank Minnesota, N.A.
MAILING OF STOCK CERTIFICATES. Certificates representing the shares of
Cardia Common Stock issued in the Distribution will be mailed as soon as
practicable after the expiration of the Rights Offering.
RESULTS OF THE DISTRIBUTION. After the Distribution, Cardia will be an
independent publicly held company which will continue to conduct its business as
described in this Prospectus. Immediately following the Distribution, ABI
shareholders will own 74.5% and Joseph A. Marino will own 25.5% (including
shares to be distributed with respect to shares of ABI Common Stock beneficially
owned by Mr. Marino), respectively, of the outstanding shares of Cardia Common
Stock.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION. An ABI shareholder
will be treated as receiving a distribution from ABI in an amount equal to the
fair market value of the Cardia Common Stock received. While the following
should not be regarded as tax advice to ABI shareholders, and shareholders
should obtain advice from their own tax advisors, ABI shareholders will not
recognize dividend income as a result of the Distribution unless the fair market
value of the Cardia Common Stock received in the Distribution exceeds the
aggregate basis of ABI Common Stock held by a shareholder immediately before the
Distribution. Any shareholder recognizing such a gain will recognize a gain
equal to such excess and the gain will constitute a capital gain if such
shareholder's ABI Common Stock with respect to which the Cardia Common Stock is
received is held as a capital asset on the date of the Distribution. For those
ABI shareholders who do not recognize any gain on the Distribution, the
aggregate basis of the shares of ABI Common Stock and Cardia Common Stock held
immediately after the Distribution will be the same as the basis of the ABI
Common Stock held immediately before the Distribution. That aggregate basis will
be first allocated to the Cardia Common Stock in an amount equal to its fair
market value on the date of the Distribution. The remaining basis will be
allocated to the ABI Common Stock. For those ABI shareholders that do recognize
gain on the Distribution, the basis of the Cardia Common Stock held immediately
after the Distribution will equal its fair market value on the date of the
Distribution and the ABI Common Stock will have a basis of zero. ABI has
received the opinion of Lindquist & Vennum P.L.L.P. that ABI will not recognize
any income for federal or state income tax purposes by reason of the
Distribution.
THE RIGHTS OFFERING
Concurrently with the Distribution, Cardia will commence an offering of
its Common Stock to its shareholders (the "Rights Offering"). The Rights
Offering is described in more detail below:
RIGHTS. Simultaneously with the Distribution, Cardia will distribute to
its shareholders Rights to purchase an aggregate of approximately 500,000 shares
of Cardia Common Stock (the "Underlying Shares"), on the basis of one
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<PAGE>
Right for each share of Cardia Common Stock held by a shareholder immediately
after the Distribution. The exercise of the Rights is irrevocable once made, and
no Underlying Shares will be issued until the closing of the Rights Offering.
Joseph A. Marino, the Chairman and Chief Executive Officer of ABI and Cardia has
advised Cardia that he intends to exercise his Rights to purchase an aggregate
of 127,522 shares of Cardia Common Stock and up to an additional 272,478 shares
of Cardia Common Stock pursuant to the Standby Subscription Guaranty discussed
below.
RIGHTS RECORD DATE. The Rights Record Date will be , 1999.
The Rights will be mailed to Cardia shareholders on the Rights Record Date.
BASIC SUBSCRIPTION PRIVILEGE. Rights Holders are entitled to purchase,
at the Subscription Price of $1.00, one share of Cardia Common Stock for each
Right held.
OVER-SUBSCRIPTION PRIVILEGE. Each holder of a Right who elects to
exercise his or her Basic Subscription Privilege in full may also subscribe, at
the Subscription Price, for Underlying Shares, if any, remaining unissued after
satisfaction of all subscriptions pursuant to the Basic Subscription Privilege.
The number of Underlying Shares which may be subscribed for by a Holder pursuant
to the Oversubscription Privilege may be any number of shares up to the number
of shares purchased by a Holder pursuant to his or her Basic Subscription
Privilege. If an insufficient number of Underlying Shares is available to
satisfy fully all elections to exercise the Oversubscription Privilege, the
available Underlying Shares will be allocated on a pro rata basis among holders
who exercise the Oversubscription Privilege based on the respective numbers of
Underlying Shares subscribed for by such Holders pursuant to the Basic
Subscription Privilege. See "The Rights Offering-Subscription Privileges" and
"Plan of Distribution."
STANDBY SUBSCRIPTION GUARANTY. Mr. Marino has provided Cardia a Standby
Subscription Guaranty to subscribe, at the Subscription Price, for Underlying
Shares remaining unissued, if any, after satisfaction of all subscriptions
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege.
The Standby Subscription Guaranty is applicable only if less than 400,000
Underlying Shares are subscribed for, and is limited to that number of shares
necessary to reach subscriptions for an aggregate of 400,000 Underlying Shares.
See "The Rights Offering-The Rights" and "Plan of Distribution."
SUBSCRIPTION PRICE. The Subscription Price for each share of Cardia
Common Stock is $1.00 in cash.
TRANSFERABILITY OF RIGHTS. The Rights are not transferrable.
EXPIRATION DATE. The Expiration Date will be the thirtieth day after
the Rights Record Date unless extended by Cardia from time to time by the Board
of Directors of Cardia ("Board"). See "The Rights Offering- Expiration Date."
If Cardia elects to extend the term of the Rights Offering, it will issue a
press release to that effect not later than the first Business Day following the
most recently announced Expiration Date. If Cardia elects to extend the term of
the Rights Offering by more than 14 calendar days, it will, in addition, cause
written notice of such extension to be promptly sent to a Holders of record on
the Rights Record Date. After the Expiration Date, the Rights will expire and
have no value.
SUBSCRIPTION AGENT. Norwest Bank Minnesota, N.A.
RESULTS OF THE RIGHTS OFFERING. If the minimum of 400,000 shares of
Cardia Common Stock are purchased in the Rights Offering, Cardia will have
900,000 shares outstanding. If the maximum of 500,000 shares of Cardia Common
Stock are purchased, Cardia will have 1,000,000 shares outstanding. Joseph A.
Marino will beneficially own a minimum of 255,044 shares following the Rights
Offering. Mr. Marino's maximum ownership will depend on the number of Underlying
Shares purchased by others in the Rights Offering and the resulting obligation
of Mr. Marino to purchase shares pursuant to his Standby Subscription Guaranty.
3
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF RIGHTS OFFERING. Holders of Cardia
Common Stock will not recognize taxable income for Federal income tax purposes
in connection with the receipt of the Rights. See "Material United States
Federal Tax Considerations - Federal Income Taxation of the Rights Offering."
BACKGROUND AND VALUATION OF THE DISTRIBUTION
At a meeting of the Board of Directors of ABI on August 5, 1998, ABI
management proposed a spin-off of ABI's TCD business to allow ABI to concentrate
its resources on the development of its cardiac output monitoring system. The
spin-off would also allow a separate company to raise its own capital on the
merits of the TCD business and to focus its efforts and resources on the
development of the TCD business. At this meeting, an Independent Committee of
the Board of Directors, consisting of Demetre Nicoloff and Jeffrey Green (the
"Independent Committee"), was appointed to determine all issues related to the
Distribution and Rights Offering.
The Independent Committee determined, over the course of several
meetings of its members and conferences with ABI management and advisors, to
spin off the TCD business through a distribution to its shareholders of common
stock of Cardia, Inc., a newly-formed subsidiary of ABI into which ABI has
transferred the TCD business. After consultation with its advisors and
management of ABI, the Independent Committee also approved the sale of 125,000
shares of Cardia Common Stock for $125,000 to Joseph A. Marino, the Chairman and
Chief Executive Officer of ABI and Cardia, immediately prior to the
Distribution, and the distribution by dividend of 375,000 shares of Cardia
Common Stock to ABI shareholders on the basis of one share of Cardia Common
Stock for every 11.563 shares of ABI Common Stock outstanding. The Independent
Committee concluded that this stock sale and the Distribution were fair and
reasonable and in the best interests of ABI and its shareholders. Following the
sale of shares to Mr. Marino and the Distribution, there will be 500,000 shares
of Cardia Common Stock outstanding.
The Independent Committee did not obtain a fairness opinion from a
third party as to the valuation of Cardia because of the following factors:
o there is a commonality of interests between the ABI
shareholders and the Cardia shareholders;
o the market capitalization of Cardia immediately after the
Distribution is estimated to be $500,000;
o Cardia is a development stage company that is expected to
operate at a loss for the foreseeable future and will require
significant additional capital;
o there are few comparable enterprises useful for valuing a
company at Cardia's stage of development; and
o following the Distribution, ABI will not have to provide
capital or credit to Cardia and will not have any continuing
risk of liability with respect to Cardia's operations.
The Independent Committee also concluded that providing the opportunity
for Mr. Marino to acquire 125,000 shares of Cardia for $125,000 was fair and
reasonable and in the best interests of the shareholders of both ABI and Cardia,
based on the following:
o the $1.00 per share paid by Mr. Marino is equal to the per
share valuation of the Distribution and is equal to the per
share price of the Rights Offering;
o Mr. Marino will be a key factor in the development of Cardia's
business while continuing to be involved in ABI's business;
and
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o the success of the Rights Offering is believed to be dependent
on Mr. Marino's involvement as an executive officer and
significant shareholder of Cardia and on Mr. Marino's Standby
Subscription Guaranty which ensures the purchase of at least
400,000 shares in the Rights Offering.
USE OF PROCEEDS
Cardia will not receive any proceeds from the Distribution itself.
Immediately prior to the Distribution, however, Cardia received $125,000 as a
capital investment by Mr. Marino. The net proceeds to be received by Cardia from
the Rights Offering depends on the number of Rights exercised and the number of
Underlying Shares purchased. If all Rights are exercised, Cardia expects the
proceeds available to it from the Rights Offering will be approximately
$500,000. The aggregate proceeds from Mr. Marino's investment and the Rights
Offering will be used to fund ongoing research and development and for general
corporate purposes. Pending their use, proceeds will be invested in short-term
high quality commercial paper.
Mr. Marino has advised Cardia that he will exercise Rights to purchase
an aggregate of 127,522 shares of Cardia Common Stock and has guaranteed to
Cardia that he will fully exercise his Standby Subscription Guaranty to the
extent needed to raise at least $400,000 in the Rights Offering. Cardia does not
have a written commitment from any other person to purchase any of the
Underlying Shares pursuant to the Rights Offering. Accordingly, no assurances
can be given as to the amount of gross proceeds that Cardia will realize from
the Rights Offering in excess of the amounts which will be received from Mr.
Marino. See "Risk Factors- Commitments to Purchase and -Use of Proceeds."
RISK FACTORS
Prospective investors should consider the material risks discussed
under "Risk Factors," including risks which may arise out of general economic
conditions; interest rate levels; financial market performance; the nature of
Cardia's business; the regulation and economic characteristics of the medical
device industry; the potential impact of governmental regulations on the
development, testing, marketing and sale of medical devices; the limited
business history of Cardia; the absence of a public market for Cardia Common
Stock; Cardia's limited financial resources and lack of future funding
commitments; dependence on key employees; risk of limited growth; historic lack
of dividends; potential dilution; the institution of anti-takeover measures; the
anti-takeover effect of certain provisions of Minnesota Law and Cardia's
articles of incorporation and by-laws; and the possible extension of the
expiration of the Rights Offering.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS OR PHRASES
"BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," ESTIMATES" OR SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE
EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. THESE FORWARD LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM
PROJECTIONS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S PLAN OF OPERATION" AND "BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS. GIVEN THESE UNCERTAINTIES, YOU SHOULD NOT PLACE
UNDUE RELIANCE ON THE FORWARD- LOOKING STATEMENTS. WE DO NOT INTEND TO UPDATE
ANY FORWARD-LOOKING STATEMENTS.
RISK FACTORS
INVESTING IN CARDIA'S COMMON STOCK IS RISKY. YOU SHOULD BE ABLE TO BEAR
A COMPLETE LOSS OF YOUR INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING
RISK FACTORS IN DECIDING WHETHER TO EXERCISE THE RIGHTS AND INVEST IN CARDIA'S
COMMON STOCK.
WE ARE A DEVELOPMENT STAGE COMPANY; OUR PRODUCTS ARE IN DEVELOPMENT
Cardia is in the development stage. We have no significant operating history
which you may use to evaluate our business and prospects. Our prospects must be
considered in light of the risks, difficulties and uncertainties frequently
encountered by companies in an early stage of development. This is particularly
significant because the medical device industry is a market in which there is an
increasing number of companies, intense competition, and a high failure rate.
Therefore, there can be no assurance that we will be able to complete our
products under development, that those products will be approved for marketing,
that those products will be accepted in the marketplace, or that those products
can be sold at a profit. Our business may also be affected significantly by
economic, market and regulatory conditions over which we have no control.
Consequently, an investment in our Common Stock is highly speculative. We do not
guaranty any return on an investment in our Common Stock.
THERE IS NO ESTABLISHED MARKET FOR OUR PRODUCTS
The products Cardia is currently developing are completely new methods of
treating cardiac defects. Open heart surgery has been the standard treatment for
these defects for many years. We cannot assure that we will be able to establish
a market for our products under development or that the market will be
significant. If we are not able to establish a significant market for our
products under development, we may not become profitable.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION
A significant factor in developing and marketing our proposed products, and in
our ongoing manufacturing and research and development activities, is
governmental regulation in the United States and other countries. In Europe,
where we are currently conducting clinical trials, we have obtained ISO 9001
certification but we need to obtain CE Mark certifications to effectively market
our TCDs. We have to undertake rigorous clinical and mechanical testing of our
products before we can submit applications for these certifications. We cannot
guaranty that CE Mark certifications will be granted on a timely basis, or at
all.
In the United States, our products under development are considered to be
medical devices, and they require clearance or approval by the United States
Food and Drug Administration (the "FDA") before commercial sales can be
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made in the United States. FDA regulations cover such things as manufacturing
practices, the conduct of clinical investigations, pre-market approval, record
keeping and reporting requirements, and labeling. Our ability to obtain FDA
clearance or approval for our proposed products varies based on the nature and
use of the product. The process can involve lengthy and detailed laboratory and
clinical testing and sampling, and other costly and time-consuming procedures.
Our products under development will require compliance with the FDA's Class III
device regulations. This means that we have to demonstrate to the FDA that our
proposed products are safe and effective before we can engage in commercial
distribution. We will have to obtain an Investigational Device Exemption ("IDE")
for our products before we can commence U.S. clinical trials. An IDE is required
to gather data so that we can obtain FDA approval of a Premarket Approval
Application ("PMA") for that product. We cannot guaranty that an IDE will be
granted on a timely basis, or at all. We also cannot guaranty that our PMA will
be approved on a timely basis or at all. If our IDE and PMA filings are not
approved on a timely basis, or we do not receive approval at all, we could
experience reduced revenues and possible losses. See "Business-Government
Regulation."
The FDA also imposes post-marketing controls on us and our products. These
controls include good manufacturing practice regulations, reporting and other
requirements. If we fail to meet these extensive FDA requirements, we and our
employees could be exposed to injunctions, fines, recalls or seizures of
products, total or partial suspension of production, distribution, sales and
marketing, suspension or withdrawal of existing product approvals or clearances,
refusals to approve or clear new applications or notices, and criminal
prosecution. See "Business-Government Regulation."
If we sell our medical devices outside the United States or Europe, we will be
subject to United States export requirements and foreign regulatory
requirements. Each country, other than members of the European Union (EU), has
different legal restrictions on the sale of imported medical devices. These
restrictions may expose us to requirements and time frames that are very
different from those required for CE Mark certification or FDA approval. We
cannot guaranty that we will be able to obtain regulatory approvals or
clearances for the sale of our products under development in foreign countries.
See "Business-Government Regulation."
WE HAVE A HISTORY OF OPERATING LOSSES; OUR FUTURE PROFITABILITY AND LIQUIDITY IS
UNCERTAIN
Our business incurred a net operating loss of $457,866 in fiscal year 1997.
Through September 30, 1998 we have incurred a net loss of approximately
$614,367. As of September 30, 1998, our cumulative losses since inception are
$1,072,233. Our losses have resulted principally from expenses incurred in
research and development and general, selling and administrative expenses. These
expenses have exceeded our revenues. Because these losses were incurred prior to
the time Cardia was incorporated, they are not reflected on our balance sheet.
We have generated minimal revenues from the sale of our products under
development and we cannot guaranty that we will be able to generate significant
revenues in the future. We expect our operating losses to continue for the near
future as our research and development, sales and marketing activities, and
operations continue. Our ability to achieve profitability depends upon our
ability to obtain necessary government approvals, develop our sales and
marketing capacity, and successfully market and sell our products, none of which
can be assured. It is uncertain when we will become
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profitable. Depending on our ability to generate cash from operations, we will
need additional debt or equity financing within the next six to eight months to
pursue the development of our products after the proceeds of the Rights Offering
and Mr. Marino's investment have been expended. There can be no assurance that
additional financing will be available, or be available on terms acceptable to
us. See "Management's Plan of Operation."
WE WILL NEED ADDITIONAL CAPITAL
Assuming we do not sell sufficient quantities of our TCD devices, we will need
to raise additional funds within approximately the next six to eight months.
Adequate funds may not be available when needed or on terms attractive to us. If
funding is not available when needed or on attractive terms, we may have to
substantially alter our planned operations. See "Management's Plan of
Operation."
WE FACE INTENSE COMPETITION
Research in the field of cardiac surgical devices is intense and highly
competitive. Research in this area is characterized by rapid technological
change. Many of our potential competitors may have considerably greater
financial, technical, marketing and other resources than we have. These greater
resources may allow our potential competitors to develop and commercially
distribute products before we do. If we do not develop products, obtain
regulatory and other approvals, and launch such products before our competitors,
our potential revenues and earnings will be reduced or eliminated. In addition,
any products we are developing could be made obsolete by less expensive or more
effective products or methods which may be developed by others. We expect
competition to intensify in our industry as technical advances are made and
become more widely known.
