As filed with the Securities and Exchange Commission on February 10, 1999
Registration No. 333-68167
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 3 to
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARDIA, INC.
(Name of small business issuer in its charter)
MINNESOTA 3842 41-1923885
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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
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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: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================= ================== ==================== ===================== ==================
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 500,000 $1.00 $500,000 $139.00
$0.01 par value
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Rights(2) 500,000 -(3) -(3) -(3)
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</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. The rights will
not be transferable.
(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 FEBRUARY 10, 1999
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
Cardia, Inc. We develop, manufacture and intend to
501 East Highway 13 market transcatheter closure devices
Burnsville, Minnesota 55337 for the repair of certain cardiac
(612) 890-1123 defects in children and adults. Our
products are intended to reduce the
need for open heart surgery to correct
certain cardiac defects.
Applied Biometrics, Inc. will This is the first time Cardia common
distribute one share of Cardia, Inc. stock will be owned by anyone other
common stock for every 11.563 shares than Applied Biometrics, Inc., and no
of Applied Biometrics, Inc. common public market currently exists for our
stock held as of January 25, 1999. shares. We expect our shares to be
traded on the over-the-counter market
under the trading symbol "CRDI."
Every person who is a Cardia, Inc. The price in the rights offering may
shareholder immediately after the not reflect the market price of our
distribution will receive the shares after the rights offering. The
nontransferable right to purchase one rights offering is will not be
additional share of Cardia common completed unless a minimum of 400,000
stock for each share of Cardia common shares are subscribed for; our Chief
stock he or she owns at a price of Executive Officer has guaranteed he
$1.00 per share. will purchase the number of
unpurchased shares, if any, necessary
to insure the minimum is reached. The
rights offering expires on March 16,
1999.
----------------------------
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.
----------------------------
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.
----------------------------
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.
----------------------------
The date of this Prospectus is _______________, 1999.
----------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<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............................................................... 5
Use of Proceeds............................................................ 11
Dividend Policy............................................................ 11
Capitalization............................................................. 12
Dilution................................................................... 13
Management's Plan of Operation............................................. 14
Business................................................................... 15
Property................................................................... 19
Legal Proceedings.......................................................... 19
Available Information...................................................... 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............................................ 34
Plan of Distribution....................................................... 35
Independent Accountants.................................................... 35
Legal Matters.............................................................. 36
Index to Financial Statements.............................................. F-1
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Until ____________, 1999 (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
------------------------
__________________, 1999
<PAGE>
PROSPECTUS SUMMARY
We summarize in the following pages the most important terms of the
distribution and the rights offering. You should read the entire prospectus,
including the section titled "Risk Factors" which discusses the risks of this
investment, before making any investment decisions.
THE DISTRIBUTION
Applied Biometrics, Inc., a Minnesota corporation, will distribute a
dividend of shares of the common stock of Cardia, Inc., a Minnesota corporation,
to the shareholders of ABI as a dividend. We describe the distribution 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 will be distributed to the shareholders of ABI. These shares represent
75% of the outstanding shares of Cardia common stock. Concurrent with the
distribution Joseph A. Marino, the Chairman and Chief Executive Officer of ABI
and Cardia, will purchase 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 each ABI shareholder 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 THE DISTRIBUTION. Cardia has been formed to pursue the
further development and commercialization of certain transcatheter closure
devices used for the repair of certain cardiac defects. The closure device
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 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, and to
permit ABI's shareholders to participate in both companies. An independent
committee of ABI's Board of Directors was appointed to determine all issues
related to the distribution and rights offering. The independent committee
concluded that the distribution was fair and reasonable and in the best
interests of ABI and its shareholders. See "Certain Transactions - Background
and Valuation of the Distribution."
BUSINESS STRATEGY OF CARDIA. Cardia is currently marketing and selling
a cardiac closure device on an experimental basis in Europe. Cardia is also
focusing significant efforts on a second cardiac closure device which Cardia
believes will address a larger market than the market addressed by its existing
experimental device. Initial development, testing and regulatory approval
efforts will take place in Europe. See "Business."
INITIAL ASSETS OF CARDIA. The initial assets of Cardia will consist of
inventory, accounts receivable, fixed assets, intellectual property relating to
the closure device business and cash of $125,000. Following the distribution and
the rights offering, the minimum beginning shareholders' equity of Cardia will
be $670,403. See "Capitalization."
RECORD DATE. Close of business on January 25, 1999.
DISTRIBUTION DATE. As soon as practicable after the effective date of
this prospectus.
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<PAGE>
DISTRIBUTION AGENT. Norwest Bank Minnesota, N.A.
AFTER 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. 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 immediately following the
distribution.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION. 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. ABI will not recognize any income for
federal or state income tax purposes by reason of the distribution. See
"Material United States Federal Tax Considerations - Federal Income Taxation of
the Distribution."
THE RIGHTS OFFERING
Concurrent with the distribution, Cardia will commence a rights
offering of its common stock to its shareholders. We describe the rights
offering in more detail below:
RIGHTS. Cardia will distribute to its shareholders rights to purchase
an aggregate of approximately 500,000 shares of Cardia common stock, on the
basis of one right for each share of Cardia common stock held by a shareholder
immediately after the distribution. 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 January 26, 1999.
The rights subscription certificates will be mailed to Cardia shareholders as
soon as practicable after the effective date of this prospectus.
BASIC SUBSCRIPTION PRIVILEGE. Rights holders are entitled to purchase
one share of Cardia common stock for each right held at the subscription price
of $1.00.
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 those shares remaining unissued after satisfaction
of all subscriptions pursuant to the basic subscription privilege, if any. The
number of 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 that holder pursuant to his or her 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 shares
remaining unissued after satisfaction of all subscriptions pursuant to the basic
subscription privilege and the oversubscription privilege, if any. This guaranty
is applicable only if less than 400,000 shares are subscribed for, and is
limited to that number of shares necessary to reach subscriptions for an
aggregate of 400,000 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.
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<PAGE>
EXPIRATION DATE. The expiration date will be March 16, 1999, unless
extended by the Board of Directors of Cardia. See "The Rights
Offering-Expiration Date." After the expiration of the rights offering, 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 shares
purchased by others in the rights offering and the resulting obligation of Mr.
Marino to purchase shares pursuant to his standby subscription guaranty.
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."
3
<PAGE>
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 IMPLANTABLE MEDICAL DEVICE COMPANY AND DO NOT HAVE AN
OPERATING HISTORY ON WHICH TO EVALUATE OUR BUSINESS AND PROSPECTS
Cardia is an implantable medical device company in the development stage. This
is particularly significant because the implantable medical device industry is a
market in which there is an increasing number of companies, intense competition,
and a high failure rate. 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
implantable medical device companies in an early stage of development. 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.
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 closure devices Cardia is currently developing are completely new methods of
treating cardiac defects and have not been widely tested. 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 closure devices under
development or that the market will be significant. If we are not able to
establish a significant market, we may not become profitable.
FAILURE TO COMPLY WITH THE EXTENSIVE REGULATIONS IMPOSED BY THE UNITED STATES
FOOD AND DRUG ADMINISTRATION COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR
BUSINESS
In the United States, our closure devices are considered to be medical devices,
and they require clearance or approval by the United States Food and Drug
Administration before commercial sales can be made in the United States. The FDA
also imposes post-marketing controls on us and our products. If we fail to meet
these extensive FDA requirements, we and our employees could be exposed to
significant restrictions and penalties. Failure to meet FDA requirements could
also cause us to experience reduced revenues and possible losses. See
"Business-Government Regulation."
EXPORT AND IMPORT REGULATIONS COULD DELAY OR INHIBIT OUR ABILITY TO SELL OUR
PRODUCTS IN FOREIGN COUNTRIES
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, 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 applicable in the United States and Europe. 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."
4
<PAGE>
WE HAVE A HISTORY OF OPERATING LOSSES
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.
OUR FUTURE PROFITABILITY IS UNCERTAIN
We have generated minimal revenues from the sale of our products under
development and we can not 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 profitable. See
"Management's Plan of Operation."
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 OUR PROPRIETARY TECHNOLOGY IS UNCERTAIN
Our success will partly depend on our ability to obtain patent protection for
our products 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. There can be
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.
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
5
<PAGE>
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. See "Business - Patents, Trademarks and Proprietary Rights."
