<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997
REGISTRATION NO. 333-17345
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MICRO THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3841 33-0569235
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1062 CALLE NEGOCIO #F,
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE WALLACE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICRO THERAPEUTICS, INC.
1062 CALLE NEGOCIO #F
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BRUCE FEUCHTER, ESQ. STEPHEN M. TENNIS, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH MORRISON & FOERSTER LLP
660 NEWPORT CENTER DRIVE, SUITE 1600 755 PAGE MILL ROAD
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94304-1018
(714) 725-4000 (415) 813-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
Subject To Completion, Dated January 10, 1997
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by Micro Therapeutics, Inc. ("MTI" or the "Company"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price of the Common Stock
will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The shares of Common Stock have been approved for quotation on the Nasdaq
National Market under the symbol "MTIX."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $ , the Underwriting Discounts and
Commissions will be $ and the Proceeds to the Company will be
$ . See "Underwriting."
------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
------------------------
UBS SECURITIES VOLPE, WELTY & COMPANY
, 1997
<PAGE> 3
[PICTURES AND TEXT]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including the information under "Risk Factors." This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under "Risk Factors."
THE COMPANY
Micro Therapeutics, Inc. ("MTI" or the "Company") develops, manufactures
and markets minimally invasive medical devices for the diagnosis and treatment
of vascular disease. MTI focuses its efforts in two underserved markets: (i) the
treatment of neuro vascular disorders of the brain associated with stroke; and
(ii) the treatment of peripheral vascular disease, including blood clot therapy
in hemodialysis access grafts, arteries and veins. The Company's objective is to
provide physicians with new interventional treatment alternatives which improve
outcomes, reduce costs, shorten procedure times, reduce drug usage and allow
access to difficult-to-reach anatomical locations. The Company currently markets
more than forty products for the treatment of peripheral vascular disease and
will introduce products for the treatment of neuro vascular disease in 1997.
Vascular disease is the leading cause of death in the industrialized world,
and is responsible for over 40% of all deaths in the United States. Vascular
disease may occur in any blood vessel in the body, and is generally manifested
as an occlusion or rupture in a vessel. The vascular disease market consists of
three segments, defined by anatomical location: cardiovascular disease, or
disease in the coronary arteries; neuro vascular disease, or disease in the
vessels in the brain; and peripheral vascular disease, or disease in blood
vessels throughout the rest of the body. MTI is focused on the two segments it
believes to be underserved: neuro vascular and peripheral vascular disease.
The leading complication of neuro vascular disease is stroke, the
diminished blood flow to critical regions of the brain. The medical need for
effective stroke therapy exists because of the severity of the disorder, its
prevalence in society, the inadequacy of current therapies and the high cost of
treatment and care. There are approximately 500,000 cases of stroke per year in
the United States. Strokes are typically caused either by blockages
(vaso-occlusive stroke) or ruptures (hemorrhagic stroke) of arteries within or
leading to the brain. The most common type of vaso-occlusive stroke is caused by
the existence of a blood clot within an artery, blocking blood flow. Hemorrhagic
stroke is generally caused by the rupture of a blood vessel in the brain
resulting from a vascular defect such as an aneurysm or arteriovenous
malformation ("AVM"). While 30,000 stroke cases are related to ruptured
aneurysms, unruptured aneurysms may occur in approximately 2% to 5% of the
general population in the United States.
Approximately eight million people have been diagnosed with peripheral
vascular disease in the United States, of which an estimated one million are
treated annually. Vascular obstruction causes discernible clinical symptoms
including skin discoloration, pain, ulceration, swelling or a change in blood
chemistry, and can result in the loss of limb or even death.
The Company's products and products under development in the neuro vascular
market designed to address stroke include: (i) a range of infusion micro
catheters incorporating shaft designs and innovative materials, which allow
access to the smallest, most remote blood vessels; and (ii) the Liquid Embolic
System ("LES"), which combines a unique material and special purpose micro
catheters designed to treat aneurysms and AVMs.
The LES utilizes a material which is delivered as a liquid that fills and
conforms to the shape of an aneurysm or AVM. It then transforms into a solid
polymer cast. The Company believes these features will allow the physician to
fill such defects in a controlled fashion, leading to better outcomes. The
Company has been conducting preclinical studies of the LES and has initiated
human clinical trials outside of the United States.
3
<PAGE> 5
The Company's products in the peripheral vascular market designed for less
invasive treatment of blood clots include: (i) a broad offering of infusion
catheters, micro catheters and infusion wires; and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot. The Company's line of
catheters and infusion wires incorporate proprietary features, including the
Cragg MicroValve which allows for efficient sidehole infusion with or without a
guidewire in place.
The Cragg Thrombolytic Brush, currently in advanced clinical trials,
consists of a soft nylon brush mounted on a wire cable which is introduced
through a catheter and rotated with a motor as thrombolytic drugs are infused.
The rotation of the brush within the clot actively mixes the drug into the clot,
exposing more clot surface to the drug, thus accelerating the thrombolytic
process. A 510(k) market clearance application for the Cragg Thrombolytic Brush
was submitted to the FDA in September 1996.