INSURANCE REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN
Our ability to successfully commercialize our products under development depends
in part on obtaining adequate reimbursement for such products from government
and private health care insurers (including health maintenance organizations and
other third-party payors). Physicians' decisions to recommend products such as
ours are likely to be heavily influenced by the scope and extent of
reimbursement for such products by third-party payors. Government and private
third-party payors are increasingly attempting to contain health care costs by
limiting both the extent of coverage and the reimbursement rate for new
treatment products. In particular, services which are determined to be
investigational in nature or which are not considered "reasonable and necessary"
for treatment may be denied reimbursement coverage. If adequate reimbursement
coverage is not available from insurers or third-party payors, it is uncertain
whether individuals will elect to directly pay for our products under
development. If insurers or third-party payors and individuals are unwilling to
pay for our products under development, then our potential revenue and earnings
will be significantly decreased or eliminated.
OUR ABILITY TO PROTECT PROPRIETARY TECHNOLOGY IS UNCERTAIN
Our success will partly depend on our ability to obtain patent protection for
our products, both in the United States and in other countries. In addition, our
success will also depend on our ability to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. We have
received one U.S. patent and two German utility model registrations with respect
to technology relating to our TCDs. We also have a Patent Cooperation Treaty
("PCT") patent application, a European patent application and a German utility
model application pending with respect to our various products under
development. There can be
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no assurance that our patent applications will ever be issued as patents or that
the claims of any issued patents will afford meaningful protection for our
technology or products under development. Furthermore, others may develop
similar products which avoid infringing upon, or conflicting with, our patents
or patent applications. In addition, there can be no assurance that any patents
issued to us will not be challenged and subsequently narrowed, invalidated or
circumvented.
Our products under development may also conflict with patents which have been or
may be granted to others. As the medical device industry expands and more
patents are filed and issued, the risk increases that our products under
development may give rise to a declaration of interference by the Patent and
Trademark Office, or to claims of patented infringement by other companies,
institutions, or individuals. Such entities or persons could bring legal
proceedings against us seeking damages or seeking to enjoin us from testing,
manufacturing or marketing our products under development. Patent litigation is
costly, and even if we prevail, the cost of such litigation could have an
adverse effect on us. If the other parties in any such actions are successful,
in addition to any liability for damages, we could be required to cease the
infringing activity or obtain a license. Such a license may not be available to
us on acceptable terms, if at all. Failure by us to obtain a license to any
technology that we may require to commercialize our products under development
could have an adverse effect on our business, financial condition, potential
revenues and earnings.
We also rely on unpatented proprietary technologies. We rely on confidentiality
agreements with our employees and consultants to protect such proprietary
technologies. There can be no assurance that we can adequately protect our
rights to such unpatented proprietary technologies, that others will not
independently develop substantially equivalent proprietary information or
techniques, or otherwise gain access to our proprietary technologies or disclose
such technologies.
TECHNOLOGICAL CHANGES MAY RESULT IN OBSOLESCENCE OF OUR PRODUCTS
Market acceptance and sales of our products under development may also be
adversely affected by technological change. It is uncertain whether our
competitors will succeed in developing products that are less expensive or more
effective than our products under development. Further, it is uncertain whether
such developments may render our technology or products under development less
competitive or obsolete.
ADOPTION OF OUR PRODUCTS IS UNCERTAIN
Our products under development are a new generation of small implantable devices
which are delivered through a catheter. These devices are intended to be an
alternative to open heart surgery for the closure of congenital and acquired
heart anomalies. Because TCDs represent a new technology that has not been
widely tested, there can be no assurance that our products under development
will gain significant adoption, even if they are safe and effective. If
significant adoption does not occur, there could be a material adverse effect on
our business, financial condition, and potential revenues and earnings.
WE HAVE LIMITED MARKETING AND SALES EXPERIENCE
We currently have a very limited sales and marketing organization. We are in the
process of developing additional sales and marketing resources. We cannot
guaranty, however, that we will be able to build a direct sales force or
marketing organization, that, if established, such organization will be cost
effective, or that
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our sales and marketing efforts will be successful. We also cannot guaranty
that we will be able to enter into agreements with distributors or collaborative
arrangements on a timely basis or at all. We also cannot guaranty that
distributors or collaborators will devote adequate resources to selling our
products under development. If we fail to build an effective sales and marketing
organization or to establish effective distribution or collaborative
relationships, we will experience a material adverse effect on our business,
financial condition, and potential revenues and earnings.
WE HAVE LIMITED MANUFACTURING EXPERIENCE
We must manufacture our products under development in accordance with regulatory
requirements, in commercial quantities, at appropriate quality levels and at
acceptable costs if we are to be successful. We have not yet been required to
produce our TCDs in large quantities at competitive costs. There can be no
assurance that we will be able to do so. If we receive governmental approval to
widely market our TCDs, there can be no assurance that we will be successful in
making the transition to commercial production of these products.
WE HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE
Our business exposes us to significant potential liability risks inherent in the
use of implantable medical devices. It is uncertain whether liability claims
will be asserted against us. We have product liability insurance which we
believe provides coverage for the application and use of our products under
development. It is uncertain whether we will be able to maintain such insurance
on acceptable terms. Any insurance obtained may not provide adequate coverage
against potential liabilities. A liability claim, even one without merit, could
result in significant legal defense costs which would increase our expenses,
lower our potential earnings and even result in losses.
WE DEPEND ON KEY PERSONNEL
Because of the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified management,
scientific and technical personnel. We will also depend on our ability to hire
qualified marketing and sales personnel. Competition for scientific, marketing
and sales personnel is intense. Loss of the services of Mr. Marino could
adversely affect the operation of our Company and our research and development
programs, and could impede the achievement of our business objectives. We do not
currently maintain key man life insurance on any of our personnel. There can be
no assurance that we will be successful in hiring or retaining qualified
personnel. The loss of key personnel, or our inability to hire and retain
qualified personnel, could have a material adverse effect on our business,
financial condition, and potential revenues and earnings.
WE ARE SUBJECT TO CONTROL BY EXISTING SHAREHOLDERS
Following completion of the Distribution and the Rights Offering, assuming that
each director and executive officer of ABI exercises the Rights issued to him,
but assuming no shares are purchased pursuant to the Standby Subscription
Guaranty, the directors and executive officers of ABI will beneficially own
approximately 26.4% of our outstanding Common Stock. Accordingly, these
shareholders, individually and as a group, may be able to influence the outcome
of shareholder votes, including votes concerning the election of directors, the
adoption or amendment of provisions in our Articles of Incorporation or By-Laws,
and the approval of certain mergers and other significant corporate
transactions,
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including a sale of substantially all of our assets. This control could have the
effect of delaying, deferring or preventing a change in control.
PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE DILUTION; WE HAVE NEVER PAID
DIVIDENDS
Purchasers in the Rights Offering will experience immediate and substantial
dilution in the net tangible book value of our Common Stock from the
Subscription Price. Additional dilution is likely to occur upon the exercise of
any options or warrants that we have granted or will grant in the future. We
have never paid dividends and do not intend to pay any dividends in the
foreseeable future.
THERE IS NO CURRENT PUBLIC MARKET FOR OUR COMMON STOCK
Prior to the Distribution, there has been no public market for our Common Stock.
There can be no assurance that an active trading market for our Common Stock
will develop or be sustained after the Distribution or the Rights Offering.
THE OFFERING PRICE OF OUR COMMON STOCK WAS DETERMINED ARBITRARILY; IT IS
POSSIBLE THAT OUR COMMON STOCK PRICE WILL BE VOLATILE
The Subscription Price of Cardia's Common Stock has been determined solely by
ABI. The Subscription Price bears no relationship to earnings, asset values,
book value or any other recognized criteria of value. The market prices for
securities of emerging medical device companies have been highly volatile.
Announcements may have a significant impact on the market price of our Common
Stock. Such announcements may include medical discoveries, technological
innovations or new commercial products by us or our competitors, developments
concerning proprietary rights, including patents and litigation matters,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of new technologies, general market conditions, as well
as quarterly fluctuations in our revenues and financial results. The stock
market has, from time to time, experienced extreme price and volume fluctuations
which have particularly affected the market prices for emerging medical device
companies and which have often been unrelated to the operating performance of
such companies. These broad market fluctuations may adversely affect the market
price of our Common Stock. In the past, following periods of volatility in the
market price of a company's stock, securities class action litigation has
occurred against the issuing company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse affect on our potential revenues and earnings. Any
adverse determination in such litigation could also subject us to significant
liabilities.
WE ARE SUBJECT TO ANTITAKEOVER LAWS; CERTAIN PROVISIONS OF OUR ARTICLES MAY HAVE
AN ANTI-TAKEOVER EFFECT
The effect of certain provisions of the Minnesota Business Corporation Act and
the ability of the Board to issue preferred stock without shareholder approval
may have the effect of delaying or preventing a change in control or merger of
Cardia which could operate to the detriment of our shareholders.
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USE OF PROCEEDS OF THE RIGHTS OFFERING
The net proceeds to be received by the Company from the Rights Offering
depend on the number of Rights exercised. Exclusive of the $125,000 invested in
Cardia by Mr. Marino, the net proceeds to Cardia will be $500,000 if the maximum
number of Rights are exercised and $400,000 if the minimum number of Rights are
exercised. The aggregate proceeds from the Rights Offering will, in the
following priority, be used to fund research and development activities, for
selling, general and administrative expenses, capital equipment, and working
capital needs. The balance of any proceeds will be invested in short-term high
quality commercial paper until used for general corporate and working capital
purposes.
The following table sets forth the estimated use of proceeds if the
minimum and maximum number of shares are sold in the Rights Offering:
Minimum(1) Maximum
-------- --------
Research and development $150,000 $200,000
Selling, general and administrative 150,000 150,000
expenses
Capital equipment 30,000 60,000
Working capital 70,000 90,000
-------- --------
TOTAL $400,000 $500,000
-------- --------
- ---------------
(1) Joseph A. Marino has provided a Standby Subscription Guaranty to Cardia
which guarantees that the minimum number of Rights will be exercised.
DIVIDEND POLICY
Cardia has never declared or paid a cash dividend on its Common Stock.
Cardia currently intends to retain any earnings for use in the operation and
expansion of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
At September 30, 1998, Cardia had a pro forma net tangible book value
of $182,903 (including Mr. Marino's investment of $125,000), or $0.37 per share
of Common Stock outstanding. The following table sets forth the pro forma
capitalization of Cardia as of September 30, 1998 and as adjusted to reflect the
sale by Cardia of the minimum 400,000 shares and the maximum 500,000 shares of
its Common Stock pursuant to the Rights Offering at a Subscription Price of
$1.00 per share, and the anticipated use of the net proceeds therefrom. See "Use
of Proceeds."
September 30, 1998
------------------------------------
As Adjusted As Adjusted
Pro forma(1) (minimum)(2) (maximum)(3)
-------- -------- --------
Shareholders' Equity:
Common Stock, $0.01 par value;
15,000,000 Shares authorized;
500,000 Shares issued and outstanding;
900,000 shares and 1,000,000 shares
as adjusted ........................... $ 5,000 $ 9,000 $ 10,000
Additional paid-in capital............. 265,403 661,403 760,403
Accumulated deficit.................... -- -- --
-------- -------- --------
Total shareholders' equity 270,403 670,403 770,403
-------- -------- --------
Total capitalization $270,403 $670,403 $770,403
======== ======== ========
(1) Includes the investment of $125,000 by Mr. Marino, which will occur
immediately prior to the Distribution.
(2) Assumes the issuance of the minimum of 400,000 shares of Cardia Common
Stock pursuant to the Rights Offering at a price of $1.00 per share.
(3) Assumes the issuance of the maximum of 500,000 shares of Cardia Common
Stock pursuant to the Rights Offering at a price of $1.00 per share.
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DILUTION
As of September 30, 1998, the pro forma net tangible book value of
Cardia (total assets, excluding intangible assets, less total liabilities), was
$182,903 or $0.37 per share of Cardia Common Stock outstanding following the
Distribution, without giving effect to the sale of shares of Cardia Common Stock
offered in the Rights Offering, but giving effect to Mr. Marino's investment of
$125,000.
Assuming the sale of the maximum 500,000 shares of Cardia Common Stock
in the Rights Offering, the pro forma net tangible book value of the Cardia
Common Stock held by Cardia shareholders immediately after the Rights Offering
would be increased by $0.31 per share without any additional investment on their
part (excluding the exercise of Rights), and the persons exercising the Rights,
who would then own an additional 500,000 shares of Cardia Common Stock, would
experience an immediate dilution of $0.32 per share. Assuming the sale of the
minimum 400,000 shares of Cardia Common Stock, the pro forma net tangible book
value of the Cardia Common Stock held by Cardia shareholders immediately after
the Rights Offering would be increased by $0.28 per share without any additional
investment on their part (excluding the exercise of Rights), and the persons
exercising the Rights, who would then own an additional 400,000 shares of Cardia
Common Stock, would experience an immediate dilution of $0.35 per share.
The following table illustrates the changes in pro forma net tangible
book value of Cardia Common Stock outstanding immediately following the
Distribution and the dilution that would be experienced by persons exercising
the Rights, without giving effect to the results of operations after September
30, 1998:
minimum maximum
------- -------
Price paid per share in the Rights Offering $1.00 $1.00
Net tangible book value per share before offering $0.37 $0.37
Increase in net tangible book value per share
resulting from Offering $0.28 $0.31
Pro forma net tangible book value per share
after Offering $0.65 $0.68
Dilution per share to investors in this Offering $0.35 $0.32
The following table summarizes, as of September 30, 1998, the
differences between the shareholders of Cardia immediately following the
Distribution and investors exercising the Rights with respect to Cardia Common
Stock ownership, the total consideration paid and the average consideration paid
per share:
Shares Purchased Total Consideration Average
------------------ ------------------- Consideration
Number Percent Amount Percent Per Share
--------- ----- ---------- ----- ---------
Minimum
- -------
Current Shareholders 500,000 55.6% $ 182,903 31.4% $0.37
New Investors 400,000 44.4% 400,000 68.6% 1.00
--------- ----- ---------- ----- -----
Total 900,000 100.0% $ 582,903 100.0% $0.80
========= ===== ========== ===== =====
Maximum
- -------
Current Shareholders 500,000 50.0% $ 182,903 26.8% $0.37
New Investors 500,000 50.0% 500,000 73.2% 1.00
--------- ----- ---------- ----- -----
Total 1,000,000 100.0% $ 682,903 100.0% $0.83
========= ===== ========== ===== =====
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MANAGEMENT'S PLAN OF OPERATION
Assuming the maximum number of Rights are exercised in the Rights
Offering, Cardia's initial liquidity will consist of cash of approximately
$625,000, including Mr. Marino's initial investment of $125,000. Management
currently expects this cash to be used as set forth above under the caption "Use
of Proceeds." Assuming the Company receives no revenues from the sale of its
TCDs, the available liquidity will fund the Company's operations for an
estimated period of six to eight months, at which time Cardia intends to raise
additional capital through the issuance of equity or debt securities or through
bank debt, or a combination of these means. There can be no assurance, however,
that additional capital will be available to the Company or available on terms
acceptable to the Company.
ABI acquired certain developed and certain in-process technology
relating to transcatheter closure devices in November of 1997. Since the
acquisition, ABI has continued to conduct research and development on TCDs,
based on the in-process technology. Cardia plans to continue research and
development, as well as clinical trials for its PFO and PDA closure devices.
Planned research and development activities will include further improvements of
the acquired PDA technology, continued testing and improvement of the PFO
technology the Company has developed, and investigation of modified devices for
new applications. Prototyped devices which appear to be the most promising will
be assessed for clinical investigation via invitro and invivo animal pilot
trials before official development responsibilities are assigned. Cardia expects
to spend approximately $100,000 to $200,000 to complete development of its PFO
and PDA closure devices during 1999. Cardia currently expects that it will be in
a position to commence commercial sales of its PDA and PFO devices in Europe
following receipt of CE Mark certification, which is anticipated to be received
during the second half of 1999. Although Cardia believes this in-process
technology has substantial advantages over the technology used in competitive
TCDs, there can be no assurance that Cardia will successfully complete
development of the Company's technology.
Cardia does not expect to make material capital investments in plant or
equipment during 1999. Cardia expects to add between four and six full-time
employees during 1999. These additional personnel will not be added, however,
unless business growth justifies additional employees. The Company expects to
spend between $600,000 and $700,000 on selling, marketing and general
administrative salaries and overhead ("SG&A") during 1999. The majority of SG&A
will relate to the Company's sales and marketing activities. These expenditures
are not currently fixed costs and the amount spent on SG&A during 1999 will
depend largely on the performance and growth of the Company's business during
the next twelve months. Accordingly, the Company will be able to adjust SG&A
based on revenues and cash flows.
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BUSINESS
GENERAL
Cardia, Inc. was formed in October of 1998 as a subsidiary of Applied
Biometrics, Inc. ("ABI"). Cardia intends to develop, manufacture and market
Transcatheter Closure Device products ("TCDs") which are based, in part, on
certain intellectual property rights ABI acquired from Bernhard Schneidt and Dr.
Rainer Schrader in November of 1997. Transcatheter Closure Devices are a new
generation of small, implantable devices which are delivered through a catheter
inserted into a major blood vessel and designed to permanently repair certain
cardiac defects in children and adults. The implantation of TCDs is intended to
reduce the need for open heart surgery which has traditionally been required for
the repair of certain cardiac defects.
PRODUCTS
Cardia is developing a product line of Transcatheter Closure Devices
which it believes offer certain advantages over TCDs offered by its competitors.
Transcatheter Closure Devices are an entirely new family of small, implantable
devices which are delivered through a catheter inserted into a major blood
vessel to permanently repair certain cardiac defects in children and adults. The
procedure is performed in a cardiac cathlab and is intended to reduce the need
for open heart surgery, which is currently the accepted method of repairing
these defects. Cardia is in the initial stages of developing TCDs. Cardia hopes
to develop a product family that will be capable of providing an effective,
nonsurgical method of correcting a variety of heart defects. Its initial focus
will be on TCDs for the repair of patent ductus arteriosis (PDA) and patent
foramen ovale (PFO). Cardia may also pursue TCDs for the repair of atrial septal
defects (ASD) and ventricular septal defects (VSD) in the future. One product
variant has already been sold in Germany as an experimental device for PDA
closures. That product has been implanted successfully in over 150 human cases
on an experimental basis. Cardia expects to complete enhancements to its PDA
device in the near future and intends to begin marketing and distributing the
product in Europe after certain regulatory requirements have been met.