OUR PATENTS MAY CONFLICT WITH PATENTS GRANTED TO OTHER PARTIES
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. If we fail to obtain a license to any
technology that we require to commercialize our products under development we
could experience an adverse effect on our business, financial condition,
potential revenues and earnings. See "Business - Patents, Trademarks and
Proprietary Rights."
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.
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 can not
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 our sales and marketing efforts will be successful. We also
can not guaranty that we will be able to enter into agreements with distributors
or collaborative arrangements on a timely basis or at all. We also can not
guaranty that distributors or collaborators will devote adequate resources to
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<PAGE>
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 closure devices 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 closure devices, 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.
SOME OF OUR SENIOR MANAGEMENT WILL NOT BE DEVOTING ALL OF THEIR TIME TO OUR
BUSINESS
Joseph A. Marino, our Chief Executive Officer, and Peter Buonomo, our Vice
President, will be splitting their time between ABI and Cardia for an indefinite
period of time following the distribution and the rights offering. This time
sharing arrangement means that our senior management will not be devoting their
entire efforts to our business for an undetermined period, which could result in
conflicts of interest and could adversely affect the operation of Cardia. See
"Business-Time Sharing of Executives.
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<PAGE>
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.
IT IS POSSIBLE THAT OUR COMMON STOCK PRICE WILL BE VOLATILE
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. Following periods of volatility in
the market price of a company's stock, securities class action litigation has
sometimes 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 ANTI-TAKEOVER 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 our Board of Directors 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. See "Description of Securities - Undesignated Preferred Stock and
- - Minnesota Antitakeover Law."
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.
8
<PAGE>
USE OF PROCEEDS OF THE RIGHTS OFFERING
The net proceeds to be received by Cardia from the rights offering
depend on the number of rights exercised. 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, exclusive of the $125,000 invested in
Cardia by Mr. Marino. 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. We will invest any balance of the proceeds 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.
9
<PAGE>
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."
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------------------
As Adjusted As Adjusted
Pro forma(1) (minimum)(2) (maximum)(3)
------------ ------------ ------------
<S> <C> <C> <C>
Shareholders' Equity:
Common stock, $0.01 par value;
10,000,000 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
======== ======== ========
</TABLE>
- ----------------
(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.
10
<PAGE>
DILUTION
As of September 30, 1998, the pro forma net tangible book value of
Cardia, which is made up of 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:
<TABLE>
<CAPTION>
minimum maximum
------- -------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- ------------------- Average
Consideration
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
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%
======= ====== ======== ======
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%
========= ====== ======== ======
</TABLE>
11
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
Cardia's initial liquidity will consist of cash of approximately
$625,000, including Mr. Marino's initial investment of $125,000, assuming the
maximum number of rights are exercised in the rights offering. Management
currently expects this cash to be used as set forth above under the caption "Use
of Proceeds." The available liquidity will fund Cardia's operations for an
estimated period of six to eight months, assuming Cardia receives no revenues
from the sale of its closure devices, 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 Cardia or available on terms
acceptable to Cardia.
ABI acquired certain developed and certain in-process technology
relating to transcatheter closure devices for cardiac defects in November of
1997. Since the acquisition, ABI has continued to conduct research and
development on closure devices, based on the in-process technology. Cardia plans
to continue research and development, as well as clinical trials for its closure
devices. These research and development activities will include further
improvements of the acquired technology, continued testing and improvement of
the closure device technology Cardia has developed, and investigation of
modified devices for new applications. Cardia will perform animal pilot trials
on those devices which appear to be the most promising. Cardia expects to spend
approximately $100,000 to $200,000 to complete development of its existing
closure devices during 1999. Cardia currently expects that it will be in a
position to commence commercial sales of its closure devices in Europe following
receipt of certain regulatory certifications, which is anticipated to be
received during the second half of 1999. Although Cardia believes its in-process
technology has substantial advantages over the technology used in competitive
closure devices, there can be no assurance that Cardia will successfully
complete development of its 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. Those additional personnel will not be added, however,
unless business growth justifies additional employees. Cardia expects to spend
between $600,000 and $700,000 on selling, marketing and general administrative
salaries and overhead during 1999. The majority of these expenditures will
relate to Cardia's sales and marketing activities. These expenditures are not
currently fixed costs and the amount spent during 1999 will depend largely on
the performance and growth of Cardia's business during the next twelve months.
Accordingly, Cardia will be able to adjust these expenses based on revenues and
cash flows.
12
<PAGE>
BUSINESS
GENERAL
Cardia, Inc. was formed in October of 1998 as a subsidiary of ABI.
Cardia intends to develop, manufacture and market transcatheter closure device
products for the repair of certain cardiac defects. These products are based, in
part, on certain intellectual property rights ABI acquired from Bernhard
Schneidt and Dr. Rainer Schrader in November of 1997.
PRODUCTS
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 these
closure devices. Cardia hopes to develop a product family that will be capable
of providing an effective, nonsurgical method of correcting a variety of cardiac
defects. Cardia believes its closure devices offer certain advantages over
transcatheter closure devices offered by its competitors.
Cardia is currently marketing and selling a device for the closure of a
cardiac defect known as patent ductus arteriosus. This defect is an abnormal
passage between two major vessels of the heart and is generally corrected in
children. Cardia is marketing and selling a device for the closure of this
pediatric defect on an experimental basis in Europe only. Cardia is also
currently focusing significant development and regulatory approval efforts on a
closure device for the correction of another cardiac defect known as patent
foramen ovale. The foramen ovale defect is an abnormal passage between the right
and left chambers of the heart and is generally corrected in adults. One product
variant has already been sold in Germany as an experimental device for the
pediatric defect. That product has been implanted successfully in over 150 human
cases on an experimental basis. Cardia expects to complete enhancements to its
pediatric device in the near future and intends to begin marketing and
distributing the product in Europe after certain regulatory requirements have
been met.
Since the purchase of its closure device technology, Cardia has
effected minimal sales of its pediatric device, and Cardia has turned its focus
to the adult device. During 1998, that product was 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 Cardia's closure
devices. Follow-up data is extremely limited to date. Cardia is aware of
fractures or bends that have occurred in certain metal components of its own and
closure device 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. Cardia intends to develop its products in a manner designed to avoid
such problems in the future.
CARDIA'S STRATEGY
Cardia is currently developing two transcatheter closure device
products, one for the pediatric defect market and one for the adult defect
market. Cardia's pediatric closure device is currently being marketed on an
experimental basis in Germany and Switzerland. Cardia is currently seeking the
necessary regulatory approval to market this device on a broader basis in
additional European Union countries. Cardia intends to commence the process for
pursuing FDA approval in the United States following regulatory approval in
Europe, if obtained.
Cardia estimates that the market for adult closure devices is
significantly larger than the market for pediatric 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 adult line of closure devices in Europe and the United States.
Initial development and testing efforts are focused on the European
market, where Cardia has received certain certifications and has commenced the
process for obtaining additional required certifications for its pediatric and
adult products. These certifications are required for the general sale of
medical devices in Europe. Cardia anticipates receiving the necessary
certifications during the second half of 1999. Cardia is currently selling its
pediatric and adult devices on a very limited basis in Germany and Switzerland
in reliance on an experimental device process that is
13
<PAGE>
restrictive, costly and time consuming. If it obtains the additional required
certifications, Cardia expects to expand its marketing and sales endeavors for
its closure devices to other European countries. These certifications would
allow Cardia to expand its marketing efforts in Europe and would reduce the cost
and complexity of the marketing and sales process. There can be no assurance
that Cardia will be able to obtain the additional required 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 closure devices under development will have a broad
range of applications for the closure of congenital and acquired cardiac
defects. Cardia's pediatric 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. Cardia also believes that the
adult cardiac defect, 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 adult cardiac defects in victims
of paradoxical strokes, there may be more than 250,000 adult closure cases
annually in the United States and Europe. There is, however, no current
consensus on the size of the adult closure market.
Cardia's initial full-scale marketing and sales efforts will commence
in Europe immediately following Cardia's receipt of all necessary
certifications. Sales and distribution efforts in European countries will be
conducted through either a direct sales force or specialized distributors,
depending on the country. Cardia expects to use a direct sales force in the
United States when sales are permitted.