Cardia is also in the process of developing a TCD for the PFO market.
Since the purchase of the TCD technology, the Company has effected minimal sales
of its PDA device, and the Company has turned its focus to the PFO device.
During 1998, that product has been implanted successfully in over 30 human cases
on an experimental basis. Cardia is currently collecting data from follow-up
examinations of patients who have received the Company's TCDs. To date,
follow-up data is extremely limited. Cardia is aware of fractures or bends that
have occurred in certain metal components of its own and TCD products of other
manufacturers. Such fractures and bends, however, are not generally regarded as
having significant potential for clinical risks for patients or as having the
potential to cause regulatory approval delays. The Company intends to develop
its products in a manner designed to avoid such problems in the future.
CARDIA'S STRATEGY
Cardia is currently developing two TCD products, one for the PDA market
and one for the PFO market. The Company's PDA closure device is currently being
marketed on an experimental basis in Germany and Switzerland. The Company is
currently seeking the necessary regulatory approval to market this device on a
broader basis in additional European Union ("EU") countries. Following
regulatory approval in the EU, if obtained, Cardia intends to commence the
process for pursuing FDA approval in the United States.
Cardia estimates that the market for PFO closure devices is
significantly larger than the market for PDA closure devices. Cardia, therefore,
intends to focus most of its resources during the next twelve months on
continuing to develop, test and pursue regulatory approval to market and sell
its PFO line of TCDs in Europe and the United States.
Initial development and testing efforts are focused on the EU, where
Cardia has received ISO 9001 certification and has commenced the process for
obtaining CE Mark certifications for its PDA and PFO products. These
certifications are required for the general sale of medical devices in the EU.
The Company anticipates receiving the necessary certifications during the second
half of 1999. Cardia is currently selling its PDA and PFO devices on a very
limited basis
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in Germany and Switzerland in reliance on an experimental device process that is
restrictive, costly and time consuming. If it obtains the CE Mark
certifications, Cardia expects to expand its marketing and sales endeavors for
its TCDs to other EU countries. These certifications would allow Cardia to
expand its marketing efforts in the EU and would reduce the cost and complexity
of the marketing and sales process in Europe. There can be no assurance that
Cardia will be able to obtain the necessary CE Mark certifications.
Cardia has not determined when it will commence the process to pursue
FDA approval for its products under development. It does not currently intend,
however, to pursue FDA approval until it has completed its clinical testing and
certification processes in Europe. There can be no assurance that Cardia will be
able to obtain FDA approval for any of its products under development.
MARKETING, SALES AND DISTRIBUTION
Cardia believes its TCD devices under development will have a broad
range of applications for the closure of congenital and acquired anomalous
cardiac communications. The PDA closure device has the potential to reduce the
need for open heart surgery as the method of closure in many of the nearly
14,000 cases annually in the United States and Europe. The Company also believes
that patent foramen ovale (PFO), which may be a cause of paradoxical or
otherwise inexplicable strokes, represents an even larger market for the
prevention of recurring embolic events. Cardia estimates that, as a result of
the recent development of an accurate test for detecting PFO defects in victims
of paradoxical strokes, there may be more than 250,000 closure cases annually in
the United States and Europe. There is, however, no current consensus on the
size of the PFO closure market.
Cardia's initial full-scale marketing and sales efforts will commence
in Europe immediately following the Company's receipt of CE Mark certifications
for its PFO and PDA closure devices. Sales and distribution efforts in EU
countries will be conducted through either a direct sales force or specialized
distributors, depending on the country. The Company expects to use a direct
sales force in the United States when sales are permitted.
Cardia intends to create a market for its PFO closure device by
focusing on neurologists and cardiologists. Neurologists are important to the
process because they are often the medical professionals who first see victims
of paradoxical strokes. If a neurologist determines, via testing, that a PFO is
the cause of a paradoxical stroke and should be closed, the patient is referred
to a cardiologist. The Company's PFO closure device is implanted by a
cardiologist in a cathlab, using standard catheterization procedures. The
implantation procedure is minimally invasive, and the patient can usually be
sent home within twenty-four hours. The Company's goal is to demonstrate to
neurologists and cardiologists that its TCD products under development are a
safe, effective, minimally invasive alternative to open heart surgery.
RESEARCH AND DEVELOPMENT
Cardia's ongoing plans for research and development for its PFO and PDA
TCD devices include further improvements of the acquired technology and
investigation into modified devices for new applications. Prototyped devices
which appear to be the most promising will then be assessed for clinical
investigation via invitro and invivo animal pilot trials before official
development responsibilities are assigned. Cardia expects to spend approximately
$100,000 to $200,000 to complete development of its TCD devices during 1999.
COMPETITION
Cardia's competitors in the cardiac defect closure field are believed
to be small to medium sized companies, the most prominent of which are Nitinol
Medical Technologies, Inc. located in Boston, Massachusetts, and AGA Medical
Corporation and Microvena, Corp., both located in Minneapolis, Minnesota. Cardia
believes that one or more of these companies is in clinical trials with TCDs
that are designed for PDA and PFO closure applications. The competitors of
Cardia in the cardiac closure field may have greater resources and be able to
penetrate the TCD market
17
<PAGE>
in Europe and the United States sooner than Cardia. Although the Company
believes its TCDs are based on sound and competitive technology, there can be no
assurance that Cardia's present products will be able to compete successfully
with existing or future competitive products or that Cardia will be able to
develop or acquire additional products or otherwise effectively respond to new
products or technological advances developed by competitors. Any failure by
Cardia to effectively penetrate markets sooner than its competitors or to
successfully compete with existing or future products or technologies could
significantly reduce or eliminate the Company's anticipated revenues and
earnings.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the development and marketing of Cardia's products and in
the Company's ongoing manufacturing and research and development activities. The
Company and its products are regulated by the United States Food and Drug
Administration ("FDA") under a number of statutes, including the Federal Food,
Drug and Cosmetic Act (the "FDC Act").
Under the FDC Act, medical devices are categorized into one of three
classes (i.e., Class I, II or III) on the basis of the controls deemed necessary
to reasonably ensure their safety and effectiveness. Class I devices are subject
to the least extensive controls, as the safety and effectiveness reasonably can
be assured through general controls (e.g., labeling, premarket notification and
adherence to the FDA's Good Manufacturing Practices ("GMP")). For Class II
devices, safety and effectiveness can be assured through the use of special
controls (e.g., performance standards, post market surveillance, patient
registries and FDA guidelines). Class III devices (i.e., life-sustaining or
life-supporting implantable devices, or new devices which have been found not to
be substantially equivalent to legally marketed devices) require the highest
level of control, generally requiring premarket approval by the FDA to ensure
their safety and effectiveness. All companies subject to FDA regulation must
comply with a variety of rules, including the FDA's GMP regulations, and are
subject to periodic inspections by the FDA and other applicable agencies. If the
FDA believes that its regulations have not been fulfilled, it may implement
extensive enforcement powers which were strengthened by the enactment of the
Safe Medical Devices Act of 1990. The FDA's powers include, but are not limited
to, the ability to ban products from the market, prohibit the operation of
manufacturing facilities and effect recalls of products from customer locations.
If a manufacturer or distributor of medical devices can establish that
a 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 required a PMA application, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. Following
submission of the 510(k) notification, the manufacturer or distributor may not
place the device into commercial distribution in the United States until an
order has been issued by the FDA. The FDA's target for issuing such orders is
within 90 days of submission, but the process can take significantly longer. The
order may declare the FDA's determination that the device is "substantially
equivalent" to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA may, however, determine that the
proposed device is not substantially equivalent or may require further
information, such as additional test data, before making a determination
regarding substantial equivalence. The Company, however, does not believe that
its TCD products under development are substantially equivalent to another
legally marketed device.
If a manufacturer or distributor of medical devices cannot establish
that a proposed device is substantially equivalent to another device via the
510(k) process, the manufacturer or distributor must seek PMA approval of the
proposed device. A PMA application must be submitted, supported by extensive
data, including preclinical and clinical trial and follow-up data, to prove the
safety and efficacy of the device. Generally, a company is required to obtain an
Investigative Device Exemption ("IDE") before it commences clinical testing in
the United States in support of a PMA. The FDA monitors and oversees the use and
distribution of such "research use only" and "investigational use only"
products. Although by statute, the FDA has 180 days to review a PMA application
once it has been accepted for filing, during which time an advisory committee
may also evaluate the application and provide recommendations to the FDA, PMA
reviews often extend over a significantly protracted time period, usually 12 to
24 months or longer from filing.
18
<PAGE>
Accordingly, there can be no assurance the FDA review of any PMA application
submitted by the Company will not encounter prolonged delays or that the data
collected and submitted by the Company in its PMA will support approval.
Cardia intends to obtain Class III market clearance for its TCDs
through the FDA's IDE/PMA process. It has not yet determined, however, when it
intends to file the first IDE application (PDA) for US clinical trials.
Labeling and promotional activities are also subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The FDA also
imposes post-marketing controls on the Company and its products, and
registration, listing, medical device reporting, post-market surveillance,
device tracking and other requirements on medical devices. Failure to meet these
pervasive FDA requirements, or adverse FDA determinations regarding the
Company's clinical and preclinical trials, could subject the Company and its
employees to injunction, prosecution, civil fines, seizure or recall of
products, prohibition of sales, or suspension or withdrawal of any previously
granted approvals.
The FDC Act regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate compliance with current Good Manufacturing Practices (GMP) as
specified in published FDA regulations. The FDA monitors compliance with GMP by
requiring manufacturers to register with the FDA, which subjects them to
periodic unannounced FDA inspections of manufacturing facilities. If violations
of applicable regulations are noted during FDA inspections of the Company's
manufacturing facilities or the facilities of its contract manufacturers, the
continued marketing of the Company's products may be adversely affected. Such
regulations are subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations or
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company.
Sales of medical devices outside of the United States are subject to
United States export requirements and foreign regulatory requirements. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ.
For countries in the European Union (EU), CE Mark certification procedures are
available for medical devices, the successful completion of which allows the
certified devices both to be shipped from the United States and to be placed on
the market in all EU countries. Medical devices may not be sold in a general
manner in EU countries unless they display the CE Mark. There can be no
assurance that Cardia will be able to obtain regulatory approvals or clearances
for its products in foreign countries.
No assurance can be given that the FDA or other regulatory authorities
will give, on a timely basis, if at all, the requisite approvals for medical
products currently under development by Cardia or that may be developed by
Cardia in the future. Even if approvals are received, the process of obtaining
clearance to market medical products is costly and time consuming and can delay
the marketing and sale of Cardia's products. Further, federal, state, foreign
and other regulations regarding the manufacture and sale of medical devices are
subject to change. Cardia cannot predict what impact such changes, if any, might
have on its business, financial condition or results of operations.
MANUFACTURING AND OPERATIONS
Cardia manufactures and assembles its TCD devices at its facilities in
Burnsville, Minnesota. Certain of the components of Cardia's products are
manufactured by third party vendors. Cardia has received ISO 9001 certification,
which certification shows compliance of Cardia's manufacturing facilities with
European standards for quality assurance and manufacturing process control.
Because the Company is in the development stage, its business is not
currently dependent on one or a few major customers. It is also not currently
dependent on a limited number of sources or availability of raw materials to
manufacture its products under development.
19
<PAGE>
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
There are several patents relating to Cardia's Transcatheter Closure
Devices. A U.S. patent, two German utility model registrations and a pending
European patent application exist for its PDA closure device. A German utility
model application and a Patent Cooperation Treaty ("PCT") patent application
have been filed for Cardia's PFO closure device. It is the intention of Cardia
to file for European and U.S. patents (based upon the PCT patent application)
for its PFO closure device as well as its other closure devices.
There can be no assurance that patents will issue on products under
development by Cardia or to be developed by Cardia in the future, that the
patents issued to Cardia in the past or in the future will be of material
benefit, or that Cardia will have sufficient resources to enforce its patent
rights. Nor can there be any assurance that Cardia's products do not infringe on
patents, copyrights or other proprietary information known or claimed by others,
or that others will not successfully utilize part of or all of Cardia's
technologies without compensation to Cardia. If Cardia is found to have
infringed on the rights of a third party, Cardia may be unable to market its
products without a license from such third party. There can be no assurance that
Cardia would be able to obtain such a license on satisfactory terms, or at all.
Cardia also relies for protection of trade secrets and proprietary
know-how on its internal security and secrecy measures and on employment and
consulting agreements requiring employees and consultants of Cardia to observe
the confidentiality of Company information and to assign to Cardia inventions
developed in the course of work performed for Cardia.
EMPLOYEES
Following the Distribution, Cardia will employ two full-time employees
and four part-time employees. The full-time employees will be engaged in sales
and marketing activities. The part-time employees will be engaged in various
activities including research and development, manufacturing and general
administration. Cardia believes that its relations with its employees are good.
None of Cardia's employees is covered by a collective bargaining agreement.
PROPERTY
Cardia subleases approximately 1,200 square feet of office,
manufacturing and warehouse space from ABI at 501 East Highway 13, Suite 108,
Burnsville, Minnesota, a suburb of Minneapolis. Cardia believes that its present
facilities are in good condition and adequate for its current operations.
LEGAL PROCEEDINGS
Cardia is not a party to any litigation and is not aware of any
threatened litigation that would have a material adverse effect on its financial
condition or results of operations.
20
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The directors and officers of Cardia are as follows:
<TABLE>
<CAPTION>
Principal Occupation
Name and Age and Other Directorships
- ------------ -----------------------
<S> <C>
Joseph A. Marino Chairman, Chief Executive Officer, Treasurer and Director of the
(47) Company since November 1998; Chairman of Applied Biometrics, Inc.
since 1994 and Chief Financial Officer from 1993 to 1996.
Peter Buonomo Vice President of the Company since November 1998; Vice President
(38) of Sales and Marketing of Applied Biometrics, Inc. since 1996, Vice
President of Marketing since 1995 and Director of Marketing from
1994 to 1995.
Patrick Delaney Secretary of the Company since November 1998; Secretary and Director
(56) of Applied Biometrics, Inc. since 1993; Partner in Lindquist & Vennum
P.L.L.P., a Minneapolis law firm which is counsel to the Company;
practicing lawyer since 1967; Secretary of MTS Systems
Corporation; Director of CNS, Inc. and Community First Bankshares,
Inc.
Thomas E. Brust Director of the Company since November 1998; Chairman and Chief
(40) Executive Officer of Micropure Medical, Inc., a medical device
manufacturer, since 1992.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation to be paid during fiscal year 1999 to the Company's Chief Executive
Officer. No other employee of the Company will receive salary in excess of
$100,000 during 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ -------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY OPTIONS(1)
- --------------------------- ----------- ---------- -------------------
<S> <C> <C> <C>
Joseph A. Marino, Chief Executive Officer 1999 $85,000(2) 75,000
</TABLE>
- ----------------
(1) Number of shares of Common Stock subject to options granted during the year
indicated.
21
<PAGE>
(2) Mr. Marino's salary is based on fifty percent of an annualized base salary
of $170,000 which will be paid to him for services rendered to ABI and
Cardia during 1999. In the event the time devoted by Mr. Marino to Cardia's
business during 1999 is more or less than fifty percent of the total time
devoted to Cardia and ABI together, the salary paid to him by Cardia will
be adjusted accordingly.
DIRECTOR COMPENSATION
Directors are not currently paid fees for attending meetings. All
Directors are reimbursed for their travel expenses incurred in attending Board
Meetings.
STOCK OPTION PLAN
As of November 1, 1998, the Board of Directors and sole shareholder of
the Company adopted the Cardia, Inc. 1998 Omnibus Stock Incentive Plan (the
"Plan") to provide for the granting of stock-based incentives to officers, key
employees and directors of the Company. The Plan permits the granting of
incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended, non-qualified stock options which do not meet
the requirements of such Section, stock appreciation rights, restricted stock
grants and deferred stock grants. The Company has reserved 200,000 shares of its
Common Stock for issue in connection with awards granted pursuant to the Plan.
As of the date of this Prospectus, the Company has outstanding options to
purchase an aggregate of ___ shares of stock.
The following table sets forth certain information as to options
granted to the Chief Executive Officer of the Company as of the date of this
Prospectus:
OPTION GRANTS
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS
UNDERLYING GRANTED TO EMPLOYEES EXERCISE OR BASE PRICE
NAME OPTIONS GRANTED IN FISCAL YEAR (DOLLAR/SHARE) EXPIRATION DATE
- ---- -------------------- ------------------------ ---------------------- ---------------
<S> <C> <C> <C> <C>
Joseph A. Marino 75,000(1) ______% $1.10 12/__/09
</TABLE>
- ----------------
(1) All of Mr. Marino's options are currently exercisable.
22
<PAGE>
The following table sets forth certain information as to options held
by the Chief Executive Officer of the Company as of the date of this Prospectus:
AGGREGATE OPTION EXERCISES
AND OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS MONEY OPTIONS
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Joseph A. Marino 75,000 0 $0(1) --
- ---------------
(1) The value of the exercisable options is equal to the difference between the
Subscription Price in the Rights Offering of $1.00 per Share and the Option
Exercise Price of $1.10 per Share multiplied by the number of Shares
subject to options.
INDEMNIFICATION AND WAIVER OF DIRECTOR LIABILITY
The Minnesota Business Corporation Act provides that officers and
directors of the Company have the right to indemnification from the Company for
liability arising out of certain actions. Such indemnification may be available
for liabilities arising in connection with the Distribution and the Rights
Offering. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to such indemnification provisions, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company has adopted in its Articles of Incorporation a provision
which limits personal liability for breach of the fiduciary duty of its
directors, to the extent provided by the Minnesota Business Corporation Act.
Such provision eliminates the personal liability of directors for damages
occasioned by breach of fiduciary duty, except for liability based on the
director's duty of loyalty to the Company, liability for acts or omissions not
in good faith, or which involve intentional misconduct or a knowing violation of
law, liability based on payments of improper dividends, liability based on
violations of state securities laws, and liability for acts occurring prior to
the date such provision was added.
23
<PAGE>
PRINCIPAL SHAREHOLDERS
APPLIED BIOMETRICS, INC.
As of October 15, 1998, ABI had 4,336,117 outstanding shares of Common
Stock, $.01 par value. The following table sets forth, as of that date, the
number and percentage of outstanding shares of Common Stock of ABI beneficially
owned by each person who is known to ABI to beneficially own more than five
percent (5%) of the Common Stock of ABI, by each director of ABI, by each
executive officer of ABI, and by all directors and executive officers of ABI as
a group:
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned(1) of Class
- ------------------ --------------------- --------
David B. Johnson .......................... 402,100(2) 9.4%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Aaron Boxer Revocable Trust ............... 307,000(3) 7.2%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Joseph A. Marino (4)(5) ................... 329,166 7.1%
501 East Hwy. 13
Burnsville, MN 55337
Demetre Nicoloff, M.D., Ph.D (4)(6) ....... 80,900 1.8%
Patrick Delaney (4) ....................... 48,400 1.1%
Jeffrey W. Green (4)(7) ................... 43,400 1.0%
All directors and executive officers
as a group (6 persons) (4) ................ 586,866 12.1%
- ---------------
(1) Unless otherwise indicated, each person has sole voting and dispositive
power over such shares.
(2) Based on a Schedule 13G dated February 12, 1998 and filed with the
Securities and Exchange Commission. Of the 402,100 shares reported, Mr.
Johnson has sole voting and dispositive power with respect to 107,450
shares and shares voting and dispositive power with respect to 294,650
shares.
(3) Based on a Schedule 13G dated February 12, 1998 and filed with the
Securities and Exchange Commission.
(4) Includes the following number of shares which could be purchased under
stock options exercisable within sixty (60) days of the date hereof: Mr.
Marino, 300,000 shares; Dr. Nicoloff, 60,067 shares; Mr. Delaney, 48,400
shares; Mr. Green, 13,400 shares, and by all directors and executive
officers as a group, 506,867 shares.
(5) Includes 29,166 shares held by Mr. Marino's minor children.
(6) Includes 13,333 shares held jointly by Dr. Nicoloff and his spouse and
7,500 shares held by Nicoloff Properties.
(7) Includes 30,000 shares held by Mary Celeste, L.P. of which Mr. Green is the
General Partner.
24
<PAGE>
CARDIA, INC.
The following table sets forth the number of and percentage of
outstanding shares of Cardia Common Stock which will be beneficially owned
immediately following the Distribution by each person who is known to
beneficially own more than five percent (5%) of the Common Stock of ABI, by each
director of ABI, by each executive officer of ABI, and by all directors and
executive officers of ABI as a group. This table does not reflect any shares
that may be purchased as the result of exercise of any Rights.
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ------------------ -------------------- --------
David B. Johnson ......................... 34,775 7.0%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Aaron Boxer Revocable Trust .............. 26,550 5.3%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Joseph A. Marino (1) ..................... 227,522 37.9%
501 East Hwy. 13
Burnsville, MN 55337
Demetre Nicoloff, M.D., Ph.D ............. 1,801 *
Patrick Delaney .......................... 0 *
Jeffrey W. Green ......................... 2,595 *
All directors and executive officers
as a group (6 persons) ................... 231,918 38.6%
- ----------------
* Less than 1%
(1) Includes 100,000 shares which could be purchased under stock options
exercisable within sixty (60) days of the date hereof.
25
<PAGE>
CERTAIN TRANSACTIONS
BACKGROUND AND VALUATION OF THE DISTRIBUTION
At a meeting of the Board of Directors of ABI on August 5, 1998, ABI
management proposed a spin-off of ABI's TCD business to allow ABI to concentrate
its resources on the development of its cardiac output monitoring system. The
spin-off would also allow a separate company to raise its own capital on the
merits of the TCD business and to focus its efforts and resources on the
development of the TCD business. At this meeting, an Independent Committee of
the Board of Directors, consisting of Demetre Nicoloff and Jeffrey Green (the
"Independent Committee"), was appointed to determine all issues related to the
Distribution and Rights Offering.
The Independent Committee determined, over the course of several
meetings of its members and conferences with ABI management and advisors, to
spin off the TCD business through a distribution to its shareholders of common
stock of Cardia, Inc., a newly-formed, wholly-owned subsidiary of ABI into which
ABI has transferred the TCD business. After consultation with its advisors and
management, the Independent Committee decided to sell 125,000 shares of Cardia
Common Stock for $125,000 to Joseph A. Marino, the Chairman and Chief Executive
Officer of ABI and Cardia, and then to distribute 375,000 shares of Cardia
Common Stock to ABI shareholders on the basis of one share of Cardia Common
Stock for every 11.563 shares of ABI Common Stock outstanding. Following the
Distribution, 500,000 shares of Cardia Common Stock will be outstanding. The
Independent Committee concluded that this stock sale and distribution was fair
and reasonable and in the best interests of ABI and its shareholders.
The Independent Committee did not obtain a fairness opinion as to the
valuation of Cardia because of the following factors:
o there is a commonality of interests between the ABI
shareholders and the Cardia shareholders;
o the estimated market capitalization of Cardia immediately
after the Distribution is estimated to be $500,000;
o Cardia is a development stage company that is expected to
operate at a loss for the foreseeable future and will require
significant additional working capital;
o there are few comparable enterprises useful for valuing a
company at Cardia' stage of development; and
o following the Distribution, ABI will not have to provide
capital or credit to Cardia and will not have any continuing
risk of liability with respect to Cardia's operations.
The Independent Committee also believed that providing the opportunity
for Mr. Marino to acquire 125,000 shares of Cardia for $125,000 was fair and
reasonable and in the best interests of the shareholders of both ABI and Cardia
based on the following:
o the $1.00 per share paid by Mr. Marino is equal to the per
share valuation of the Distribution and is also equal to the
per share price of the Rights Offering;
o Mr. Marino will be a key factor in the development of Cardia's
business while continuing to be involved in ABI's business;
and
o the success of the Rights Offering is believed to be dependent
on Mr. Marino's involvement as an executive officer and
significant shareholder of Cardia.
26
<PAGE>
DISTRIBUTION AGREEMENT
ABI and Cardia have entered into a Distribution Agreement, dated as of
November 1, 1998, which sets out the parameters for the Distribution of Cardia
Common Stock by ABI and the independent operation of Cardia following the
Distribution. The Distribution Agreement provides that ABI will transfer 375,000
shares of Cardia Common Stock to the Distribution Agent as of the date of this
Prospectus for distribution to shareholders of ABI on the Record Date on the
basis of one share of Cardia Common Stock for every 11.563 shares of ABI Common
Stock held on the Record Date.
The Distribution Agreement contains, among other things, a number of
provisions describing the timing and method of the Distribution, the transfer of
the TCD assets to Cardia, the relationship of the ABI and Cardia following the
Distribution, and certain indemnification obligations. The principal provisions
of the Distribution Agreement (1) obligate ABI to make certain services, such as
accounting and payroll, available to Cardia for a period of twenty-four months
following the Distribution, at Cardia's expense, (2) provide that ABI will make
certain information regarding Cardia and the TCD assets available to Cardia for
copying upon request, (3) establish a sublease by Cardia of a portion of ABI's
facilities at fair rental value, (4) obligate each party to indemnify the other
with respect to any claims or actions relating to the liabilities or business of
the other and (5) provide that Cardia shall have control over all of the
operations and assets intended to be transferred to Cardia, whether or not all
actions necessary to transfer the TCD operations and assets have been completed
by the effective date of the Distribution. The Distribution Agreement also
provides for arbitration of any disputes between the parties with respect to the
subject matter of the agreement pursuant to the Commercial Arbitration Rules of
the American Arbitration Association.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Cardia has been formed to pursue the further development and
commercialization of certain Transcatheder Closure Devices (TCDs). The primary
purposes of the Distribution are to enable ABI to conserve its liquid assets of
approximately $3 million to continue to pursue its cardiac output measurement
business, and to enable Cardia to raise immediately needed working capital
through the Rights Offering of its Common Stock which will immediately follow
the Distribution. The Rights Offering is described in more detail below. The
Distribution is also intended to permit ABI and Cardia each to (1) adopt
strategies and pursue objectives appropriate to its specific business; (2)
enable management to concentrate attention and financial resources on its core
business; (3) make acquisitions and enter into transactions with strategic
partners by issuing its own equity securities; (4) implement incentive
compensation arrangements that are more directly based on results of operations
of its separate business; and (5) be recognized and evaluated by the financial
community as a separate and distinct business.
MANNER OF EFFECTING THE DISTRIBUTION
Applied Biometrics, Inc. will effect the Distribution on the
Distribution Date by delivering 375,000 shares of Cardia Common Stock, which
represents 75% of the shares outstanding, to the Distribution Agent for
distribution to the holders of outstanding ABI Common Stock immediately
following the expiration and closing of the Rights Offering described below. The
Distribution will be made on the basis of one share of Cardia Common Stock for
every 11.563 shares of ABI Common Stock held as of the close of business on the
Distribution Record Date. The Cardia Common Stock will be fully paid and
nonassessable, and the holders thereof will not be entitled to preemptive rights
or cumulative voting. See "Description of Securities." It is expected that
certificates representing Cardia shares will be mailed to holders of ABI Common
Stock as soon as practicable after the expiration of the Rights Offering.
HOLDERS OF ABI COMMON STOCK SHOULD NOT SEND CERTIFICATES TO CARDIA, ABI
OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE
27
<PAGE>
STOCK CERTIFICATES REPRESENTING CARDIA SHARES AS SOON AS PRACTICABLE
AFTER THE DISTRIBUTION EFFECTIVE DATE. ABI SHARE CERTIFICATES WILL
CONTINUE TO REPRESENT ABI COMMON SHARES AFTER THE DISTRIBUTION IN THE
SAME AMOUNT SHOWN ON THE CERTIFICATE.
No holder of ABI Common Stock will be required to pay any cash or other
consideration for the Cardia shares to be received in the Distribution or to
surrender or exchange ABI Common Stock or to take any other action in order to
receive Cardia Common Stock pursuant to the Distribution.
RESULTS OF THE DISTRIBUTION
Upon the consummation of the Distribution, Cardia will be an
independent publicly held company which will continue to conduct its business of
developing, marketing and selling TCDs. Immediately following the Distribution,
ABI shareholders other than Mr. Marino will own 74.5% of the outstanding Cardia
Common Stock and Joseph A. Marino will own 25.5% (including shares to be
distributed with respect to shares of ABI Common Stock beneficially owned by Mr.
Marino) of the outstanding Cardia Common Stock. Although Cardia Common Stock
will be eligible for quotation and trading on the OTC Bulletin Board after the
Distribution, Cardia Common Stock is not currently quoted on the OTC Bulletin
Board or listed on any national securities exchange, or approved for quotation
on any quotation system, and there can be no assurance that a public market for
Cardia Common Stock will develop or provide liquidity. See "Risk Factors --
Arbitrary Offering Price of Common Stock; Possible Volatility of Common Stock
Price."
THE RIGHTS OFFERING
THE RIGHTS
Cardia is distributing, to the record holders of outstanding Cardia
Common Stock as of as of the Distribution Effective Date (the "Rights Record
Date"), at no cost to them, Rights to purchase Cardia Common Stock (the
"Underlying Shares") at a Subscription Price of $1.00 per share. Cardia will
distribute one Right for each share of Cardia Common Stock held on the Rights
Record Date. Each Right will entitle its Holder to purchase one share of Cardia
Common Stock. The Rights to purchase Cardia Common Stock pursuant to the Basic
Subscription Privilege will be evidenced by subscription certificates (the
"Subscription Certificates"). An aggregate of 500,000 Underlying Shares will be
sold if all Rights are exercised. Joseph A. Marino, the Chairman and Chief
Executive Officer of ABI and Cardia, has advised Cardia that he will exercise
Rights to purchase an aggregate of 125,000 shares of Cardia Common Stock and
will purchase up to 272,478 Underlying Shares pursuant to the Standby
Subscription Guaranty described below.
BASIC SUBSCRIPTION PRIVILEGE
Each Right will entitle the Holder thereof to receive, upon payment of
the Subscription Price, one share of Cardia Common Stock. Certificates
representing Cardia Common Stock purchased pursuant to the Basic Subscription
Privilege will be delivered to subscriber as soon as practicable after the
closing date, irrespective of whether the Basic Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Basic Subscription Privilege or Oversubscription Privilege will
not be shareholders of record with respect to the shares issuable pursuant to
such Subscription Privilege until the closing of the Rights Offering, which is
anticipated to occur five Business Days after the Expiration Date. The term
"Business Day" shall mean any day other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in Minneapolis
are authorized or required by law, regulation or executive order to close.
28
<PAGE>
OVERSUBSCRIPTION PRIVILEGE
Subject to the allocation described below, each Right also carries the
right to subscribe, at the Subscription Price, for Underlying Shares not
subscribed for through the exercise of Basic Subscription Privileges by other
Holders. The number of Underlying Shares which may be subscribed for by a Holder
pursuant to the Oversubscription Privilege may be any number of shares up to the
number of shares purchased by a Holder pursuant to his or her Basic Subscription
Privilege. If the remaining Underlying Shares are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, such Underlying Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among those Holders exercising the Oversubscription Privilege, in proportion to
the number of shares each Holder exercising the Oversubscription Privilege
subscribed for pursuant to the Basic Subscription Privilege. No Holder will be
allocated a greater number of Underlying Shares than such Holder subscribed for
pursuant to the exercise of such Holder's Oversubscription Privilege. Only
Holders who exercise the Basic Subscription Privilege in full will be entitled
to exercise the Oversubscription Privilege. Certificates representing the
Underlying Shares purchase pursuant to the Oversubscription Privilege will be
delivered to subscribers as soon as practicable after the closing date and after
all prorations have been effected.
STANDBY SUBSCRIPTION GUARANTY
Mr. Marino has offered the Company a Standby Subscription Guaranty to
subscribe, at the Subscription Price, for up to 272,478 Underlying Shares
remaining unissued, if any, after satisfaction of all subscriptions pursuant to
the Basic Subscription Privilege and the Oversubscription Privilege. The Standby
Subscription Guaranty is applicable only if less than 400,000 Underlying Shares
are subscribed for, and is limited to that number of shares necessary to reach
subscriptions for an aggregate of 400,000 Underlying Shares. Accordingly,
following the Rights Offering Mr. Marino will beneficially own a minimum of
255,044 shares of Cardia Common Stock following the exercise of his Rights, and
up to 527,522 shares if no other shareholder exercises the Basic Subscription
Privilege.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Minneapolis time, on _________,
1999 unless extended by Cardia from time to time. Notwithstanding the foregoing,
the Expiration Date in no event shall be later than 45 days after the
commencement of the Rights Offering. After the Expiration date, unexercised
Rights will be null and void. Cardia will not be obligated to honor any
purported exercise of Rights received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to such exercise were
sent.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent, on or
prior to 5:00 p.m., Minneapolis time, on the Expiration Date, the properly
completed and executed Subscription Certificate evidencing such Rights with any
required signatures guaranteed, together with payment in full for any Underlying
Shares being subscribed for pursuant to the Subscription Privileges. Such
payment in full must be by: (1) check or bank draft drawn upon a U.S. bank or
postal, telegraphic or express money order payable to Norwest Bank Minnesota,
N.A. as Subscription Agent; or (2) wire transfer of funds to the account
maintained by the Subscription Agent for such purpose, provided in each case
that the full amount of such Subscription Price is received by the Subscription
Agent in currently available funds within five Business Days following the
Expiration Date. Payment of the Subscription price will be deemed to have been
received by the Subscription Agent only upon (a) clearance or any uncertified
check, (b) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order or (c) receipt of good funds in the Subscription Agent's account
designated above.
29
<PAGE>
If paying by uncertified personal check, please note that the funds
paid thereby may take at least five Business Days to clear. Accordingly, Holders
who wish to pay the Subscription Price by means of uncertified personal check
are urged to make payment sufficiently in advance of the Expiration Date to
ensure that such payment is received and clears by such date and are urged to
consider payment by means of certified or cashier's check, money order or wire
transfer of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Funds received in payment of the Subscription Price for the Underlying
Shares subscribed for pursuant to the Oversubscription Privilege will be held in
a segregated account pending issuance of such Underlying Shares. If a Holder
exercising an Oversubscription Privilege is allocated less than all of the
Underlying Shares that such Holder wished to subscribe for, the excess funds
paid by such Holder in respect of the Subscription Price for shares not issued
shall be returned by mail without interest or deduction as soon as practicable
after the Expiration Date.
A Holder who holds Cardia Common Stock for the account of others, such
as a broker, a trustee or a depository for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record Holder of such
Rights should complete the Subscription certificate and submit it to the
Subscription Agent with the proper payment. In addition, the beneficial owner of
Cardia Common Stock or Rights held through such a Holder of record should
contact the Holder and request the Holder to effect transactions in accordance
with the beneficial owner's instructions.
Unless a Subscription Certificate (1) provides that the Cardia Common
Stock to be issued pursuant to the exercise of such Rights represented thereby
are to be delivered to the Holder or (2) is submitted for the account of any
Eligible Guarantor Institution(as defined below), signatures on such
Subscription Certificate must be guaranteed by an Eligible Guarantor
Institution.
If either the number of Underlying Shares being subscribed for pursuant
to the Basic Subscription Privilege is not specified on the Subscription
Certificate, or the amount or consideration delivered is not enough to pay the
Subscription Price for all Underlying Shares stated to be subscribed for, the
number of Underlying Shares subscribed for will be assumed to be the maximum
amount that could be subscribed for upon payment of such amount. If the number
of Underlying Shares being subscribed for is not specified, or payment of the
Subscription Price for the indicated number of Rights that are being exercised
exceeds the required Subscription Price, the payment will be applied , until
depleted, to subscribe for Underlying Shares in the following order: (i) to
subscribe for the number of Underlying Shares indicated, if any, pursuant to the
Basic Subscription Privilege, (ii) to subscribe for Underlying Shares until the
Basic Subscription Privilege has been fully exercised with respect to all of the
Rights represented by the Subscription Certificate; and (iii) to subscribe for
additional Underlying Shares pursuant to the Oversubscription Privilege (subject
to any applicable proration).