Cardia intends to create a market for its adult 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 cardiac
defect is the cause of a paradoxical stroke and should be closed, the patient is
referred to a cardiologist. Cardia's adult 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. Cardia's goal is to demonstrate to
neurologists and cardiologists that its closure device 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 pediatric
and adult closure devices include further improvements of the acquired
technology and investigation into modified devices for new applications. Cardia
will perform animal pilot trials on those devices which appear to be the most
promising. Cardia expects to spend approximately $100,000 to $200,000 to
complete development of its existing closing device 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 closure
devices that would compete with Cardia's closure devices. Cardia's competitors
may have greater resources and be able to penetrate the transcatheter closure
device market in Europe and the United States sooner than Cardia. Although
Cardia believes its closure devices are based on sound and competitive
technology, there can be no assurance that
14
<PAGE>
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. If Cardia fails to effectively
penetrate markets sooner than its competitors or to successfully compete with
existing or future products or technologies Cardia's anticipated revenues and
earnings could be significantly reduced or eliminated.
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
Cardia's ongoing manufacturing and research and development activities. Cardia
and its products are regulated by the FDA under a number of statutes, including
the Federal Food, Drug and Cosmetic Act.
Under the Federal Food, Drug and Cosmetic Act, medical devices are
categorized into one of three classes, 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 such as
labeling, premarket notification and adherence to the FDA's good manufacturing
practices. For Class II devices, safety and effectiveness can be assured through
the use of special controls, such as performance standards, post market
surveillance, patient registries and FDA guidelines. Class III devices, which
are 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 good
manufacturing practices 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 premarket approval 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. Cardia, however, does not believe that its
closure device 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 premarket approval of
the proposed device. A premarket approval 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 before it
commences clinical testing in the United States in support of a premarket
approval application. 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 premarket approval 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, premarket
approval application reviews often extend over a significantly protracted time
period, usually 12 to 24 months or
15
<PAGE>
longer from filing. Accordingly, there can be no assurance the FDA review of any
premarket approval application submitted by Cardia will not encounter prolonged
delays or that the data collected and submitted by Cardia in its premarket
approval application will support approval.
Cardia intends to obtain Class III market clearance for its closure
devices through the FDA's investigative device exemption/premarket approval
application process. It has not yet determined, however, when it intends to file
the first investigative device exemption application for US clinical trials.
The FDA and the Federal Trade Commission have the power to scrutinize
labeling and promotional activities. The FDA also imposes post-marketing
controls on Cardia and its products, and registration, listing, medical device
reporting, post-market surveillance, device tracking and other requirements on
medical devices. If Cardia fails to meet these pervasive FDA requirements, or
receives adverse FDA determinations regarding Cardia's clinical and preclinical
trials, Cardia and its employees could be subject to injunction, prosecution,
civil fines, seizure or recall of products, prohibition of sales, or suspension
or withdrawal of any previously granted approvals.
The Federal Food, Drug and Cosmetic Act regulates Cardia's quality
control and manufacturing procedures by requiring Cardia and its contract
manufacturers to demonstrate compliance with current good manufacturing
practices as specified in published FDA regulations. The FDA monitors compliance
with good manufacturing practices by requiring manufacturers to register with
the FDA, which subjects them to periodic unannounced FDA inspections of
manufacturing facilities. The continued marketing of Cardia's products may be
adversely affected if violations of applicable regulations are noted during FDA
inspections of Cardia's manufacturing facilities or the facilities of its
contract manufacturers. 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 Cardia.
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, 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
European countries. Medical devices may not be sold in a general manner in
Europe unless they display a mark indicating compliance with these procedures.
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 closure devices at its facilities
in Burnsville, Minnesota. Certain of the components of Cardia's products are
manufactured by third party vendors. Cardia has received certification that its
manufacturing facilities comply with European standards for quality assurance
and manufacturing process control.
16
<PAGE>
Because Cardia 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.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
There are several patents relating to Cardia's closure devices. A U.S.
patent, two German utility model registrations and a pending European patent
application exist for its pediatric closure device. A German utility model
application and a Patent Cooperation Treaty patent application have been filed
for Cardia's adult closure device. It is the intention of Cardia to file for
European and U.S. patents, based upon the Patent Cooperation Treaty patent
application, for its adult 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
Cardia will employ two full-time employees and four part-time employees
following the distribution. 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.
17
<PAGE>
AVAILABLE INFORMATION
Cardia has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 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, and
will file annual, quarterly and other reports with the Commission.
18
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The directors and officers of Cardia are as follows:
Principal Occupation
Name and Age and Other Directorships
- ------------ -----------------------
Joseph A. Marino Chairman, Chief Executive Officer, Treasurer
(47) and Director of Cardia since November 1998;
Chairman of Applied Biometrics, Inc. since
1994 and Chief Financial Officer from 1993
to 1996.
Peter Buonomo Vice President of Cardia since November
(38) 1998; Vice President 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 Cardia since November 1998;
(56) Secretary and Director of Applied
Biometrics, Inc. since 1993; Partner in
Lindquist & Vennum P.L.L.P., a Minneapolis
law firm which is counsel to Cardia;
practicing lawyer since 1967; Secretary of
MTS Systems Corporation; Director of CNS,
Inc. and Community First Bankshares, Inc.
Thomas E. Brust Director of Cardia since November 1998;
(40) Chairman and Chief Executive Officer of
Micropure Medical, Inc., a medical device
manufacturer, since 1992.
Christopher Turnbull Director of Cardia since January 1, 1999;
(43) Director of St. Paul Medical Inc., a
disposable medical device manufacturer,
since 1993; Interim President of Oxboro
Medical International, a medical device
manufacturer, since 1998.
Mr. Marino and Mr. Buonomo will provide services to both Cardia and ABI
for an indefinite period of time following the distribution and the rights
offering. Each of Cardia and ABI will pay salaries to these two officers based
on a percentage of their combined annualized base salaries equal to the
percentage of time each officer devotes to the business of Cardia and ABI,
respectively.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation to be paid during fiscal year 1999 to Cardia's Chief Executive
Officer. No employee of Cardia will receive salary in excess of $100,000 during
1999:
19
<PAGE>
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.
(2) Mr. Marino's Cardia salary is based on fifty percent of a
combined annualized base salary of $170,000 which will be paid
to him for services rendered to ABI and Cardia during 1999.
This salary will be paid by Cardia. 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 January 27, 1999, the Board of Directors and sole shareholder of
Cardia adopted the Cardia, Inc. 1999 Omnibus Stock Incentive Plan to provide for
the granting of stock-based incentives to officers, key employees and directors
of Cardia. 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 plan also contains provisions that permit an automatic reload of certain
options if the original grant includes a reload feature. Cardia 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, Cardia has outstanding
options to purchase an aggregate of 50,000 shares of its common stock.
The following table sets forth certain information as to options granted to
the Chief Executive Officer of Cardia as of the date of this prospectus:
OPTION GRANTS
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE PRICE
NAME GRANTED IN FISCAL YEAR (DOLLAR/SHARE) EXPIRATION DATE
- ---- --------------------- ------------------------ ---------------------- ---------------
<S> <C> <C> <C> <C>
Joseph A. Marino 50,000(1) 100% $1.10 1/1/09
</TABLE>
- ------------------
(1) All of Mr. Marino's options are currently exercisable.
20
<PAGE>
The following table sets forth certain information as to options held
by the Chief Executive Officer of Cardia as the date of this prospectus:
AGGREGATE OPTION EXERCISES
AND OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS MONEY OPTIONS
------- -------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph A. Marino 50,000 0 $ 0 (1) --
</TABLE>
- ----------------------
(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 Cardia have the right to indemnification from Cardia 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 or
1933, as amended, may be permitted to directors, officers or persons controlling
Cardia pursuant to such indemnification provisions, Cardia has been advised that
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Cardia 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 Cardia, 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.
21
<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:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned(1) of Class
- ------------------ ------------------ --------
<S> <C> <C>
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
Hayden R. Fleming (8). . . . . . . . . . . . . . . . . . . 223,240 5.2%
14988 N. 78th Way, Suite 200
Scottsdale, AZ 85260
Joseph A. Marino (5) (6) . . . . . . . . . . . . . . . . . 329,166 7.1%
501 East Hwy. 13
Burnsville, MN 55337
Demetre Nicoloff, M.D., Ph.D (5) (7) . . . . . . . . . . . 80,900 1.8%
Patrick Delaney (5) . . . . . . . . . . . . . . . . . . . . 48,400 1.1%
Jeffrey W. Green (5) (8). . . . . . . . . . . . . . . . . . 43,400 1.0%
All directors and executive officers
as a group (6 persons) (5). . . . . . . . . . . . . . . . . 586,866 12.1%
</TABLE>
(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) Based on a Schedule 13D dated December 4, 1997 and filed with the
Securities and Exchange Commission. Of the 223,240 shares reported, Mr.