The Instruction included in the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
CARDIA.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
30
<PAGE>
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURE, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., MINNEAPOLIS
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
The closing of the Rights Offering will occur promptly after the
Expiration Date. All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by Cardia, whose
determinations will be final and binding. Cardia, in its sole discretion, may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as Cardia
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Instructions should be directed to the Subscription Agent.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE,
SUCH EXERCISE MAY NOT BE REVOKED.
SUBSCRIPTION AGENT
Cardia has appointed Norwest Bank Minnesota, N.A. as Subscription Agent
for the Rights Offering. Any questions or requests for additional copies of this
Prospectus may be directed to the Subscription Agent at the telephone number and
address below. The Subscription Agent's address, which is the address to which
the Subscription Certificates and payment of the Subscription Price should be
delivered, and the Subscription Agent's telephone number and facsimile number,
are:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Telephone: (651) 450-4053
Facsimile: (651) 450-4078
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material
U.S. Federal Income Tax aspects of the Distribution and the Rights Offering.
This discussion is a summary for general information only and does not consider
all aspects of U.S. Federal Income Tax that may be relevant to a Cardia
shareholder or an ABI shareholder in light of such shareholder's personal
circumstances.
This discussion is limited to the U.S. Federal Income Tax consequences
relevant to (1) an ABI shareholder receiving shares of Cardia Common Stock in
the Distribution and (2) a Cardia shareholder receiving Rights and Cardia Common
Stock acquired upon the exercise of Rights. This discussion does not address the
tax consequences to a Holder that is not a U.S. Holder or is not an individual.
This
31
<PAGE>
discussion is also limited to individuals who hold ABI Common Stock, Rights, and
Cardia Common Stock acquired upon the exercise of Rights as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code").
This discussion is based on the Code, existing and proposed regulations
thereunder and current administrative rulings and "decisions." All of the
foregoing is subject to change, possibly on a fast track basis, and any such
change could affect the continuing validity of this discussion.
EACH ABI SHAREHOLDER AND CARDIA SHAREHOLDER IS STRONGLY URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE APPLICATION OF FEDERAL INCOME
TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION
APPLICABLE TO HIS OR HER PARTICULAR SITUATION. THE CONTENTS OF THIS PROSPECTUS
ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH ABI SHAREHOLDER
AND CARDIA SHAREHOLDER SHOULD CONSULT HIS OR HER OWN ATTORNEY, BUSINESS ADVISOR
AND/OR TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
FEDERAL INCOME TAXATION OF THE DISTRIBUTION
An ABI shareholder will be treated as receiving a distribution from ABI
in an amount equal to the fair market value of the Cardia Common Stock received.
While the following should not be regarded as tax advice to ABI shareholders,
and shareholders should obtain advice from their own tax advisors, ABI
shareholders will not recognize dividend income as a result of the Distribution
unless the fair market value of the Cardia Common Stock received in the
Distribution exceeds the aggregate basis of ABI Common Stock held by a
shareholder immediately before the Distribution. Any shareholder recognizing
such a gain will recognize a gain equal to such excess and the gain will
constitute a capital gain if such shareholder's ABI Common Stock with respect to
which the Cardia Common Stock is received is held as a capital asset on the date
of the Distribution. For those ABI shareholders who do not recognize any gain on
the Distribution, the aggregate basis of the shares of ABI Common Stock and
Cardia Common Stock held immediately after the Distribution will be the same as
the basis of the ABI Common Stock held immediately before the Distribution. That
aggregate basis will be first allocated to the Cardia Common Stock in an amount
equal to its fair market value on the date of the Distribution. The remaining
basis will be allocated to the ABI Common Stock. For those ABI shareholders that
do recognize gain on the Distribution, the basis of the Cardia Common Stock held
immediately after the Distribution will equal its fair market value on the date
of the Distribution and the ABI Common Stock will have a basis of zero. ABI has
received the opinion of Lindquist & Vennum P.L.L.P. that ABI will not recognize
any income for federal or state income tax purposes by reason of the
Distribution because ABI's tax losses in the year of the Distribution exceed the
amount by which the fair market value of the Cardia Common Stock exceeds (if
any) ABI's basis in that stock.
FEDERAL INCOME TAXATION OF THE RIGHTS OFFERING
DISTRIBUTION OF THE RIGHTS. Holders of Cardia Common Stock immediately
following the Distribution will not recognize taxable income for federal income
tax purposes in connection with the receipt of the Rights. Cardia has received
the opinion of Lindquist & Vennum P.L.L.P. that Cardia will not recognize any
income for federal income tax purposes by reason of the Rights Offering.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided
in the following sentence, the basis of the Rights received by a Cardia
shareholder as a distribution with respect to such shareholder's Cardia Common
Stock will be zero. If, however, either (i) the fair market value of the Rights
on the date that the Rights are distributed is 15% or more of the fair market
value of the shares of Cardia Common Stock with respect to which they are
received or (ii) the shareholder properly elects, in his or her Federal Income
Tax return for the taxable year in which the Rights are
32
<PAGE>
received, to allocate basis, then part of his or her basis in shares of
Cardia Common Stock will be allocated between the Cardia Common Stock and the
Rights in proportion to the fair market value of each on the date of the Rights
Offering.
The holding period of a Cardia shareholder with respect to the Rights
received as a distribution on such shareholder's Cardia Common Stock will
include the shareholder's holding period for the Cardia Common Stock with
respect to which the Rights were issued.
LAPSE OF THE RIGHTS. Cardia shareholders who allow the Rights received
by them to lapse will not recognize any gain or loss, and no adjustment will be
made to the basis of Cardia Common Stock, if any, owned by such shareholders.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF SHARES. Cardia
shareholders will not recognize any gain or loss upon the exercise of the
Rights. The basis of the Cardia Common Stock acquired through exercise of the
Rights will be equal to the sum of the price paid therefor and the shareholder's
basis in such Rights, if any.
A Cardia shareholder's holding period for the Cardia Common Stock
acquired through exercise of the Rights will begin on the date the Rights are
exercised.
SALE OF SHARES. Sale of shares of Cardia Common Stock acquired through
exercise of the Rights will result in the recognition of gain or loss to a
Cardia shareholder in an amount equal to the difference between the amount
realized on the sale and the shareholder's adjusted basis in the Cardia Common
Stock. Gain or loss on the sale of such shares will be classified as capital
gain or loss taxable based on the shareholder's holding period for the Cardia
Common Stock.
BACKUP WITHHOLDING. A U.S. Holder of Rights or Cardia Common Stock may
be subject to "backup withholding" at a rate of 31% with respect to certain
"reportable payments," including dividends, payments and, under certain
circumstances, proceeds from the disposition of Cardia Common Stock. These
backup withholding rules apply for a U.S. Holder who, among other things, (i)
fails to furnish a social security number or other taxpayer identification
number ("TIN") certified under penalties of perjury within a reasonable time
after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to
properly report interest or dividends, or (iv) under certain circumstances,
fails to provide a certified statement, signed under penalties of perjury, that
the TIN furnished is the correct number and that such U.S. Holder is not subject
to backup withholding. A U.S. Holder who does not provide Cardia with his, her,
or its correct TIN also may be subject to penalties. Any amount withheld from a
payment to a U.S. Holder under the backup withholding rules is creditable
against the U.S. Holder's Federal Income Tax liability, provided the required
information is furnished to the Internal Revenue Service. Backup withholding
will not apply, however, with respect to payments made to certain Holders,
including corporations and tax-exempt organizations, provided their exemptions
from backup withholding is properly established.
Cardia will report to the U.S. Holders of Rights or Cardia Common Stock
and to the Internal Revenue Service the amount of any "reportable payments" for
each calendar year in the amount of tax withheld, if any, with respect to such
payments.
DESCRIPTION OF SECURITIES
The following summary of the terms of the capital stock of Cardia does
not purport to be complete and is subject to and qualified in its entirety by
reference to Cardia's Articles of Incorporation and By-Laws, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part. See
"Available Information."
33
<PAGE>
GENERAL
The Articles of Incorporation of Cardia provide that Cardia may issue
up to 15,000,000 shares of common stock, $0.01 par value per share (the "Cardia
Common Stock"). After giving effect to the Distribution, there will be 500,000
shares of Cardia Common Stock issued and outstanding, and approximately 1200
beneficial holders of such shares.
COMMON STOCK
All shares of Cardia Common Stock which will be outstanding after the
Distribution and Rights Offering will be duly authorized, fully paid and
non-assessable. Holders of Cardia Common Stock are entitled to receive dividends
on such stock if, as and when authorized and declared by the Board of Directors
of Cardia out of assets legally available therefor, and to share ratably in the
assets of Cardia legally available for distribution to its shareholders in the
event of its liquidation, dissolution or winding up after payment of or adequate
provision for all known debts and liabilities of Cardia.
Each outstanding share of Cardia Common Stock entitles the Holder to
one vote on all matters submitted to a vote of shareholders, including the
election of directors and, except as discussed below under "Undesignated Stock,"
the Holders of such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the Holders of
the majority of the outstanding shares of Cardia Common Stock can elect all of
the directors then standing for election and the Holders of the remaining shares
will not be able to elect any directors.
Holders of shares of Cardia Common Stock have no preference,
conversion, exchange, sinking fund, redemption or appraisal rights and have no
preemptive rights to subscribe for any securities of Cardia. Shares of Cardia
Common Stock will have equal dividend, liquidation and other rights.
UNDESIGNATED STOCK
The board of Directors has the authority to issue up to 1,000,000
undesignated shares in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued undesignated
shares and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
shareholders. The Board of Directors, without shareholder approval, has the
power to issue undesignated shares with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. The issuance
of undesignated shares may have the effect of delaying, deferring or preventing
a change in control of the Company by way of a merger, sale or exchange of
assets or a similar transaction. The Company has no present plans to issue any
undesignated shares.
MINNESOTA ANTITAKEOVER LAW
Cardia is governed by the provisions of Sections 302.A.671 and
302.A.673 of the Minnesota Business Corporation Act. In general, Section
302.A.671 provides that the shares of the corporation acquired in a "control
share acquisition" have no voting rights unless such rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302.A.673 prohibits a publicly held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved in
a prescribed manner. "Business combinations" include mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "Interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and
34
<PAGE>
at any time within four years prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock.
Cardia is also governed by the provisions of Section 302.A.675 of the
Minnesota Business Corporation Act which, in general, provides that an offeror
may not acquire shares of a publicly held Minnesota corporation within two years
following the last purchase of shares pursuant to a takeover offer (including
purchase, merger and other transactions), unless the selling shareholder is
given, at the time of the acquisition, a reasonable opportunity to dispose of
the shares through the offer upon substantially equivalent terms as those
provided in the earlier takeover offer, unless the acquisition is approved in a
prescribed manner.
TRANSFER AGENT
Norwest Bank Minnesota, N.A. is the Transfer Agent and Registrar for
Cardia Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Cardia Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for such shares. In addition, any such sale or perception could
make it more difficult for Cardia to sell equity securities or equity related
securities in the future at a time and price that Cardia deems appropriate. Upon
consummation of the Distribution and Rights Offering, assuming all of the Rights
are exercised, Cardia will have a total of 1,000,000 shares of Common Stock
outstanding, of which 875,000 shares issued in the Distribution and offered in
connection with the Rights Offering will be eligible for immediate sale in the
public market without restriction, unless they are held by "affiliates" of
Cardia within the meaning of Rule 144 of the Securities Act. In addition, there
will be outstanding 125,000 shares of Cardia Common Stock which will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and 200,000 shares of Common Stock reserved for issuance upon exercise or
vesting of stock-based compensation grants made or to be made under the
Company's 1998 Omnibus Stock Incentive Plan.
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from
Cardia or any "affiliate" of Cardia, as that term is defined under the
Securities Act, the acquirer or subsequent Holder thereof is entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Cardia Common Stock or the
average weekly trading volume of the shares of Cardia Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about Cardia. If two years have elapsed since the date of
acquisition of restricted shares from Cardia or from any "affiliate" of the
Cardia, and the acquirer or subsequent Holder thereof is deemed not to have been
an "affiliate" of Cardia at any time during the three months preceding a sale,
such person would be entitled to sell such shares in the public market pursuant
to Rule 144 without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements of Rule 144.
No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for Cardia Common Stock prevailing from time to time. Sales of
substantial amounts of Cardia Common Stock, or the perception that such sales
could occur, may adversely affect the prevailing market price of Cardia Common
Stock.
PLAN OF DISTRIBUTION
The shares of Cardia Common Stock being issued in the Distribution are
being distributed by ABI directly to the Holders of ABI Common Stock on the
Distribution Record Date, on the basis of one share of Cardia Common Stock
35
<PAGE>
for each 11.563 shares of ABI Common Stock held on the Distribution Record Date.
Cardia intends to distribute Rights and copies of this Prospectus to its
shareholders of record on the Rights Record Date promptly following the
effective date of the Registration Statement of which this Prospectus forms a
part.
Holders of Rights who desire to subscribe for the purchase of shares of
Cardia Common Stock in the Rights Offering are urged to complete, date and sign
the Subscription Certificate and return it to the Subscription Agent on or
before the Expiration Date, together with payment in full for the subscribed for
shares of Cardia Common Stock.
Certain employees, officers or directors of ABI or Cardia may solicit
responses from Holders of Subscription Certificates, but such individuals will
not receive any commissions or compensation for such services other than their
normal employment compensation.
INDEPENDENT ACCOUNTANTS
The financial statements of Cardia as of December 31, 1997 and for the
period then ended included in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing herein.
LEGAL MATTERS
The validity of the Rights and the shares of Cardia Common Stock
offered hereby will be passed upon for Cardia by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota. Patrick Delaney, a partner in Lindquist & Vennum, is the
Secretary and a director of ABI and the Secretary of Cardia.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...............................................................................F-2
Balance Sheet as of December 31, 1997 and September 30, 1998 (unaudited)........................................F-3
Statements of Operations for the periods November 2, 1997 (inception) to December 31, 1997, the
nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................................F-4
Statements of Cash Flows for the periods November 2, 1997 (inception) to December 31, 1997, the
nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................................F-5
Notes to Financial Statements for the periods November 2, 1997 (inception) to December 31, 1997, the
nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................................F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cardia, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Cardia, Inc. (the Company; formerly the Transcatheter
Closures Business of Applied Biometrics, Inc.) as of December 31, 1997 and the
results of its operations and its cash flows for the period from November 2,
1997 (inception) to December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit 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 evaluation of the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company requires additional financing which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
November 5, 1998
F-2
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
BALANCE SHEET
- --------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
(UNAUDITED)
ASSETS
Current assets:
Inventories $ -- $ 53,639
Prepaid expenses and other current assets -- 13,009
-------- --------
Total current assets -- 66,648
Property and equipment, net 20,481
Intangible assets 100,000 87,500
-------- --------
Total assets $100,000 $174,629
======== ========
LIABILITIES AND NET INVESTMENT BY
APPLIED BIOMETRICS, INC.
Current liabilities:
Trade accounts payable $ -- $ 29,226
-------- --------
Total current liabilities -- 29,226
Commitments and contingencies
Net investment by Applied Biometrics, Inc. 100,000 145,403
-------- --------
Total liabilities and net investment by
Applied Biometrics, Inc. $100,000 $174,629
======== ========
F-3
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FROM
NOVEMBER 2, 1997 NOVEMBER 2, 1997
(INCEPTION) TO NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales $ -- $ 77,640 $ 77,640
Cost of sales -- 15,732 15,732
----------- ----------- -----------
Gross profit -- 61,908 61,908
Operating expenses:
Selling, general and administrative 16,409 370,492 386,901
Research and development -- 305,783 305,783
Acquisition of in-process research
and development 441,457 -- 441,457
----------- ----------- -----------
457,866 676,275 1,134,141
----------- ----------- -----------
Net loss $ (457,866) $ (614,367) $(1,072,233)
=========== =========== ===========
</TABLE>
F-4
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FROM
NOVEMBER 2, 1997 NOVEMBER 2, 1997
(INCEPTION) TO NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (457,866) $ (614,367) $(1,072,233)
Adjustments to reconcile net loss to
net cash from operating activities:
Non-cash acquisition of in-process
research and development 441,457 -- 441,457
Depreciation and amortization -- 14,161 14,161
Cash flows provided by (used for)
changes in:
Inventories -- (53,639) (53,639)
Prepaid expenses and other
current assets -- (13,009) (13,009)
Accounts payable -- 29,226 29,226
----------- ----------- -----------
Net cash flows used for
operating activities (16,409) (637,628) (654,037)
----------- ----------- -----------
Cash flows from investing activities:
Cash expended for purchase of
product line (31,457) -- (31,457)
Purchase of property and equipment -- (22,142) (22,142)
----------- ----------- -----------
Net cash flows used for
investing activities (31,457) (22,142) (53,599)
----------- ----------- -----------
Cash flows from financing activities:
Cash received from Applied
Biometrics, Inc. 47,866 659,770 707,636
----------- ----------- -----------
Net cash flows provided by
financing activities 47,866 659,770 707,636
----------- ----------- -----------
Cash and cash equivalents:
Cash, beginning of period -- -- --
----------- ----------- -----------
Cash, ending of period $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-5
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND OPERATIONS
BACKGROUND
Cardia, Inc. (Cardia or the Company) was formed in October of 1998 as a
subsidiary of Applied Biometrics, Inc. (ABI). Prior to that time, the
entity was operated as the Transcatheter Closures Business (the Business)
of ABI. Cardia intends to develop, manufacture, and market Transcatheter
Closure Devices (TCD's) which are based on intellectual property rights
ABI acquired in November 1997.
TCD's are a new generation of implantable device technologies which are
delivered through a catheter to permanently repair certain cardiac
defects in children and adults. The Company is in the development stage
with principal activities related to product development.