Fleming has sole voting and dispositive power with respect to 201,240
and shared voting and dispositive power with respect to 22,000 shares.
22
<PAGE>
(5) 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.
(6) Includes 29,166 shares held by Mr. Marino's minor children.
(7) Includes 13,333 shares held jointly by Dr. Nicoloff and his spouse and
7,500 shares held by Nicoloff Properties.
(8) Includes 30,000 shares held by Mary Celeste, L.P. of which Mr. Green is
the General Partner.
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.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
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
Hayden R. Fleming (8). . . . . . . . . . . . . . . . . . 19,306 3.9%
14988 N. 78th Way, Suite 200
Scottsdale, AZ 85260
Joseph A. Marino (1). . . . . . . . . . . . . . . . . . 177,522 32.3%
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) (1) . . . . . . . . . . . . . . . 181,918 33.1%
</TABLE>
* Less than 1%
23
<PAGE>
(1) Includes 50,000 shares which could be purchased by Mr. Marino under
stock options exercisable within sixty (60) days of the date hereof.
24
<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 closure device 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 closure device business and to focus its efforts
and resources on the development of the closure device business. At this
meeting, an independent committee of the Board of Directors, consisting of
Demetre Nicoloff and Jeffrey Green, 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 closure device 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 closure device business. After consultation
with its advisors, major shareholders 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
concurrently 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:
* there is a commonality of interests between the ABI
shareholders and the Cardia shareholders;
* the estimated market capitalization of Cardia immediately
after the distribution is estimated to be $500,000;
* 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;
* there are few comparable enterprises useful for valuing a
company at Cardia' stage of development; and
* 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:
* 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;
* Mr. Marino will be a key factor in the development of Cardia's
business while continuing to be involved in ABI's business;
and
* 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.
25
<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. This 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 agreement contains, among other things, a number of provisions
describing the timing and method of the distribution, the transfer of the
closure device assets to Cardia, the relationship of the ABI and Cardia
following the distribution, and certain indemnification obligations. The
principal provisions of the agreement
* 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;
* provide that ABI will make certain information regarding
Cardia and the closure device assets available to Cardia for
copying upon request;
* establish a sublease by Cardia of a portion of ABI's
facilities at fair rental valu);
* obligate each party to indemnify the other with respect to any
claims or actions relating to the liabilities or business of
the other; and
* 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 closure
device operations and assets have been completed by the
effective date of the distribution.
The 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.
TIME SHARING OF EXECUTIVES
Joseph A. Marino and Peter Buonomo, Cardia's Chief Executive Officer
and Vice President, respectively, will be serving as officers and employees of
both ABI and Cardia for an indefinite period of time following the distribution
and the rights offering. They will be paid salaries by each company based on a
percentage of their combined annualized base salaries equal to the percentage of
time they each devote to the business of ABI and Cardia. Although Mr. Marino and
Mr. Buonomo currently expect to spend approximately half of their time on the
business of each company during 1999, there can be no assurance that the actual
allocation of time will not be significantly different.
26
<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Cardia has been formed to pursue the further development and
commercialization of certain transcatheter closure devices. The primary purposes
of the distribution are
* to enable ABI to conserve its liquid assets 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;
* to permit ABI and Cardia each to) adopt strategies and pursue
objectives appropriate to its specific business;
* to enable management of both companies to concentrate
attention and financial resources ons their respective core
business;
* to enable each company to make acquisitions and enter into
transactions with strategic partners by issuing its own equity
securities;
* to facilitate the implementation of incentive compensation
arrangements that are more directly based on results of
operations of each business; and
* to allow each company to 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 ABI shareholders 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." Certificates representing Cardia shares will be
mailed to holders of ABI common stock as soon as practicable after the
effective date of this prospectus.
HOLDERS OF ABI COMMON STOCK SHOULD NOT SEND CERTIFICATES TO CARDIA, ABI
OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE 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.
Holders of ABI common stock will not 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.
27
<PAGE>
RESULTS OF THE DISTRIBUTION
Cardia will be an independent publicly held company after the
distribution and will continue to conduct its business of developing, marketing
and selling transcatheter closure devices. Immediately following the
distribution, ABI shareholders, other than Mr. Marino, will own 74.5% of the
outstanding Cardia common stock and Mr. Marino will own 25.5% (including shares
to be distributed with respect to shares of ABI common stock he beneficially
owns) 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 - There
is no Current Public Market for Our Common Stock; The Offering Price of Our
Common Stock was Determined Arbitrarily; It is Possible That Our Common Stock
Price Will be Volatile."
THE RIGHTS OFFERING
THE RIGHTS
Cardia will distribute rights to purchase Cardia common stock at a
subscription price of $1.00 per share to the record holders of outstanding
Cardia common stock as of as of the rights record date, at no cost to them.
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 will be evidenced by subscription
certificates. If all rights are exercised, an aggregate of 500,000 shares will
be sold . 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 127,522 shares of Cardia common stock and will purchase up to 272,478
additional shares pursuant to the standby subscription guaranty described below.
BASIC SUBSCRIPTION PRIVILEGE
Each right will entitle the holder thereof to receive one share of
Cardia common stock upon payment of the subscription price. Certificates
representing Cardia common stock purchased pursuant to the basic subscription
privilege will be delivered to the subscriber as soon as practicable after the
closing date, irrespective of whether the basic subscription privilege is
exercised before the expiration date. Holders exercising their basic
subscription privilege or oversubscription privilege will not be shareholders of
record with respect to the shares subscribed for until the closing of the rights
offering, which is anticipated to occur five business days after the expiration
date. The term "business day" means 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.
OVERSUBSCRIPTION PRIVILEGE
Each right also carries the right to subscribe for shares not
subscribed for through the exercise of basic subscription privileges by other
holders, subject to the allocation described below. No holder may exercise the
oversubscription privilege for more than number of shares purchased by that
holder pursuant to his or her basic subscription privilege. If the remaining
shares are not sufficient to satisfy all oversubscription privilege
subscriptions, those shares will be allocated pro rata, subject to the
elimination of fractional shares and the limitation described above, in
proportion to the number of shares each holder exercising the oversubscription
privilege subscribed for pursuant to the basic subscription privilege. Only
holders who exercise the basic subscription privilege in full will be entitled
to exercise the oversubscription privilege. Certificates representing the shares
purchased 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.
28
<PAGE>
STANDBY SUBSCRIPTION GUARANTY
Mr. Marino has offered Cardia a standby subscription guaranty to
subscribe, at the subscription price, for up to 272,478 shares not purchased in
the rights offering. This guaranty is applicable only if less than 400,000
shares are subscribed for, and is limited to that number of shares necessary to
reach subscriptions for an aggregate of 400,000 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 March 16,
1999 unless extended by Cardia from time to time. Notwithstanding the foregoing,
the expiration date will not be later than 45 days after the commencement of the
rights offering. Unexercised rights will be null and void after the expiration
date. 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 with any required signatures
guaranteed, together with payment in full for any shares being subscribed for.
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 prior to or on 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.
If paying by uncertified personal check, please note that the funds
paid 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 shares
subscribed for pursuant to the oversubscription privilege will be held in a
segregated account pending issuance of such shares. If a holder exercising the
oversubscription privilege is allocated less than all of the shares that such
holder wished to subscribe for, the excess funds paid for shares not issued
shall be returned by mail without interest or deduction as soon as practicable
after the expiration date.
29
<PAGE>
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 shares be
issued pursuant to the exercise of rights are to be delivered to the holder or
(2) is submitted for the account of any Eligible Guarantor Institution , as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
signatures on such subscription certificate must be guaranteed by an Eligible
Guarantor Institution.
If either the number of shares being subscribed for pursuant to the
basic subscription privilege is not specified on the subscription certificate,
or the amount of consideration delivered is not enough to pay the subscription
price for all shares stated to be subscribed for, the number of 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 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 shares in the
following order: (i) to subscribe for the number of shares indicated, if any,
pursuant to the basic subscription privilege, (ii) to subscribe for 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 shares pursuant to the oversubscription privilege, subject to any
applicable proration.
Please read the instructions included in the subscription certificates
carefully and follow them 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 WE
RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. YOU SHOULD ALSO
ALLOW A SUFFICIENT NUMBER OF DAYS 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 TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE 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. Cardia will determine all questions concerning the timeliness,
validity, form and eligibility of any exercise of rights and its 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 Cardia 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 YOU HAVE EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE, THAT EXERCISE
MAY NOT BE REVOKED.
30
<PAGE>
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 discussion is also limited to (a) ABI shareholders who hold ABI common
stock as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended and (b) Cardia shareholders who will hold
rights and Cardia common stock acquired upon the exercise of rights as capital
assets within the meaning of Section 1221 of 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
31
<PAGE>
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 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
32
<PAGE>
rules apply for a U.S. holder who, among other things, (i) fails to furnish a
social security number or other taxpayer identification number, a 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 is
not 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."
GENERAL
The articles of incorporation of Cardia provide that Cardia may issue
up to 10,000,000 shares of common stock, $0.01 par value per share and up to
1,000,000 shares of undesignated preferred stock, $0.01 par value per share.
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 the 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 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.
33
<PAGE>
UNDESIGNATED PREFERRED STOCK
Cardia's Board of Directors has the authority to issue up to 1,000,000
shares of undesignated preferred stock 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 Cardia by way of a merger, sale or exchange of
assets or a similar transaction. Cardia 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 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.
Cardia will have a total of 1,000,000 shares of common stock outstanding upon
consummation of the distribution and rights offering, assuming all of the rights
are exercised. 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 125,000 shares of Cardia common stock outstanding which will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and 200,000 shares of common stock
34
<PAGE>
reserved for issuance upon exercise or vesting of stock-based compensation
grants made or to be made under Cardia's 1998 Omnibus Stock Incentive Plan.
In general, under Rule 144 as currently in effect, a shareholder is
entitled to sell restricted securities within any three month period in an
amount 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 if one year has elapsed since the date
of acquisition of the securities. 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 securities, and the seller has not been an
"affiliate" of Cardia, as that term is defined under the Securities Act, 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 for
each 11.563 shares of ABI common stock held on the distribution record date.
Cardia will also sell 125,000 shares of common stock to Joseph A. Marino
concurrently with the distribution. 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.
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.
35
<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
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
(UNAUDITED)
<S> <C> <C>
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
============ ============
</TABLE>
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. Cardia 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 Applied
F-6
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures 5 years $ -- $ 8,375
Machinery and equipment 5 years -- 13,767
----------- ----------
-- 22,142
Less accumulated depreciation -- (1,661)
----------- ----------
$ -- $ 20,481
=========== ==========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets are comprised as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Intangible assets 6 years $ 100,000 $ 100,000
Less accumulated amortization -- (12,500)
----------- ----------
$ 100,000 $ 87,500
=========== ==========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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 common stock 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:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Common stock, $0.01 par value; 10,000,000 shares authorized;
500,000 shares issued and outstanding $ 5,000
Undesignated preferred stock; $0.01 per par value; 1,000,000 shares authorized --
Additional paid-in capital 265,403
----------
Total shareholders' equity $ 270,403
==========
</TABLE>
F-9
<PAGE>
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Subsequent to the Distribution, Cardia 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>
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 Cardia provides that the directors,
officers and employees of Cardia and other persons serving at the request of
Cardia 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 Cardia 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, Cardia has sold the following securities
pursuant to exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"):
In October of 1998 Cardia sold 375,000 shares of its common stock to
Applied Biometrics, Inc.
Concurrent with the distribution, Cardia sold 125,000 shares of its
common stock to Joseph A. Marino, Cardia's Chairman and Chief Executive Officer.
The above transactions were made in reliance upon the exemption from
registration provided under
<PAGE>
Section 4(2). The purchasers of such shares were acquired by them for their 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 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).
8.1* Opinion of Lindquist & Vennum P.L.L.P. regarding certain tax matters
(including consent).
10.1* Cardia, Inc. 1998 Incentive Stock Option Plan.
10.2* Standby Subscription Guaranty of Joseph A. Marino dated as of January
27, 1999.
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.
- ------------------
* Denotes documents filed herewith
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
<PAGE>
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 policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned small business issuer further undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
<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 February 10, 1999.
CARDIA, INC.
By: /s/ Joseph A. Marino
-----------------------------------------
Its: Chief Executive Officer
----------------------------------------
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed on February 10, 1999 by the following persons
in the capacities stated.
Signature Title
- --------- -----
/s/ Joseph A. Marino Chief Executive Officer, Treasurer and Director
- ------------------------------ (principal executive officer and principal
accounting officer)
/s/ Thomas E. Brust Director
- ------------------------------
/s/ Christopher Turnbull Director
- ------------------------------
EXHIBIT 4.2
NUMBER SHARES
CARDIA, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
CUSIP 14140R 10 2
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE 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
Coutersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
Transfer Agent and Registrar
Authorized Signature
<PAGE>
THE BOARD OF THIS CORPORATION HAS THE AUTHORITY TO CREATE AND DETERMINE THE
RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF CAPITAL STOCK
OTHER THAN COMMON STOCK. THIS CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON
WRITTEN REQUEST SENT TO ITS PRINCIPAL EXECUTIVE OFFICES, AND WITHOUT CHARGE, A
FULL STATEMENT OF THE BOARD'S AUTHORITY TO CREATE AND DETERMINE THE RELATIVE
RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF CAPITAL STOCK AS WELL
AS THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES
OF EACH CLASS OR SERIES THEN OUTSTANDING OR AUTHORIZED TO BE ISSUED.
- --------------------------------------------------------------------------------
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
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_________________________________Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated
----------------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACT OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEE
ALL GUARANTEES MUST BE MADE BY A
FINANCIAL INSTITUTION (SUCH AS A BANK OR
BROKER WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM ("MSP") OR THE STOCK EXCHANGE
MEDALLION PROGRAM ("SEMP") AND MUST NOT
BE DATED. GUARANTEES BY A NOTARY PUBLIC
ARE NOT ACCEPTABLE
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER IN DENVER
80 SOUTH EIGHTH STREET LINDQUIST, VENNUM & CHRISTENSEN P.L.L.P.
MINNEAPOLIS, MINNESOTA 55402-2205 600 17TH STREET, SUITE 2125
TELEPHONE: 612-371-3211 DENVER, COLORADO 80202-5401
FAX: 612-371-3207 TELEPHONE: 303-573-5900
- --------------------------------------------------------------------------------
ATTORNEYS AT LAW
EXHIBIT 5.1
February___ , 1999
Cardia, Inc.
501 East Hwy 13
Burnsville, MN 55337
Ladies and Gentlemen:
We have acted as counsel to Cardia, Inc., a Minnesota corporation (the
"Company"), in connection with the preparation of its Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, for the issuance and
sale by the Company of up to 1,000,000 shares of the Company's Common Stock
("Shares") and the issuance by the Company of 500,000 rights to purchase shares
of the Company's Common Stock (the "Rights"). You have asked that we provide our
opinion of certain matters respecting the Company. Except as otherwise indicated
herein, terms used in this Opinion Letter are defined in the Prospectus
contained in the Registration Statement, or in the Accord (defined below). For
purposes of this Opinion Letter, the attorneys of this firm with Actual
Knowledge are Patrick Delaney and Jeffrey N. Saunders.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The laws covered by the opinions
expressed herein are limited to the Federal Law of the United States and the Law
of State of Minnesota. In giving this Opinion Letter, we have also relied upon
factual representations made by officers of the Company.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing in
good standing under the laws of the State of Minnesota and has the requisite
corporate power to own, lease and operate its properties and conduct its
businesses as described in the Prospectus.
2. The Company has the number of authorized, issued and outstanding
shares of capital stock of the Company as set forth under the caption
"Capitalization" of the Prospectus,
<PAGE>
LINDQUIST & VENNUM P.L.L.P.
Cardia, Inc.
February __, 1999
Page 2
and all issued and outstanding capital stock of the Company has been duly
authorized and is validly issued, fully paid and nonassessable. To our Actual
Knowledge, no preemptive rights, contractual or otherwise, of securities holders
of the Company exist with respect to the issuance or sale of the Shares or the
issuance of the Rights by the Company pursuant to the Prospectus, and no rights
to require registration of shares of Common Stock or other securities of the
Company because of the filing of the Registration Statement exist.