ACQUISITION OF TECHNOLOGY
ABI acquired the rights to the TCD technology in an acquisition
consummated in November 1997. The purchase price for the acquired
technology was approximately $542,000 and was comprised of 85,000 shares
of ABI stock and $32,000 of related acquisition costs. The acquired
technologies consisted of a pediatric product which has been subsequently
market released internationally on a limited basis and rights to another
product with therapeutic applications to adults which required
substantial additional development. The purchase price allocation
included approximately $100,000 to capitalizable intangible assets
related to the developed product and $442,000 to in-process research and
development which was charged to expense in 1997 as the underlying
research and development projects had not reached technological
feasibility and had no alternative future use.
The purchase agreement also requires the payment of royalties equal to 3%
of the net sales price of Vessel/Septal Occluder devices sold, payable on
a quarterly basis for a period of six years.
BASIS OF PRESENTATION
The accompanying financial statements include the specifically
identifiable net assets of the transcatheter closure operations of ABI
and the results of operations of that business from the point of ABI's
acquisition of the underlying technology in November 1997.
Costs related to functions performed by ABI have been charged to the
Business. Such costs allocated by the parent include certain general and
administrative costs such as personnel costs, legal costs and costs of
the finance function. These allocations of costs were provided at rates
which management considers to reflect the incremental costs of providing
these services and allocations of costs based on utilization of shared
services by the Business. The terms of these transactions and allocations
of costs were determined between related parties and may therefore differ
from terms which would have occurred between wholly unrelated parties or
had the Business operated as a completely autonomous entity since
inception.
ABI uses a centralized approach to cash management and the financing of
its operations. As a result, cash and equivalents, and the related
investment income and expense were not allocated to the Business in the
financial statements. The Business' financing requirements are
represented by cash transactions with Applied Biometrics, Inc. and are
reflected in the "Net investment by
F-6
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Applied Biometrics, Inc." account. Activity in the net investment account
relates to net cash flows of the Business as well as changes in the
assets and liabilities allocated to the Business.
The financial information included herein may not necessarily be
indicative of the financial position, results of operations or cash flows
of the Business in the future or what the financial position, results of
operations or cash flows would have been if the Business had been a
separate, independent company during the periods presented.
ABILITY TO OPERATE AS A GOING CONCERN
The Company is in its initial stages of operations and will require
additional capital to fund its ongoing operations. The Company is
currently in a Rights Offering which when combined with the proceeds from
an equity subscription by the Company's Chief Executive Officer may yield
maximum proceeds of approximately $625,000.
Management expects that available funds will be sufficient for an
estimated period of six months, at which time the Company intends to
raise additional capital through the issuance of equity, debt, or a
combination of the two. There can be no assurance, however, that
additional capital will be available on terms acceptable to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of September 30, 1998 and for the
nine month period then ended, including that set forth in the notes to
financial statements, is unaudited. In the opinion of management, this
financial information reflects the adjustments necessary for a fair
presentation of the financial information for such period. These
adjustments consist of normal, recurring items. The results of operations
for the nine month period ended September 30, 1998 should not necessarily
be taken as indicative of the results of operations that may be expected
for the entire year 1998.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist of short-term trade
receivables and payables for which the current carrying amounts
approximate fair market value.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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 these estimates.
INVENTORY
Inventory is stated at the lower of cost (first-in-first-out basis) or
market.
F-7
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost with depreciation computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for additions and improvements are capitalized while repair
and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
The cost of acquired intangible assets is capitalized and amortized on a
straight-line basis over an estimated useful life of six years. The
recoverability of unamortized intangible assets is assessed on an ongoing
basis by comparing discounted future cash flows from the related product
to net book value.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to a concentration of credit
risk.
RESEARCH AND DEVELOPMENT
The costs of research and development are expensed as incurred.
3. PROPERTY AND EQUIPMENT
The cost of property and equipment and the estimated useful lives are as
follows:
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
Furniture and fixtures 5 years $ -- $ 8,375
Machinery and equipment 5 years -- 13,767
------------ -------------
-- 22,142
Less accumulated depreciation -- (1,661)
------------ -------------
$ -- $ 20,481
============ =============
4. INTANGIBLE ASSETS
Intangible assets are comprised as follows:
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
Intangible assets 6 years $ 100,000 $ 100,000
Less accumulated amortization -- (12,500)
------------ -------------
$ 100,000 $ 87,500
============ =============
F-8
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INCOME TAXES
The Business has not been allocated any tax benefit on the results of its
operations since inception. As the Business was part of the consolidated
tax return of ABI until its formation in October 1998, no losses prior to
that date are available for carryforward to future periods.
At the date of the formation of Cardia, the Company will have available
net temporary differences to offset taxable income in future periods. For
tax purposes, all acquired technology of the Business is capitalized and
amortized over a life of 15 years. Such future tax benefits approximate
$140,000. A valuation allowance has been established for the entire
potential future tax benefit as its realization is not presently assured.
6. NET INVESTMENT BY APPLIED BIOMETRICS, INC.
Changes in the net investment by Applied Biometrics, Inc. during the
period from November 2, 1997 to December 31, 1997 and for the nine months
ended September 30, 1998 (unaudited) are as follows:
Balance at inception $ --
Purchase of Transcatheter Closure Product Line,
November 2, 1997 557,866
Net loss for the period from November 2, 1997 to
December 31, 1997 (457,866)
----------
Balance December 31, 1997 100,000
Net amounts received from Applied Biometrics, Inc. 659,770
Net loss for the nine month period ended September 30, 1998 (614,367)
----------
Balance September 30, 1998 $ 145,403
==========
7. CAPITALIZATION
The Board of Directors of ABI has approved a plan to distribute ABI's
interest in the Company as a dividend to the shareholders of ABI (the
Distribution). Under the plan, ABI shareholders will receive one share of
Cardia for every 11.563 shares of ABI common stock. Concurrent with the
Distribution, the Company will also sell 125,000 shares of Cardia common
stock at a price of $1 per share to an officer of the Company. The
following is a pro forma presentation of shareholders' equity of the
Company at September 30, 1998 reflecting the intended distribution of
ABI's interest in the Company to shareholders of ABI and the sale of
shares to an officer of the Company:
(UNAUDITED)
Common stock, $0.01 par value; 10,000,000 shares
authorized; 500,000 shares issued and outstanding $ 5,000
Undesignated preferred stock; $0.01 par value; 1,000,000
shares authorized; no shares issued and outstanding --
Additional paid-in capital 265,403
----------
Total shareholders' equity $ 270,403
==========
F-9
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Subsequent to the Distribution, the Company will commence a rights
offering of its common stock to sell an aggregate of 500,000 shares of
stock on the basis of one right for each share of Cardia stock held by a
shareholder immediately after the Distribution.
F-10
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made hereby. If given or made, such information or
representation must not be relied upon as having been authorized by the Applied
Biometrics, Inc. or Cardia, Inc. This Prospectus does not constitute an offer to
sell or solicitation of an offer to purchase by any person in any jurisdiction
in which such offer 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
PAGE
----
Prospectus Summary.................................................... 1
Risk Factors.......................................................... 6
Use of Proceeds....................................................... 12
Dividend Policy....................................................... 12
Capitalization........................................................ 13
Dilution.............................................................. 14
Management's Plan of Operation........................................ 15
Business.............................................................. 16
Property.............................................................. 20
Legal Proceedings..................................................... 20
Management............................................................ 21
Principal Shareholders................................................ 24
Certain Transactions.................................................. 26
The Distribution...................................................... 27
The Rights Offering................................................... 28
Material United States Federal Tax Considerations..................... 31
Description of Securities............................................. 33
Shares Eligible for Future Sale....................................... 35
Plan of Distribution.................................................. 35
Independent Accountants............................................... 36
Legal Matters......................................................... 36
Index to Financial Statements......................................... F-1
------------------------
Until ____________, 199_ (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
1,000,000 SHARES
CARDIA, INC.
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
__________________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act provides
that, unless prohibited or limited by a corporation's articles of incorporation
or bylaws, a corporation must indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement and
which were incurred in connection with actions, suits, or proceedings in which
such person are parties by reason of the fact that they are or were an officer,
director, employee or agent of the corporation, if they (i) have not been
indemnified by another organization, (ii) acted in good faith, (iii) received no
improper personal benefit, (iv) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful, and (v) reasonably
believed that the conduct was in the best interests of the corporation. Section
302A.521 also permits a corporation to purchase and maintain insurance on behalf
of its officers, directors, employees and agents against any liability which may
be asserted against, or incurred by, such persons in their capacities as
officers, directors, employees and agents against any liability which may be
asserted against, or incurred by, such persons in their capacities as officers,
directors, employees or agents of the corporation, whether or not the
corporation would have been required to indemnify the person against the
liability under the provisions of such section.
Article VIII of the Bylaws of the Company provides that the directors,
officers and employees of the Company and other persons serving at the request
of the Company shall be indemnified to the fullest extent permitted by Section
302A.521 of the Minnesota Business Corporation Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by
Applied Biometrics, Inc. in connection with the issuance and distribution of the
shares of Common Stock offered hereby:
SEC registration fee................................. $ 214.17
Legal fees and expenses.............................. 60,000.00
Accounting fees and expenses......................... 15,000.00
Blue Sky fees and expenses........................... 2,000.00
Printing expenses.................................... 10,000.00
Transfer agent fees and expenses..................... 7,500.00
Miscellaneous........................................ 1,285.83
-----------
TOTAL....................................... $ 96,000.00
===========
Each amount set forth above, except the SEC registration fee, is estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold the following
securities pursuant to exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"):
Immediately proceeding the Distribution, the Company sold 125,000
shares of its Common Stock to Joseph A. Marino, the Company's Chairman and Chief
Executive Officer.
The above transaction was made in reliance upon the exemption from
registration provided under Section 4(2). The purchaser of such shares acquired
them for his own account and not with a view to any distribution thereof to the
public. The certificates evidencing the shares bear a legend stating that the
shares may not be
<PAGE>
offered, sold or transferred other than pursuant to an effective Registration
Statement under the Securities Act, or an exemption from such registration
requirements.
ITEM 27. EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Distribution Agreement dated as of November 1, 1998 between Applied
Biometrics, Inc. and Cardia, Inc.
3.1 Articles of Incorporation of Cardia, Inc.
3.2 By-Laws of Cardia, Inc.
4.1 Articles and By-Laws of Cardia, Inc., incorporated by reference to
Exhibit Nos. 3.1 and 3.2 above.
4.2 Specimen stock certificate for the Common Stock of Cardia, Inc.,
$0.01 par value per share.
4.3 Form of Rights Subscription Certificate
5.1 Opinion of Lindquist & Vennum P.L.L.P. regarding the validity of the
Rights and the shares of Common Stock of Cardia, Inc. to be issued upon
exercise of the Rights (including consent) (to be filed by amendment).
8.1 Opinion of Lindquist & Vennum P.L.L.P. regarding certain tax matters
(including consent) (to be filed by amendment).
10.1 Cardia, Inc. 1998 Incentive Stock Option Plan (to be filed by
amendment).
10.2 Standby Subscription Guaranty of Joseph A. Marino dated as of ________,
1999 (to be filed by amendment).
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Lindquist & Vennum P.L.L.P., incorporated by reference to
Exhibit No. 5.1 above.
23.3 Consent of Lindquist & Vennum P.L.L.P., incorporated by reference to
Exhibit No. 8.1 above.
27.1 Financial Data Schedule.
ITEM 28. UNDERTAKINGS
(a) The undersigned small business issuer hereby undertakes to provide
certificates in such denominations and registered in such names as required to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, (the "Act") may be permitted to directors,
officers, and controlling persons of the small business issuer pursuant to the
provisions summarized in Item 24 above, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer 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 small business issuer 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
<PAGE>
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Minneapolis, State of Minnesota, on December 1, 1998.
CARDIA, INC.
By:____________________________________
Its:___________________________________
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed on December 1, 1998 by the following persons
in the capacities stated.
Signature Title
______________________________ Chief Executive Officer, Treasurer and Director
(principal executive officer and principal
accounting officer)
______________________________ Director
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into as of November 1, 1998
between Applied Biometrics, Inc. ("ABI"), a Minnesota corporation, and Cardia,
Inc. ("Cardia"), a Minnesota corporation and, as of the date hereof, a
wholly-owned subsidiary of ABI.
WHEREAS, ABI has engaged in the business of developing cardiac output
measurement devices and has recently acquired certain intellectual property
relating to certain transcatheter closure devices ("TCDs"); and
WHEREAS, ABI has decided to discontinue its development of TCDs through
a transfer of all of its assets relating to TCDs and certain employees or the
partial services of certain employees to Cardia, and a distribution of all the
outstanding Common Stock of Cardia received by ABI for such assets on a pro rata
basis to the holders of the Common Stock of ABI (the "Distribution"); and
WHEREAS, as of the close of business on which the Securities and
Exchange Commission declares the registration statement of Cardia on Form SB-2
with respect to the Distribution effective (the "Distribution Date"), ABI will
transfer to the Agent for the benefit of the holders of record of ABI Common
Stock on a record date of December 21, 1998 (the "Record Date"), without any
consideration being paid by such holders, a share certificate of Cardia which
represents all shares of Cardia Common Stock owned by ABI.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties hereto agree as follows:
<PAGE>
Section 1. The Distribution. On the Distribution Date, ABI will deliver
to Norwest Bank Minnesota, N.A. as distribution agent (the "Agent"), for the
benefit of holders of record of ABI Common Stock at the close of business on the
Record Date, a share certificate representing all shares of Cardia Common Stock
then owned by ABI. ABI shall instruct the Agent to distribute such shares on the
date selected by ABI (the "Certificate Date") to holders of record of ABI Common
Stock on the Record Date. The Distribution shall be on the basis of one (1)
share of Cardia Common Stock for every 11.563 shares of ABI Common Stock
outstanding on the Record Date. All of the shares of Cardia Common Stock so
issued shall be fully paid and nonassessable. Fractional shares will be rounded
to the nearest whole share. Cardia shall issue a number of fully paid and
nonassessable shares of its Common Stock necessary to cover such rounding.
Section 2. Books, Records, Services and Access to Information.
(a) For a period of twenty-four (24) months from and after the
Distribution Date, each Party, upon written request, shall make available to the
other during normal business hours and in a manner which will not unreasonably
interfere with such Party's business, its financial, tax, accounting, legal,
employee benefits, payroll and similar staff and services (collectively,
"Services") to the extent that the same may be reasonably required in connection
with the preparation of tax returns, audits, claims, litigation, administration
of employee benefit plans, payroll, general accounting and otherwise to assist
in effecting an orderly transition following the Distribution.
(b) From and after the Distribution Date, ABI shall afford Cardia and
its authorized accountants, counsel and other designated representatives access
(including access to persons or
2
<PAGE>
firms possessing information) and, without cost to Cardia, duplicating rights
during normal business hours to, or, at ABI's option, copies of, all records,
books, contracts, instruments, data and other information (collectively
"Information") within ABI's possession relating to Cardia or the TCD assets,
insofar as such access or copies are reasonably required by Cardia. Information
may be required under this Section 2, without limitation, for audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
(c) At all times from and after the Distribution Date, each Party will
use its commercially reasonable efforts to make available to the other, upon
written request, its officers, directors, employees and agents as witnesses to
the extent that the same may reasonably be required in connection with any
legal, administrative or other proceedings in which the requesting Party may
from time to time be involved.
(d) Except as provided in (b) above, a Party providing Information,
Services or witnesses to the other hereunder shall be entitled to receive from
the recipient, upon the presentation of invoices therefor, payments for such
amounts relating to supplies, disbursements, salaries or wages, and such other
costs and out-of-pocket expenses, as may be incurred in providing such
Information, Services or witnesses. Invoices shall be due and payable within
thirty (30) days. Interest shall accrue on any unpaid amount at the rate of ten
percent (10%) per annum.
(e) ABI shall provide Cardia, to the extent ABI maintains them, with
lists of trademarks and copyrights relating to the TCD assets. Such records
shall be the property of Cardia.
3
<PAGE>
(f) ABI agrees to lease to Cardia, at fair rental value (including a
pro rata portion of common area maintenance fees, taxes and insurance), certain
office facilities, improvements, equipment and furnishings owned by ABI. The
term of such lease shall be as mutually agreed to by the Parties. The facilities
leased by ABI to Cardia shall be sufficiently large to reasonably accommodate
all functions necessary to the conduct of Cardia's business.
Section 3. Indemnification.
(a) Cardia agrees to indemnify and hold harmless ABI and each person,
if any, who controls ABI within the meaning of Section 15 of the Securities Act
of 1933, as amended, or Section 20(a) of the Securities Exchange Act of 1934, as
amended, from and against any and all losses, liabilities, claims, damages,
costs and expenses (including without limitation reasonable attorneys' fees and
any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim) arising
out of or related in any manner to any item arising out of the operation of the
TCD business after the Distribution; provided, that ABI shall retain all
liability relating to products liability claims arising out of the implantation
of TCDs prior to the Distribution. Similarly, ABI agrees to indemnify and hold
harmless Cardia and each person, if any, who controls Cardia within the meaning
of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the
Securities Exchange Act of 1934, as amended, from and against any and all
losses, liabilities, claims, damages, costs and expenses (including without
limitation reasonable attorneys' fees and any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim) arising out of or related in any manner
to the business of ABI prior to the Distribution (including the TCD business),
the ongoing business of ABI after the Distribution, and products liability
claims arising out of the implantation of TCDs prior to the Distribution.