3. The Shares and the Rights have been duly authorized. The Shares,
upon delivery against payment therefor, will be validly issued, fully paid and
nonassessable. The rights, upon delivery, will be validly issued.
4. The certificates evidencing the Shares and the Rights comply as to
form with the applicable provisions of the laws of the State of Minnesota.
5. The Registration Statement has become effective under the Act and,
to our Actual Knowledge, no stop orders suspending the effectiveness of the
Registration Statement have been issued and no proceedings for that purpose have
been instituted or are pending or, to our Actual Knowledge, contemplated under
the Act.
6. To our Actual Knowledge, there are no contracts, agreements or
documents of a character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement or
required to be incorporated by reference into the Prospectus which are not
disclosed or filed or incorporated by reference, as required.
7. The Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (other than the financial statements and
schedules and supporting financial and statistical data and information included
or incorporated therein, as to which we express no opinion) conform in all
material respects with the requirements of the Act and the rules and regulations
promulgated thereunder.
We are not passing upon and do not guarantee the accuracy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus. On the basis of the information that we obtained in the course of
our representation, investigation and inquiry of the Company in connection with
the preparation of the Registration Statement and the Prospectus nothing has
come to our attention which causes us to believe that the Registration Statement
or the Prospectus (except as to the financial statements and schedules and
supporting financial and statistical data and information included or
incorporated therein, as to which we express no
<PAGE>
LINDQUIST & VENNUM P.L.L.P.
Cardia, Inc.
February __, 1999
Page 3
opinion) contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading.
We hereby consent to the reference to this firm under the heading
"Legal Matters" in the Registration Statement and the Prospectus. Subject to the
foregoing, this Opinion Letter may be relied upon by you only in connection with
the transactions contemplated by the Prospectus and it may not be used or relied
upon by you or any other person for any purpose whatsoever, except to the extent
authorized in the Accord, without in each instance our prior written consent.
Very truly yours,
LINDQUIST & VENNUM P.L.L.P.
JNS/kmn
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER IN DENVER
80 SOUTH EIGHTH STREET LINDQUIST, VENNUM & CHRISTENSEN P.L.L.P.
MINNEAPOLIS, MINNESOTA 55402-2205 600 17TH STREET, SUITE 2125
TELEPHONE: 612-371-3211 DENVER, COLORADO 80202-5401
FAX: 612-371-3207 TELEPHONE: 303-573-5900
- --------------------------------------------------------------------------------
ATTORNEYS AT LAW
EXHIBIT 8.1
February __, 1999
Applied Biometrics, Inc.
501 East Highway 13
Burnsville, Minnesota 55337
Re: Proposed Spin-off and Rights Offering of Cardia, Inc.
Ladies and Gentlemen:
You have requested our opinion regarding the material United States
federal income tax consequences of the proposed spin-off (the "Distribution") of
Cardia, Inc. ("Cardia") by Applied Biometrics, Inc. ("ABI") and the concurrent
distribution by Cardia of rights (the "Rights") to acquire additional shares of
Cardia Common Stock (the "Rights Offering"). Capitalized terms not defined in
this letter have the meanings set forth in the Prospectus of Cardia (the
"Prospectus") which constitutes a part of the Registration Statement on Form
SB-2 (the "Registration Statement") filed in respect of the shares and rights to
purchase additional shares of Cardia being distributed in connection with the
Distribution and Rights Offering. This opinion provided is in accordance with
the requirements of Item 601(b)(8) of Regulation S-B under the Securities
Exchange Act of 1934, as amended.
In rendering this opinion, we have reviewed the Distribution Agreement
(the "Agreement") and the Prospectus and such other material as we have deemed
necessary or appropriate as a basis for our opinion. With ABI's consent, we have
relied upon certain representations contained in the representation letter
prepared by ABI (a copy of which is attached hereto). We have also assumed that
the transactions contemplated by the Distribution and Rights Offering will be
consummated in accordance with the Agreement and as described in the Prospectus.
In addition, we have considered the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, pertinent
judicial authorities, Internal Revenue Service rulings, and such other
authorities as we have considered relevant.
Based on the foregoing, it is our opinion that the Distribution and
Rights Offering will constitute taxable distributions and will not qualify for
federal income tax purposes as tax free spin-off distributions within the
meaning of Section 355 of the Code. In addition, as described below, we
understand that ABI has federal tax losses exceeding its basis in the Cardia
Common Stock and that, accordingly, ABI will not incur any federal tax on the
Distribution. Accordingly, it is our opinion that the material federal income
tax consequences of the Distribution and Rights Offering will be as follows:
<PAGE>
LINDQUIST & VENNUM P.L.L.P.
Applied Biometrics, Inc.
February __, 1999
Page 2
1. Cardia will not recognize any gain or loss as a result of the
Distribution or the Rights Offering. Also, Cardia's Earnings and
Profits, as defined in the Code, will not be reduced by the
distribution of the Rights in connection with the Rights Offering.
2. ABI will recognize gain equal to the amount by which the fair market
value of the Cardia Common Stock determined on the date of the
Distribution exceeds ABI's tax basis in the Cardia Common Stock.
Because ABI's represented federal tax losses for the year of the
Distribution exceed this gain, ABI will not incur any federal tax on
the Distribution. However, the gain will decrease the amount of federal
tax losses for the year of the Distribution that may be carried over to
future years. Also, ABI's Earnings and Profits for the year of the
Distribution will be increased by the amount of the gain and decreased
by the fair market value of the Cardia Common Stock.
3. ABI's shareholders will not recognize income upon the receipt of Cardia
Common Stock unless the fair market value of the Cardia Common Stock
received in the Distribution exceeds the aggregate basis of ABI Common
Stock held immediately before the Distribution. Where no income is
recognized, 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.
4. ABI's shareholders will recognize income upon the receipt of Cardia
Common Stock where the fair market value of the Cardia Common Stock
received in the Distribution exceeds the aggregate basis of ABI Common
Stock held immediately before the Distribution. Any such ABI
shareholder will recognize gain equal to such excess and the gain will
constitute 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. To 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 zero basis.
5. The holding period of the Cardia Common Stock received by ABI's
shareholders will not include the holding period of the ABI Common
Stock with respect to which the Distribution was made.
6. Cardia's shareholders will not recognize income upon receipt of the
Rights. Unless the fair market value of the Rights equals or exceeds
fifteen percent (15%) of the fair market value of the Cardia Common
Stock on the date of the Rights Offering or a Cardia shareholder makes
an
<PAGE>
LINDQUIST & VENNUM P.L.L.P.
Applied Biometrics, Inc.
February __, 1999
Page 3
election, the basis of the Rights held immediately after the Rights
Offering will be zero. Where a Cardia shareholder so elects, the basis
of the Cardia Common Stock held immediately before the Rights Offering
will be allocated between the Cardia Common Stock and the Rights in
proportion to the relative fair market value of each on the date of the
Rights Offering. Upon the lapse of the Rights with a zero basis, an
affected Cardia shareholder will not recognize any gain or loss and the
lapse will not affect the basis of Cardia Common Stock held by such
shareholder. Upon the exercise of the Rights, an affected Cardia
shareholder will not recognize any gain or loss and the basis of the
Cardia Common Stock acquired by the exercise shall include the price
paid (and any basis allocated under the above rules).
7. The holding period of the Rights received by Cardia's shareholders will
include the holding period of the Cardia Common Stock with respect to
which the Rights Offering was made. A Cardia shareholder's holding
period for Cardia Common Stock acquired through exercise of the Rights
will be begin on the date the Rights are exercised.
We have reviewed the discussion in the Prospectus under the caption
"MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS - Federal Income Tax
Consequences of the Distribution and - Federal Income Tax Consequences of the
Rights Offering" (the "Tax Discussions"). It is our opinion that the Tax
Discussions are correct and complete in all material respects as it relates to
statements of federal tax law or conclusions thereunder.
This opinion is being furnished in connection with the Registration
Statement. You may rely upon and refer to the foregoing opinion in the
Prospectus and the Registration Statement. Any variation or difference in the
facts from those set forth or assumed either in this opinion or the Prospectus
may affect the conclusions stated in this opinion.
We hereby consent to the use of our name in the Prospectus under the
captions "MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS - Federal Income Tax
Consequences of the Distribution," "MATERIAL UNITED STATES FEDERAL TAX
CONSIDERATIONS - Federal Income Tax Consequences of the Rights Offering," and
"LEGAL MATTERS," and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ LINDQUIST & VENNUM P.L.L.P.
EXHIBIT 10.1
CARDIA, INC.
1999 OMNIBUS STOCK INCENTIVE PLAN
<PAGE>
SECTION CONTENTS PAGE
- ------- -------- ----
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Stock Options 4
5. Stock Appreciation Rights 7
6. Restricted Stock 9
7. Deferred Stock Awards 10
8. Target Grant Program 11
9. Transfer, Leave of Absence, etc. 13
10. Amendments and Termination 14
11. Unfunded Status of Plan 14
12. General Provisions 14
13. Effective Date of Plan 16
<PAGE>
CARDIA, INC.
1999 OMNIBUS STOCK INCENTIVE PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Cardia, Inc. 1998 Omnibus Stock Incentive
Plan (the "Plan"). The purpose of the Plan is to enable Cardia, Inc. (the
"Company") to retain and attract executives and other key employees, consultants
and directors who contribute to the Company's success by their ability,
ingenuity and industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means a Committee established by the Board to
administer the Plan. If, at any time no Committee shall be in
office, then the functions of the Committee shall be exercised
by the Board.
e. "Company" means Cardia, Inc., a corporation organized under
the laws of the State of Minnesota (or any successor
corporation).
f. "Consultant" means any person, including an advisor, engaged
by the Company or a Parent Corporation or a Subsidiary of the
Company to render services and who is compensated for such
services and who is not an employee of the Company or any
Parent Corporation or Subsidiary of the Company. A director
who is not an employee may serve as a Consultant.
g. "Deferred Stock" means an award made pursuant to Section 7
below of the right to receive Stock at the end of a specified
deferral period.
h. "Disability" means permanent and total disability as
determined by the Committee.
i. "Early Retirement" means retirement, with consent of the
Committee at the time of retirement, from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company.
1
<PAGE>
j. "Fair Market Value" means the value of the Stock on a given
date as determined by the Committee in accordance with Section
422(c)(7) of the Code and any applicable Treasury Department
regulations promulgated thereunder.
k. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
l. "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934.
m. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
n. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company on or after age 65.
o. "Outside Director" means a Director who: (a) is not a current
employee of the Company or any member of an affiliated group
which includes the Company; (b) is not a former employee of
the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the
Company; (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for good or
services. This definition shall be further governed by the
provisions of Code Section 162(m) and regulations promulgated
thereunder.
p. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 6 below.
q. "Retirement" means Normal Retirement or Early Retirement.
r. "Stock" means the Common Stock, $.01 par value per share, of
the Company.
s. "Stock Appreciation Right" means the right pursuant to an
award granted under Section 5 below to surrender to the
Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion
thereof is surrendered, of the shares of Stock covered by such
Stock Option or such portion thereof, and (ii) the aggregate
exercise price of such Stock Option or such portion thereof.
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u. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 4 below.
SECTION 2. Administration.
The Plan shall be administered by the Committee.
The Committee shall have the power and authority to grant to eligible
persons, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, or (iv) Deferred Stock awards.
In particular, the Committee shall have the authority:
(i) to select the officers, other key employees, consultants and
directors of the Company or its Subsidiaries, to whom Stock
Options, Stock Appreciation Rights, Restricted Stock and/or
Deferred Stock awards may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, NonQualified Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards, or a
combination of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares of stock to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any grant
of a Stock Option, Restricted Stock or other award and/or the
shares of Stock relating thereto), and to amend such terms and
conditions (including, but not limited to, any amendment which
accelerates the vesting of any award); and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
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All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of common stock reserved and available for
distribution under the Plan shall be 200,000 shares. Such shares shall consist,
in whole or in part, of authorized and unissued shares. The number of shares
reserved for issuance pursuant to awards granted under the Plan shall be
increased each time, commencing after December 31, 1998, that the number of
shares available for grant under the Plan shall have been fully granted and be
no longer available (the "Reset Date"). On each Reset Date, the number of shares
reserved for issuance under the Plan shall be increased to an amount equal to
20% of the total number of shares of common stock outstanding on such date. For
purposes of this Section 3, the number of shares reserved for issuance under the
Plan shall be the aggregate of the number of shares reserved for issuance
pursuant to outstanding but unexercised grants and the number of shares reserved
for issuance that are not subject to such award grants.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without shares being issued therefor such shares
shall again be available for distribution in connection with future awards under
the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, provided that the number of shares subject to any award
shall always be a whole number.
SECTION 4. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after the tenth anniversary of the date
this Plan is adopted by the Company's Board of Directors.
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The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of the Fair Market Value of the Stock on the date
of the grant of the Stock Option. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company and an Incentive Stock Option is granted to such employee, the option
price shall be no less than 110% of the Fair Market Value of the Stock on the
date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company and an
Incentive Stock Option is granted to such employee, the term of such option
shall be no more than five years from the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, provided, however, that upon the Company becoming subject to the
requirements of Section 16 of the Securities Exchange Act of 1934, as amended, a
Stock Option granted to an officer, director or 10% shareholder of the Company
shall not be exercisable for a period of six (6) months after the date of grant
unless the Stock Option has been approved by the Board, the Committee or
shareholders of the Company. Notwithstanding anything contained in the Plan to
the contrary, the Committee may, in its discretion, extend or vary the term of
any
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Stock Option or any installment thereof, whether or not the optionee is then
employed by the Company, if such action is deemed to be in the best interests of
the Company.
Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days, prior to
the occurrence of any of the following events: (i) dissolution or liquidation of
the Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the
Company or 75% or more of the outstanding Stock of the Company.
The grant of a Stock Option pursuant to the Plan shall not limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee at the time of grant
or exercise, in its sole discretion, payment in full or in part may also be made
in the form of Stock already owned by the optionee that is not Restricted Stock
(which in the case of Stock acquired upon exercise of an option have been owned
for more than six months on the date of surrender)(based on the Fair Market
Value of the Stock on the date immediately preceding the date the option is
exercised, as determined by the Committee), provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of already
owned shares may be authorized only at the time the option is granted. If the
terms of an option so permit, an optionee may elect to pay all or part of the
option exercise price by having the Company withhold from the shares of Stock
that would otherwise be issued upon exercise that number of shares of Stock
having a Fair Market Value equal to the aggregate option exercise price for the
shares with respect to which such election is made. No shares of Stock shall be
issued until full payment therefor has been made. An optionee shall generally
have the rights to dividends and other rights of a shareholder with respect to
shares subject to the option when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in paragraph (a) of Section 11.
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(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
terminates by reason of death, the Stock Option may thereafter be immediately
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the optionee under the will of the optionee, for a
period of one year (or such shorter period as the Committee shall specify at
grant) from the date of such death or until the expiration of the stated term of
the option, whichever period is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised, to the extent it was exercisable at the
time of termination due to Disability (or on such accelerated basis as the
Committee shall determine at or after grant), for a period of one year (or such
shorter period as the Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company terminates by reason of Retirement, any Stock Option held by such
optionee may thereafter be exercised to the extent it was exercisable at the
time of such Retirement, but may not be exercised after three months (or such
longer period as the Committee shall specify at Retirement)from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a NonQualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company terminates for any reason other than
death, Disability or Retirement, the Stock Option shall thereupon terminate,
except that the option may be exercised to the extent it was exercisable at such
termination for the lesser of three months (or such shorter period as the
Committee shall specify at grant) or the balance of the option's term, provided,
however, that if the optionee's employment is terminated for Cause, all rights
under the Stock Option shall terminate and expire upon such termination.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan is exercisable for
the first time by an optionee during any calendar year shall not exceed
$100,000.
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SECTION 5. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted alone
or in conjunction with all or part of any Stock Option granted under the Plan.
In the case of a grant in conjunction with a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such Option.
In the case of a grant in conjunction with an Incentive Stock Option, such
rights may be granted only at the time of the grant of the option.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee.
SECTION 6. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the
shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of
the Cardia, Inc. 1998 Omnibus Stock Incentive Plan
and an Agreement entered into between the registered
owner and Cardia, Inc. Copies of such Plan and
Agreement are on file in the offices of Cardia, Inc.