4
<PAGE>
(b) If any action is brought or any claim is made against a Party or
controlling person in respect of which indemnity may be sought (the
"Indemnitee"), the Indemnitee shall, with reasonable promptness after the
receipt of information indicating that an action or claim is likely, notify the
Party from whom indemnification is sought (the "Indemnitor") in writing of the
institution of the action or the making of the claim and the Indemnitor shall
have the right to assume the defense of the action or claim, including the
employment of counsel. The Indemnitor shall be entitled to settle the action or
claim on behalf of the Indemnitee without the prior written consent of the
Indemnitee unless such settlement would, in addition to the payment of money,
materially affect the ongoing business of the Indemnitee such as, by way of
illustration only, a consent judgment or injunction, in which event the
Indemnitee shall not unreasonably withhold its consent. The Indemnitee shall
have the right to employ its own counsel, but the fees and expenses of that
counsel shall be at the expenses of the Indemnitee unless (i) the employment of
that counsel shall have been authorized in writing by the Indemnitor in
connection with the defense of the action or claim; (ii) the Indemnitor shall
not have employed counsel to have charge of the defense of such action or claim,
or (iii) such Indemnitee shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Indemnitor (in which case the Indemnitor shall not have the
right to direct any different defense of the action or claim on behalf of the
Indemnitee) in any of which events such fees and expenses shall be borne by the
Indemnitor. The Indemnitee shall, in any event, have the right to employ
advisory counsel and other advisors at its own expense, and shall be kept fully
informed of the defense of any such action or claim. Except as expressly
provided above, in the event that the Indemnitor shall not previously have
assumed the defense of an
5
<PAGE>
action or claim, at such time as the Indemnitor does assume the defense of the
action or claim, the Indemnitor shall not thereafter be liable to any Indemnitee
for legal or other expenses subsequently incurred by Indemnitee in
investigating, preparing or defending against such action or claim. Anything in
this Section 3(b) to the contrary notwithstanding, no Indemnitor shall be liable
for any settlement of any claim or action effected without its written consent;
provided, however, that if after due notice the Indemnitor refuses to defend a
claim or action, and the Indemnitee shall have the right to defend and/or settle
such action, and the Indemnitee shall not be precluded from making a claim
against the Indemnitor for such expenses and liabilities resulting from such
defense and/or settlement in accordance with this Section 3.
(c) Notwithstanding the foregoing provisions of this Section 3, there
may be particular actions or claims which reasonably could result in both
Parties being liable to the other under the indemnification provisions of this
Agreement. In any of such events, the Parties shall endeavor, acting reasonably
and in good faith, to agree upon a manner of conducting the defense of and any
settling of the action or claim with a view to minimizing the legal expenses and
associated costs that might otherwise be incurred by the Parties, such as, by
way of illustration only, agreeing to use the same legal counsel.
(d) The indemnification provided for in this Section 3 shall be
subject, in addition to the other provisions of this Agreement, to the following
provisions:
(i) The amount of any indemnification payable shall be
determined and paid promptly after a payment by the Indemnitee
is made and after making an appropriate adjustment, if any, to
reflect the tax consequences resulting to the indemnified
party from the indemnified loss or the payment thereof,
including the
6
<PAGE>
receipt of the indemnification payment. Any amount payable
from ABI to Cardia, and vice versa, shall be offset against
each other.
(ii) The indemnification provisions shall survive the
Distribution Date.
(iii) The indemnification provisions shall not, except to the
extent expressly stated otherwise in this Section 3, inure to
the benefit of any third party. By way of illustration only,
an insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect
thereto, or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a
"windfall" (i.e., a benefit it would not be entitled to
receive in the absence of the indemnification provision) by
virtue of the indemnification provisions.
Section 4. Transfer of TCD Assets. Prior to and after the Distribution
Date, ABI shall deliver to Cardia such documents and instruments as evidence the
completion of the transfers contemplated by this Distribution Agreement. In the
event that all actions are not accomplished by the Distribution Date, the
parties agree that Cardia shall have de facto control of the operations and
assets intended to be transferred to Cardia; provided, however, that if any
uncompleted steps financially affect either Cardia or ABI, the parties agree to
equitably resolve any such financial impact.
Except as expressly provided herein, Cardia agrees to assume and pay
all contracts, obligations and liabilities associated with the TCD assets
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, including all obligations under leases and other
7
<PAGE>
executory contracts and liabilities arising as a result of the transactions
contemplated hereby, existing on the date hereof or based on facts or actions
arising on or prior to the date hereof and the Distribution Date, whether or not
such obligations shall have been disclosed herein, and whether or not reflected
on the applicable financial statements of Cardia. This Section 4 shall not inure
to the benefit of any third party.
Section 5. Parties. As used in this Agreement, the term "Parties" shall
include ABI and its successors, and Cardia and its successors.
Section 6. Expenses. Except as otherwise provided in this Agreement or
agreed to by the Parties, all expenses in connection with the Distribution shall
be borne by ABI.
Section 7. Other Provisions. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Minnesota without
regard to the choice of law provisions of any jurisdiction. The rights and
obligations of the Parties may not be assigned by either Party without the
written consent of the other. This Agreement shall bind and inure to the benefit
of the Parties hereto and their respective successors and permitted assigns.
This Agreement may not be modified or amended except by an agreement in writing
signed by the Parties.
Section 8. Arbitration.
(a) Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") as such rules may be modified herein.
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(b) An award rendered in connection with an arbitration pursuant to
this Section 8 shall, absent manifest error, be final and binding and judgment
upon such an award may be entered and enforced in any court of competent
jurisdiction.
(c) The forum for arbitration under this Section 8 shall be agreed upon
by the Parties or, failing such agreement, Minneapolis, Minnesota.
(d) Arbitration shall be conducted by a single arbitrator selected
jointly by ABI and Cardia. If within thirty (30) days after a demand for
arbitration is made, ABI and Cardia are unable to agree on a single arbitrator,
three arbitrators shall be appointed. ABI and Cardia shall each select one
arbitrator and those two arbitrators shall then select within thirty (30) days a
third neutral arbitrator. In connection with the selection of a third
arbitrator, consideration shall be given to familiarity with corporate
divestiture transactions and experience in dispute resolution between Parties,
as a judge or otherwise. If the arbitrators selected by ABI and Cardia cannot
agree upon a third arbitrator, they shall discuss the qualification of such
third arbitrator with the AAA prior to the selection of such arbitrator, which
selection shall be in accordance with the Commercial Arbitration Rules of AAA.
(e) If an arbitrator cannot continue to serve, a successor to an
arbitrator selected by ABI or Cardia shall be also selected by the same party,
and a successor to the neutral arbitrator shall be selected as specified in
subsection (d) of this Section 8. A full rehearing will be held only if the
neutral arbitrator is unable to continue to serve or if the remaining
arbitrators unanimously agree that such a rehearing is appropriate.
(f) The arbitrator or arbitrators shall be guided, but not bound, by
the Federal Rules of Evidence and by the procedural rules, including discovery
provisions, of the Federal Rules of
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Civil Procedure. Any discovery shall be limited to information directly relevant
to the controversy or claim in arbitration.
Section 9. Notices. Any notice, demand, claim or other communication
under this Agreement shall be in writing and shall be deemed to have been given
upon the delivery or mailing thereof, as the case may be, if delivered
personally or sent by certified mail, return receipt requested, postage prepaid,
to the Parties at the last known address of such Parties (or at such other
address as a Party may specify by notice to the other).
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Agreement as of the date first above written.
APPLIED BIOMETRICS, INC.
By______________________________________
Its_____________________________________
CARDIA, INC.
By______________________________________
Its_____________________________________
10
EXHIBIT 3.1
ARTICLES OF INCORPORATION
CARDIA, INC.
The undersigned incorporator, a natural person of full legal age, in
order to form a corporate entity under Minnesota Statutes, Chapter 302A, hereby
adopts the following Articles of Incorporation.
ARTICLE I
The name of this corporation shall be Cardia, Inc.
ARTICLE II
The registered office of this corporation shall be located at 501 E.
Highway 13, Burnsville, Minnesota 55337.
ARTICLE III
The authorized capital stock of this corporation shall be Eleven
Million (11,000,000) which shall be Ten Million (10,000,000) shares of Common
Stock, ($.01) par value per share, and One Million (1,000,000) shares of
Preferred Stock, par value ($ .01) per share. The Preferred Stock may be issued
from time to time as shares of one or more series. Subject to the provisions
hereof and the limitations prescribed by law, the Board of Directors is
authorized, by adopting resolutions providing for the issuance of Preferred
Stock of any particular series, to establish the number of shares of Preferred
Stock to be included in each such series, and to fix the designation, relative
powers, preferences, rights, qualifications, limitations and restrictions
thereof, including without limitation the right to create voting, dividend and
liquidation preferences greater than those of Common Stock.
ARTICLE IV
The purposes for which this Corporation is organized are as follows:
Section 1. General business purposes.
Section 2. To do everything necessary, proper, advisable and convenient
for the accomplishment of the purposes hereinabove set forth, and to do all
other things incidental thereto or connected therewith, which are not forbidden
by the laws under which this Corporation is organized, by other laws, or by
these Articles of Incorporation.
Section 3. To carry out the purposes hereinabove set forth in any
state, territory, district or possession of the United States, or in any foreign
country, to the extent that such purposes
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are not forbidden by the laws thereof, and, in the case of any state, territory,
district or possession of the United States, or any foreign country, in which
one or more of such purposes are forbidden by law, to limit, in any certificate
for application to do business, the purpose or purposes which the Corporation
proposes to carry on therein to such as are not forbidden by the law thereof.
ARTICLE V
No shareholder of this corporation shall be entitled to any cumulative
voting rights.
ARTICLE VI
Except as may be provided from time to time in a written agreement
between the corporation and a shareholder, no shareholder of this corporation
shall have any preferential, preemptive or other rights to subscribe for,
purchase or acquire any shares of the corporation of any class, whether issued
or now or hereafter authorized, or any obligations or other securities
convertible into or exchangeable for any such shares.
ARTICLE VII
Any action required or permitted to be taken at a meeting of the Board
of Directors of this corporation not needing approval by the shareholders under
Minnesota Statutes, Chapter 302A, may be taken by written action signed by all
of the directors.
ARTICLE VIII
The number of directors of this corporation shall be fixed in the
manner provided in the Bylaws.
ARTICLE IX
No director shall be personally liable to the corporation or to its
shareholders for monetary damages for any breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the laws of the State of Minnesota as the same
may exist or may hereafter be amended and except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its shareholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct; (iii) under sections 302A.559 or 80A.23 of the Minnesota Statutes or
any successor statutes; (iv) for any transaction from which the director derived
an improper personal benefit; or (v) for any act or omission occurring prior to
the date when this provision becomes effective. Any repeal or modification of
the provisions of this Article shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
Any person who at any time shall serve or shall have served as a
director, officer, or employee of the corporation, or of any other enterprise at
the request of the corporation, and the
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heirs, executors and administrators of such person shall be indemnified by the
corporation in accordance with, and to the fullest extent permitted by, the
provisions of the Minnesota Business Corporation Act, as it may be amended from
time to time. The provisions of this article shall not be deemed to limit or
preclude indemnification of a director, officer or employee by the corporation
for any liability of such person which has not been eliminated by the provisions
of this article.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of the Minnesota Business
Corporation Act.
ARTICLE X
The name and address of the incorporator is Joseph A. Marino, 501 E. Highway 13,
Burnsville, Minnesota 55337.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of
October, 1998.
/s/ Joseph A. Marino
-------------------------------------
Joseph A. Marino, Incorporator
3
EXHIBIT 3.2
BYLAWS
OF
CARDIA, INC.
ARTICLE I
OFFICES AND CORPORATE SEAL
Section 1.01. Registered and Other Offices. The registered office of
the corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or statement of the Board of Directors filed with the Secretary of State of
Minnesota changing the registered office in the manner prescribed by law. The
corporation may have such other offices, within or without the State of
Minnesota, as the Board of Directors shall, from time to time, determine.
Section 1.02. Corporate Seal. If so directed by the Board of Directors,
the corporation may use a corporate seal. The failure to use such seal, however,
shall not affect the validity of any documents executed on behalf of the
corporation. The seal need only include the word "seal", but it may also
include, at the direction of the Board, such additional wording as is permitted
by law.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Time and Place of Meetings. Annual or special meetings of
the shareholders, if any, shall be held on the date and at the time and place
fixed by the Chairman or Co-Chairman of the Board of Directors, or if a Chairman
of the Board of Directors has not been elected, by the President or the Chief
Executive Officer in the absence of Board action, or the Board, except that a
special meeting called by, or at the demand of a shareholder or shareholders,
shall be held in the county where the principal executive office is located.
Section 2.02. Annual Meetings. Annual meetings of the shareholders
shall be considered and treated as regular meetings of the shareholders under
Chapter 302A of the Minnesota Statutes. No meeting shall be considered an annual
meeting unless specifically designated as such in the notice of meeting or
unless all the shareholders are present in person or by proxy and none of them
objects to such designation. At any annual meeting of the shareholders there
shall be an election of qualified successors for directors who serve for an
indefinite term and whose terms have expired or are due to expire within six (6)
months after the date of the meeting. Any business appropriate for action by the
shareholders may be transacted at an annual meeting. To be properly brought
before the meeting, business must be of a nature that is appropriate for
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consideration at an annual meeting and must be (i) specified in the notice of
meeting (or any supplement thereto) at the direction of the Board of Directors,
(ii) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder (as the term "shareholder" is defined in Chapter 302A of the
Minnesota Statutes). In addition to any other applicable requirements, for
matters to be properly brought before the annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, each such notice must be given, either by
personal delivery or delivery by United States mail, postage prepaid, addressed
to the Secretary of the corporation at the registered office of the corporation,
not less than 45 days nor more than 75 days prior to a meeting date
corresponding to the previous year's annual meeting. Risk of non-delivery shall
rest on whose behalf the attempted delivery is made. Each such notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address of record of the shareholders
proposing such business, (iii) the class or series (if any) and number of shares
of the corporation which are owned by the shareholder, (iv) any material
interest of the shareholder in such business, and (v) such other information
regarding such proposed business as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission. Notwithstanding anything in these Bylaws to the contrary, no
business shall be transacted at the annual meeting except in accordance with the
procedures set forth in this Article; provided, however, that nothing in this
Article shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting in accordance with these
Bylaws.
Section 2.03. Demand by Shareholders. Annual or special meetings may be
demanded by a shareholder or shareholders, pursuant to the provisions of
Minnesota Statutes, Sections 302A.431, Subd. 2, and 302A.433, Subd. 2,
respectively, or any successor statutes.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of
the voting power of the shares entitled to vote at a meeting constitute a quorum
for the transaction of business; said holders may be present at the meeting
either in person or by proxy. In the absence of a quorum, any meeting may be
adjourned to a subsequent date, provided a notice of such adjournment is mailed
to each shareholder entitled to vote at least five (5) days before such
adjourned meeting. If a quorum is present, a meeting may be adjourned from time
to time without notice other than announcement at such meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present when a duly called or held meeting is convened, the shareholders present
may continue to transact business until adjournment, even though withdrawal of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum.
Section 2.05. Voting. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Unless otherwise provided by
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the Articles of Incorporation or a resolution of the Board of Directors filed
with the Secretary of State, each shareholder shall have one vote for each share
held. Upon demand of any shareholder, the vote upon any question before the
meeting shall be by ballot.
Section 2.06. Closing of Books. The Board of Directors may fix a time,
not exceeding sixty (60) days preceding the date of any meeting of shareholders,
as a record date for the determination of the shareholders entitled to notice
of, and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. The Board of Directors
may close the books of the corporation against the transfer of shares during the
whole or any part of such period. If the Board of Directors fails to fix a
record date for determination of the shareholders entitled to notice of, and to
vote at, any meeting of shareholders, the record date shall be the twentieth
(20th) day preceding the date of such meeting.
Section 2.07. Notice of Meetings. Notice of all meetings of
shareholders shall be given to every holder of voting shares, except where the
meeting is an adjourned meeting at which a quorum was present and the date, time
and place of the meeting were announced at the time of adjournment. The notice
shall be given at least five (5) but not more than sixty (60) days before the
date of the meeting except that written notice of a meeting at which there is to
be considered either (i) an agreement of merger or consolidation, (ii) a
proposal to dispose of all or substantially all of the property and assets of
the corporation, (iii) a proposal to dissolve the corporation, or (iv) a
proposal to amend the Articles of Incorporation, shall be mailed to all
shareholders, whether entitled to vote or not, at least fourteen (14) days prior
thereto. Every notice of any special meeting shall state the purpose or purposes
for which the meeting has been called, and the business transacted at all
special meetings shall be confined to the purpose stated in the call, unless all
of the shareholders are present in person or by proxy and none of them objects
to consideration of a particular item of business.
Section 2.08. Waiver of Notice. A shareholder may waive notice of any
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at or after the meeting and whether given in
writing, orally or by attendance.
Section 2.09. Authorization Without a Meeting. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote on
that action.
ARTICLE III
DIRECTORS
Section 3.01. General Powers. The Board of Directors shall have the
general management and control of all business and affairs of the corporation
and shall exercise all the
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powers that may be exercised or performed by the corporation under Minnesota law
and the corporation's Articles of Incorporation and these Bylaws.
Section 3.02. Number of Directors. The Board of Directors of this
corporation shall consist of not fewer than three (3) or more than nine (9)
directors, as may be designated by the Board of Directors from time to time. The
directors shall be divided into three (3) classes, as nearly equal in number as
the then total number of directors constituting the whole Board permits, with
the term of office of one class expiring each year at the annual meeting of
shareholders. Except as otherwise provided, each director shall be elected by
the shareholders to hold office for a term of three consecutive years. Each
director shall serve until his or her successor shall have been elected or until
he or she shall retire, resign, die or shall have been removed as hereinafter
provided.
Section 3.03. Vacancies. Any vacancies occurring in the Board of
Directors for any reason, and any newly created directorships resulting from an
increase in the number of directors, may be filled by a majority of the
directors then in office. Any directors so chosen shall hold office until the
next election of directors at an annual or special meeting of shareholders and
until their successors shall be elected subject, however, to prior retirement,
resignation, death or removal from office.
Section 3.04. Quorum. A majority of the directors then in office shall
constitute a quorum for the transaction of business, and if at any meeting of
the Board of Directors there shall be less than said quorum, a majority of those
present may adjourn the meeting from time to time. If a quorum is present when a
duly called or held meeting is convened, the directors present may continue to
transact business until adjournment, even though withdrawal of directors
originally present leaves less than the proportion or number otherwise required
for a quorum.
Section 3.05. Director Nominations. Nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any shareholders entitled to vote generally in the
election of directors. Any shareholder (as the term "shareholder" is defined in
Chapter 302A of the Minnesota Statutes) entitled to vote generally in the
election of directors may nominate one or more persons for election as directors
at the annual meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the corporation
not less than 45 days nor more than 75 days prior to a meeting date
corresponding to the previous year's annual meeting. Risk of non-delivery shall
rest on the person on whose behalf the attempted delivery is made. Each such
notice to the Secretary shall set forth: (i) the name and address of record of
the shareholder who intends to make the nomination; (ii) a representation that
the shareholder is a holder of record of shares of the corporation entitled to
vote at such meeting and the person or persons specified in the notice; (iii)
the name, age, business and residence addresses, and principal occupation or
employment of each nominee; (iv) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to
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which the nomination or nominations are to be made by the shareholder; (v) such
other information regarding each nominee proposed by such shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and (vi) the consent of each
nominee to serve as a director of the corporation if so elected. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation. The presiding
officer of the meeting may, if the facts warrant, determine that a nomination
was not made in accordance with the foregoing procedure, and if he or she should
so determine, it shall be so declared at the meeting and the defective
nomination shall be disregarded.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors shall be held, without notice, at such time and place as shall from
time to time be determined by the Board.
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman or Co-Chairman of the Board or the
President or Chief Executive Officer at any time and shall be called by him or
her whenever required to do so in writing by two or more members of the Board.
Section 3.08. Notice of Meetings. If the meeting is a regular meeting
of the Board, or if the date and time of a Board meeting has been announced at a
previous meeting, no notice is required. Otherwise, notice of a meeting of the
Board of Directors shall be given by the Secretary, Chief Executive Officer or
President who shall give at least seventy-two (72) hours' notice thereof to each
director by mail, telephone, telegraph or in person. The notice need not state
the purpose of the meeting.
Section 3.9. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by a director either before, at, or after such meeting
in a writing signed by such director; provided, however, that a director, by his
or her attendance and participation in any action taken at the meeting of the
Board of Directors, shall be deemed to waive notice of such meeting.
Section 3.10. Committees of the Board. The Board of Directors may, in
its discretion, by the affirmative vote of a majority of the directors, appoint
committees which shall have and may exercise such powers as shall be conferred
or authorized by the resolutions appointing them. A majority of any such
committee, if the committee be composed of more than two members, may determine
its action and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to fill vacancies in, to change the membership of, or to discharge any
such committee.
Section 3.11. Compensation of Directors. Directors who are not salaried
officers of this corporation may receive any combination of a fixed sum per
meeting attended, a fixed annual
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sum and/or such other compensation, including stock options and stock grants, as
may be determined, from time to time, by resolution of the Board of Directors.
All directors may receive reimbursement of expenses, if any, for attendance at
meetings of the Board of Directors or any committee thereof. Nothing herein
contained shall be construed to preclude any director from serving this
corporation in any other capacity and receiving compensation for such other
service.
Section 3.12. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a Board of Directors'
meeting.
Section 3.13. Authorization without a Meeting. Any action required or
permitted to be taken at a meeting of the Board or any committee may be taken
without a meeting as authorized by law and this corporation's Articles.
Section 3.14. Electronic Communications. A director or committee member
may participate in a meeting by any means or communication through which such
person, other persons so participating, and all persons physically present at
the meeting may simultaneously hear each other during the meeting. Participation
in a meeting by that means constitutes presence in person at the meeting. A
conference among directors or committee members by any means of communication
through which such persons may simultaneously hear each other during the
conference is a meeting of the Board of Directors or committee, as the case may
be, if the same notice is given of the conference as would be required for a
meeting, and if the number of persons participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a meeting by
that means constitutes presence in person at the meeting.
ARTICLE IV
OFFICERS
Section 4.01. Number and Offices. The officers of the corporation shall
consist of a Chief Executive Officer or President and a Chief Financial Officer
or Treasurer, and may also consist of one or more Vice Presidents, a Secretary
and any other officers the Board may designate. The Board may elect or appoint
any officers it deems necessary for the operation and management of the
corporation, each of whom shall have the powers, rights, duties,
responsibilities and terms of office determined by the Board from time to time.
Any number of offices or functions of those offices may be held or exercised by
the same person.
Section 4.02. Chairman of the Board. The Board of Directors may also
elect as an officer or officers a Chairman of the Board or two or more
Co-Chairmen of the Board, who, if so elected, shall preside at all meetings of
the Board of Directors and of the shareholders, shall make such reports to the
Board of Directors and the shareholders as may from time to time be required,
and shall have such other powers and shall perform such other duties as may be
from time to time assigned to him or her by the Board of Directors. If a
Chairman or Co-Chairman of
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the Board is not appointed, the duties and responsibilities of the Chairman of
the Board set forth in this Section 4.02 shall be performed by the Chief
Executive Officer.
Section 4.03. Election and Term of Office. The Board of Directors shall
from time to time elect a Chief Financial Officer or President and a Chief
Executive Officer or Treasurer and may elect one or more Vice Presidents, a
Secretary and any other officers or agents the Board deems necessary. Such
officers shall hold their offices until their successors are elected.
Section 4.04. Removal and Vacancies. Any officer may be removed from
office at any time by a majority of the whole Board of Directors, with or
without cause. Such removal, however, shall be without prejudice to the contract
rights of the person so removed. If there is a vacancy among the officers of the
corporation by reason of death, resignation or otherwise, such vacancy may be
filled for the unexpired term by the Board of Directors.
Section 4.05. Delegation of Authority. An officer elected or appointed
by the Board may delegate some or all of the duties or powers of such office to
other persons, provided that such delegation is in writing.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. Every shareholder of this
corporation shall be entitled to a certificate, to be in such form as prescribed
by law and adopted by the Board of Directors, certifying the number of shares of
the corporation owned by such shareholder. The certificates shall be numbered in
the order in which they are issued and shall be signed by the Chairman, Chief
Executive Officer, President or Chief Financial Officer. If a Secretary has been
elected, the certificates may also be signed by the Secretary. Every certificate
surrendered to the corporation for exchange or transfer shall be canceled and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate has been so canceled.
Section 5.02. Issuance of Shares. The Board of Directors is authorized
to cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such amounts as may be determined by the
Board of Directors and as may be permitted by applicable law. Shares shall be
allotted only in exchange for consideration in such forms as may be permitted by
applicable law. At the time of any such allotment of shares, the Board of
Directors making such allotment shall state, by resolution, their determination
of the fair value of the corporation in monetary terms of any consideration
other than cash for which shares are allotted. The amount of consideration to be
received in cash or otherwise shall not be less than the par value of the shares
so allotted.
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Section 5.03. Transfer of Shares. Transfer of shares on the books of
the corporation may be authorized by the shareholder named in the certificate or
the shareholder's legal representative and upon surrender of the certificate or
certificates for such shares. The corporation may treat as the absolute owner of
the shares of the corporation the person or persons in whose name or names the
shares are registered on the books of the corporation. In the event that a bank,
trust company or other similarly qualified corporation is designated and agrees
to act as the registrar and/or transfer agent for the corporation, then the
signatures of the officers specified above and any seal of the corporation may
be imprinted upon the stock certificates by facsimile and said certificates may
be authenticated by signature of an authorized agent of said registrar and/or
transfer agent. The officers of the corporation may delegate to such transfer
agent and/or registrar such of the duties relating to the recording and
maintenance of records relating to shares of stock and shareholders of the
corporation as may be deemed expedient and convenient and as are assumed by said
registrar and/or transfer agent.
Section 5.04. Lost Certificates. A new share certificate may be issued
in place of one that is alleged to have been lost, stolen or destroyed, but only
in accordance with applicable law and such other reasonable requirements imposed
by the Board of Directors.
ARTICLE VI
DISTRIBUTIONS
Section 6.01. Distributions. Subject to the provisions of the Articles
of Incorporation, the Board of Directors may cause the corporation to make
distributions pursuant to the provisions of the Minnesota Statutes, Section
302A.551.
Section 6.02. Record Date. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date preceding the date fixed
for the payment of any distribution or allotment of other rights as the record
date for the determination of the shareholders entitled to receive payment of
such distribution or allotment of such rights; and in such case only
shareholders of record on the date so fixed shall be entitled to receive such
payment or allotment notwithstanding any transfer of shares on the books of the
corporation after such record date. The Board of Directors may close the books
of the corporation against the transfer of shares during the whole or any part
of such period.
ARTICLE VII
BOOKS AND RECORDS; FISCAL YEAR
Section 7.01. Books and Records. The Board of Directors of the
corporation shall cause to be kept in such place as it may designate:
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(a) a share register, giving the names and addresses of the
shareholders, the number and classes of shares held by each,
and the dates on which the certificates therefor were issued;
(b) records of all proceedings of shareholders and directors;
(c) such other records and books of account as shall be necessary
and appropriate to the conduct of corporate business; and
(d) Bylaws of the corporation and all amendments thereto.
Section 7.02. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION
Any person who at any time shall serve or shall have served as
director, officer or employee of the corporation, or of any other enterprise at
the request of the corporation, and the heirs, executors and administrators of
such person shall be indemnified by the corporation, in accordance with and to
the fullest extent permitted by Minnesota Statutes Section 302A.521 and any
successor statute or any amendment thereto.
ARTICLE IX
AMENDMENTS
Section 9.01. General Amendment. These Bylaws may be altered, amended
or repealed or new Bylaws enacted by the affirmative vote of a majority of the
entire Board of Directors or at any annual meeting of the shareholders (or at
any special meeting thereof duly called for that purpose) by the affirmative
vote of a majority of the shares represented and entitled to vote at such
meeting (if notice of the proposed alteration or amendment is contained in the
notice of such meeting).
The undersigned Secretary hereby certifies that the foregoing Bylaws
were adopted as the complete Bylaws of the corporation by the Board of Directors
of said corporation on the ___ day of _________, 1998.
________________________________________
Patrick Delaney, Secretary
9
EXHIBIT 4.2
NUMBER SHARES
CARDIA, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF CARDIA, INC. (the "Corporation"), transferable in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate and the shares represented hereby are issued and shall be subject to
all of the provisions of the Articles of Incorporation of the Corporation (the
"Articles"), the Bylaws of the Corporation, and all amendments thereof and
thereto, copies of which are available at the headquarters of the Corporation,
and to all of which the holder by acceptance hereof assents. This certificate is
not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
/s/ PATRICK DELANEY /s/ JOSEPH A. MARINO
- ------------------------------------- -------------------------------------
SECRETARY PRESIDENT
COUNTERSIGNED:
NORWEST BANK MINNESOTA, N.A.
AUTHORIZED OFFICER
<PAGE>
The Corporation will furnish to any stockholder, on request and without
charge, a full statement of the information required by ________________________
_________________ with respect to the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, and terms and conditions of
redemption of the stock of each class which the Corporation has authority to
issue and, if the Corporation is authorized to issue any preferred or special
class in series (i) the differences in the relative rights and preferences
between the shares for each series to the extent set, and (ii) the authority of
the Board of Directors to set such rights and preferences of subsequent series.
The foregoing summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the articles of incorporation of the
Corporation (the "Articles"), a copy of which will be sent without charge to
each stockholder who so requests. Such request must be made to the Secretary of
the Corporation at its principal office or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - - ______________ Custodian ______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
- ----------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
EXHIBIT 4.3
|--------| |--------|
| NUMBER | | RIGHTS |
| | | |
| | | |
|--------| |--------|
THIS SUBSCRIPTION CERTIFICATE WILL BE VALUELESS IF NOT
RECEIVED BY THE SUBSCRIPTION AGENT 5:00 P.M., CENTRAL STANDARD TIME
ON ________________, 1999
RIGHTS SUBSCRIPTION CERTIFICATE
CARDIA, INC.
CUSIP
THIS RIGHTS CERTIFICATE IS NOT TRANSFERABLE.
The terms and conditions of this Rights Offering are set forth in the Prospectus
relating to 1,000,000 shares of Common Stock, $.01 par value per share
("Shares"), of Cardia, Inc. (the "Company") dated __________, 1999 (the
"Prospectus") and are incorporated herein by reference. Copies of the Prospectus
are available upon request from the Company and Norwest Bank Minnesota, N.A.
(the "Subscription Agent"). Capitalized terms used herein without definition
shall have the meanings set forth in the Prospectus.
- --------------------------------------------------------------------------------
SUBSCRIPTION PRICE: $1.00 PER SHARE
REGISTERED HOLDER:
- --------------------------------------------------------------------------------
The rights represented by this Rights Subscription Certificate, in whole or in
part, may be exercised by duly completing Sections 1 and 2. Before exercising
Rights, Rights holders are urged to read carefully and in its entirety the
Prospectus, copies of which are available from the Company and the Subscription
Agent.
IMPORTANT - Complete the appropriate SECTION and delivery instructions, and SIGN
on reverse side. Subject to the provisions of the Prospectus, if the
instructions of the registered holder hereof are insufficient to delineate the
proper action to be taken with respect to all of the Rights evidenced hereby,
such action as is clearly delineated in such holder's instructions will be
taken.
The registered holder of Rights whose name is set forth herein, or assigns, is
entitled to subscribe for one share of Common Stock of the Company at a
Subscription Price of $1.00 per Share (the "Subscription Price") for each Right
evidenced hereby under the terms and subject to the conditions set forth in the
Prospectus. Payment of the full Subscription Price for all Shares subscribed for
pursuant to the exercise of Rights must accompany this properly completed and
duly executed Rights Subscription Certificate, payable in United States currency
by personal check, cashier's check, bank draft or money order drawn on a bank
located in the United States, payable to "Norwest Bank Minnesota, N.A., as
Subscription Agent." PLEASE WRITE YOUR RIGHTS CERTIFICATE NUMBER, SET FORTH
ABOVE, ON YOUR CHECK, BANK DRAFT OR MONEY ORDER.
Dated: CARDIA, INC.
COUNTERSIGNED: BY: /s/ JOSEPH A. MARINO
NORWEST BANK MINNESOTA N.A. ---------------------------------------
President
BY: /s/ PATRICK DELANEY
---------------------------------------
AUTHORIZED OFFICER Secretary
<PAGE>
CARDIA, INC.
INSTRUCTIONS: To exercise all or part of the Rights evidenced by this Rights
Subscription Certificate, please complete Section 1. In order to have the
Subscription Agent deliver Shares issued upon the exercise of Rights to another
person or delivered to an address other than the one listed on the face of this
Rights Subscription Certificate, please complete Section 2 and obtain the
required signature guarantee by a medallion institution.
ANY EXERCISE OF RIGHTS EVIDENCED HEREBY IS IRREVOCABLE.
Section 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby exercises Rights
to subscribe for Shares as indicated below, on the terms and subject to the
conditions specified in the Prospectus, receipt of which is hereby acknowledged.
(Please print all information clearly and legibly)
(i) IF YOU WISH TO EXERCISE ALL OF YOUR RIGHTS:
(a) I subscribe for my full entitlement of Shares:
______________________________________________ X $1.00 = $____________
(Number of shares - whole number only)
(b) I subscribe for additional Shares pursuant to my Oversubscription
Privilege:
______________________________________________ X $1.00 = $____________
(Number of shares - whole number only; may not
exceed the number of Rights represented by
this Rights Subscription Certificate)
TOTAL SUBSCRIPTION PRICE: $____________
(Total number of Shares subscribed for
pursuant to both the Basic Subscription
Privilege and the Oversubscription
Privilege, times the Subscription Price
of $1.00 per share)
Method of Payment (check one)
[ ] Check, Bank Draft or Money Order Payable to Norwest Bank Minnesota, N.A.,
as Subscription Agent.
[ ] Wire Transfer Directly to the Escrow Account Maintained by Norwest Bank
Minnesota, N.A., as Subscription Agent, at Norwest Bank Minnesota, N.A.,
ABA ROUTING #___________, for Credit Account #________, Further credit:
CARDIA RIGHTS OFFERING, Attn: ____________ (651) 490-____.
(ii) IF YOU DO NOT WISH TO EXERCISE ALL OF YOUR RIGHTS:
(a) I subscribe for only
______________________________________________ X $1.00 = $____________
(Number of shares - whole number only)
TOTAL SUBSCRIPTION PRICE: $____________
(Total number of Shares subscribed for
pursuant to the Basic Subscription
Privilege, times the Subscription Price
of $1.00 per share)
<PAGE>
Method of Payment (check one)
[ ] Check, Bank Draft or Money Order Payable to Norwest Bank Minnesota, N.A.,
as Subscription Agent.
[ ] Wire Transfer Directly to the Escrow Account Maintained by Norwest Bank
Minnesota, N.A., as Subscription Agent, at Norwest Bank Minnesota, N.A.,
ABA ROUTING #___________, for Credit Account #________, Further credit:
CARDIA RIGHTS OFFERING, Attn: ____________ (651) 490-____.
SECTION 2 - SPECIAL INSTRUCTIONS [ ] CHECK HERE FOR SPECIAL ISSUANCE,
OR DELIVERY INSTRUCTIONS. Unless otherwise indicated below, the Subscription
Agent is hereby authorized to issue and deliver Certificates for the Shares
subscribed for to the undersigned at the address appearing on the face of this
Rights Subscription Certificate. If this section is completed, the Holder's
signature must be guaranteed by a medallion guarantor.
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Taxpayer Identification or Social Security Number_______________________________
IMPORTANT
RIGHTS HOLDER SIGN HERE
________________________________________________________________________________
(Signature(s) of Holder(s) exactly as appears on the
face of this Certificate)
Dated: ____________, 1999
SIGNATURE GUARANTEE (to be executed if Section 2 is completed)
The undersigned, an eligible guarantor institution pursuant to Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended, and a
participant in a Securities Transfer Association recognized signature program,
does hereby guarantee that the signature of the Holder hereinabove is genuine.
Dated: ____________, 1999
_________________________________________
Firm Name
_________________________________________
Authorized Signature
_________________________________________
Name and Title
_________________________________________
Address
_________________________________________
_________________________________________
_________________________________________
Area Code and Telephone Number
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated November 5, 1998,
relating to the financial statements of Cardia, Inc, which appear in such
Prospectus.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
November 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 53,639
<CURRENT-ASSETS> 66,648
<PP&E> 22,142
<DEPRECIATION> (1,661)
<TOTAL-ASSETS> 174,629
<CURRENT-LIABILITIES> 29,226
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 145,403
<TOTAL-LIABILITY-AND-EQUITY> 174,629
<SALES> 77,640
<TOTAL-REVENUES> 77,640
<CGS> 15,732
<TOTAL-COSTS> 15,732
<OTHER-EXPENSES> 305,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (614,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (614,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,367)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