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(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 6,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3). Certificates for shares
of unrestricted Stock shall be delivered to the grantee promptly after,
and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 6, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's
shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse, on
the date determined by the Committee, prior to, but in no event more
than sixty (60) days prior to, the occurrence of any of the following
events: (i) dissolution or liquidation of the Company, other than in
conjunction with a bankruptcy of the Company or any similar occurrence,
(ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not
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be the surviving entity or (iii) the transfer of substantially all of
the assets of the Company or 75% or more of the outstanding Stock of
the Company.
SECTION 7. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company to whom and the time or times at
which Deferred Stock shall be awarded, the number of Shares of Deferred Stock to
be awarded to any participant or group of participants, the duration of the
period (the "Deferral Period") during which, and the conditions under which,
receipt of the Stock will be deferred, and the terms and conditions of the award
in addition to those contained in paragraph (b) of this Section 7. The Committee
may also condition the grant of Deferred Stock upon the attainment of specified
performance goals. The provisions of Deferred Stock awards need not be the same
with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to the
participant, or his legal representative, in a number equal to the
shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by the
Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
paragraph (b)(iv) of this Section 7, upon termination of employment for
any reason during the Deferral Period for a given award, the Deferred
Stock in question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all of the remaining deferral limitations imposed hereunder with
respect to any or all of the participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the
award for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the
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Committee's approval and to such terms as are determined by the
Committee, all in its sole discretion. Subject to any exceptions
adopted by the Committee, such election must generally be made prior to
completion of one half of the Deferral Period for a Deferred Stock
award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
SECTION 8. Target Grant Program with Automatic Target Replacement Options.
(a) Establishment of Target Level. The Committee shall establish target
levels for the number of Options to be held (the "Target Level") by its officers
and key employees (each, a "Target Optionee"). Each Target Optionee's Target
Level is based on the position held by the Target Optionee and the level of
responsibility, as determined by the Committee. The Committee may change each
Target Optionee's Target Level, as a result of changes, increases or decreases
in the Target Optionee's position with the Company or level of responsibilities.
The Committee shall grant to each Target Optionee a number of Stock Options
which when added to the number of Stock Options then held by such Target
Optionee equal the Target Level. These newly granted options will vest and have
a term as provided in paragraph (d) with respect to Target Replacement Options.
Stock Options held by a Target Optionee in an amount equal to the Target Level
shall be referred to herein as the Target Optionee's "Target Options". In the
event a Target Optionee holds Stock Options in excess of his or her Target
Level, the first Stock Options so held and exercised up to the Target Level
shall be deemed Target Options. No Target Replacement Options shall be granted
with respect to Stock Options which are not Target Options.
(b) Target Replacement Options. Unless otherwise provided by the
Committee, upon the exercise of a Target Option or Target Replacement Option, a
Target Optionee shall automatically be granted a new Stock Option on the date of
such exercises to purchase that number of shares of the Company's Common Stock
equal to the number of shares of the Company's Common Stock to which such
exercise relates to bring the number of options held by the Target Optionee
after such exercise back to the Target Level ("Target Replacement Options"). The
Target Optionee shall not be required to exercise Target Options prior to the
exercise of Target Replacement Options. Subject to the provisions set forth
herein, Target Replacement Options may be issued as many times as outstanding
Target Options or Target Replacement Options are exercised.
(c) Target Replacement Option Price. The Option Price for each share of
Stock subject to the Target Replacement Options shall be the Fair Market Value
of the Stock on the date of exercise of the existing Stock Option which triggers
the automatic grant of the Target Replacement Options.
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(d) Exercisability and Option Term. The vesting schedule for each
Target Replacement Option shall be identical to the vesting schedule applicable
to the original Option grant. The term of each Target Replacement Option shall
expire ten (10) years from the date of grant of such Target Replacement Option.
Such vesting shall cease, and the Target Optionee shall forfeit any Target
Option and any Target Replacement Options which are not vested as of the Target
Optionee's termination of employment, without regard for the reason for such
termination. Such Option shall be exercised and payment made in accordance with
the provisions set forth in the Plan.
(e) Restrictions on Number of Shares. The aggregate number of Target
Replacement Options granted during any fiscal year of the Company to any Target
Optionee shall not exceed 100,000 shares.
(f) Restrictions on Additional Options. Unless otherwise provided by
the Committee, no Target Optionee shall be granted Stock Options in addition to
the Target Replacement Options unless the Committee increases the designated
Target Level for such Target Optionee.
(g) Status of Target Optionee. No Target Replacement Options may be
granted to any Target Optionee who is not employed by the Company at the time of
exercise of a Stock Option which triggers the grant of a Target Replacement
Option nor may any such Stock Option be granted to a Non-Employee Director who
is not a director of the Company at the time of exercise of a Stock Option which
triggers the grant of a Target Replacement Option.
(h) Limitation on Sale. During a period set by the Committee commencing
with the date of exercise of any existing Stock Option which triggers the
automatic grant of the Target Replacement Options (the "Holding Period"), the
participant shall not be permitted to sell, transfer, pledge or assign an amount
equal to 50 percent (50%) of the shares obtained from such exercise. In no event
shall the Holding Period be less than one (1) year. Within these limits, the
Committee may provide for the lapse of such restrictions in installments where
deemed appropriate.
(i) Additional Provisions. The grant of a Target Replacement Option is
in all cases subject to the availability of sufficient shares for grant under
the Plan or shareholder approval of an increase in the number of shares reserved
under the Plan to accommodate the grant; and notwithstanding anything contained
herein to the contrary, no Target Replacement Option shall be exercisable if a
required shareholder approval has not been obtained. In addition to the terms of
this Section 9, all Target Replacement Options shall be subject to the terms and
provisions set forth in this Plan which are in effect with respect to
Non-Qualified Stock Options.
(j) Change of Control. After a public announcement by the Company of an
event described in Section 5(c), no further Target Replacement Options shall be
granted with respect to any Target Options or Target Replacement Options then
outstanding.
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(k) Further Restrictions. The Committee may, in its sole discretion,
reduce the designated Target Level in general or with respect to a particular
Target Optionee by reason of a reduction in the Target Optionee's
responsibilities, a change in title or non-performance by the Target Optionee.
SECTION 9. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(b) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 10. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee's or participant's consent, or (ii) which without the
approval of the stockholders of the Company would cause the Plan to no longer
comply with Section 422 of the Code or any other regulatory requirements or
rules and regulations promulgated by the Securities and Exchange Commission.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his or her consent.
The Committee may also substitute new Stock Options for previously granted
options, including previously granted options having higher option prices.
SECTION 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan
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to deliver Stock or payments in lieu of or with respect to awards hereunder,
provided, however, that the existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.
SECTION 12. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant
to any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includable as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
14
<PAGE>
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
SECTION 13. Effective Date of Plan.
The Plan shall be effective on January 27, 1999 (the date of approval
by the Board of Directors), subject to approval by a vote of the holders of a
majority of the Stock entitled to vote to approve the Plan. The Plan shall
expire (unless terminated earlier) as of January 27, 2009. Awards may be granted
under the Plan prior to such Shareholder approval, provided such awards are made
subject to Shareholder approval.
15
EXHIBIT 10.2
GUARANTY
FOR VALUE RECEIVED, Joseph A. Marino hereby absolutely and
unconditionally guarantees to Cardia, Inc., a Minnesota corporation (the
"Company") that in the event the Company fails to obtain subscriptions for at
least 400,000 shares of the Company's common stock, $0.01 par value per share,
in the Company's Rights Offering of 500,000 shares of its common stock, he will
subscribe for and purchase, at the subscription price set forth in the
prospectus describing the Rights Offering, that number of shares of the
Company's common stock necessary to reach subscriptions for an aggregate of
400,000 shares in the Rights Offering.
This Guaranty shall be binding upon Joseph A. Marino and his executors,
heirs, successors and assigns. Any invalidity or unenforceability of any
provision of this Guaranty shall not affect other lawful provisions of it and,
to this end, the provisions of this Guaranty are declared to be severable. This
Guaranty shall be governed by the internal laws of the State of Minnesota
without regard to the choice of law provisions of any jurisdiction. This
Guaranty shall expire at such time as the Rights Offering has expired.
Dated: January 27, 1999 /s/ Joseph A. Marino
----------------------------------------
Joseph A. Marino
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 appears in such
Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 10, 1999