The Company's goal is to be a leading provider of interventional solutions
for treatment of neuro vascular and peripheral vascular disease. The Company
intends to achieve this goal by: (i) focusing its efforts on developing products
for the treatment of vascular disease in the neuro vascular and peripheral
vascular markets, which the Company believes are currently underserved; (ii)
establishing early market presence through the development, rapid regulatory
approval and distribution of a broad product offering for the interventional
radiologist; and (iii) developing new interventional technologies such as the
LES and Cragg Thrombolytic Brush, which it believes will expand the pool of
patients who may be candidates for interventional therapy.
The Company was incorporated in California in 1993. The Company
reincorporated in Delaware by forming a wholly-owned Delaware subsidiary in July
1996, and merging into such subsidiary in November 1996. All references to "MTI"
or the "Company" in this Prospectus refer to Micro Therapeutics, Inc., a
Delaware corporation and its predecessor. The Company's headquarters and
principal place of business is located at 1062 Calle Negocio #F, San Clemente,
California 92673, and its telephone number is (714) 361-0616.
Cragg-McNamara(TM), Cragg MicroValve(TM), ProStream(TM), Patency(TM),
MicroPatency(TM), MicroMewi(TM), Cragg Thrombolytic Brush(TM), Katzen
Select(TM), LES(TM), EASY RIDER(TM) and the Company's logo are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Risk factors of this Offering include, among others, early stage of
development, uncertain market acceptance, rapid technological change, new
product development and intense competition.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the Company... 2,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 6,558,633 shares(1)
Use of proceeds....................... To fund research and development,
clinical trials, expansion of
marketing and sales activities, and
for working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol......... MTIX.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 11, 1993 YEARS ENDED DECEMBER 31, NINE MONTHS
(DATE OF INCEPTION) ENDED SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales....................................... -- 26,978 316,404 161,261 1,115,658
--------- ---------- ---------- ---------- ----------
Gross profit (loss)................................. -- (749) (24,102) (26,177) (146,668)
Research and development expenses................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and administrative expenses........ 23,782 546,817 1,499,103 928,776 2,303,113
--------- ---------- ---------- ---------- ----------
Operating loss...................................... (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income (591) 16,590 201,578 161,327 117,713
(expense), net....................................
--------- ---------- ---------- ---------- ----------
Net loss............................................ $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= ========== ========== ========== ==========
Pro forma net loss per common and common equivalent $ (0.59) $ (0.83)
share (2).........................................
========== ==========
Pro forma weighted average common and common 4,743,000 4,732,000
equivalent shares outstanding (2).................
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, -------------------------------
BALANCE SHEET DATA: 1995 PRO FORMA(3) AS ADJUSTED(4)
------------ ------------ --------------
<S> <C> <C> <C>
Cash, cash equivalents and short term investments....................... $ 2,417,644 $ 6,065,067 $ 27,946,209
Working capital......................................................... 2,358,050 6,212,247 28,162,367
Total assets............................................................ 3,220,977 7,831,791 29,582,813
Accumulated deficit..................................................... (4,223,556) (8,144,780) (8,144,780)
Total stockholders' equity.............................................. 2,878,041 7,110,982 28,930,982
</TABLE>
- ---------------
(1) Excludes: (i) 704,600 shares of Common Stock issuable upon exercise of
outstanding stock options as of February 6, 1997 at a weighted average
exercise price of $2.33 per share, of which options to purchase 230,898
shares were then exercisable; and (ii) 13,683 shares of Common Stock
issuable upon exercise of certain warrants at an exercise price of $5.22 per
share. See "Capitalization," "Description of Securities,"
"Management -- 1993 Stock Option Plan" and "-- 1996 Stock Incentive Plan."
(2) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.
(3) The pro forma data gives effect to the conversion of all outstanding shares
of convertible Preferred Stock into shares of Common Stock that will occur
in connection with the closing of the Offering as if such conversion had
occurred at the beginning of the period indicated.
(4) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share, and after deducting the estimated
underwriters discounts and commissions and estimated offering expenses
payable by the Company. See "Use of Proceeds," "Capitalization" and
"Selected Financial Data."
Unless otherwise indicated, all information in this Prospectus assumes: (i)
the Underwriters' over-allotment option is not exercised; (ii) a 0.65 for 1.0
reverse stock split of the outstanding shares of the Company's Common Stock,
which will be effective upon the closing of this Offering; (iii) the filing of
the Company's Certificate of Incorporation, authorizing 5,000,000 shares of
undesignated Preferred Stock and increasing the number of shares of authorized
Common Stock to 20,000,000, which will be effective upon the closing of this
Offering; and (iv) the conversion of all outstanding shares of Preferred Stock
into Common Stock prior to or effective upon the closing of this Offering. See
"Description of Capital Stock," "Capitalization" and "Underwriting."
5
<PAGE> 7
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus.
Early Stage of Development. The Company has only recently commercially
introduced a number of products. Several of its key products are in the early
stage of development. The Liquid Embolic System ("LES") has not yet entered
clinical trials in the United States and the Company recently filed its 510(k)
market clearance application covering the Cragg Thrombolytic Brush.
Commercialization of the Company's products will depend on a number of factors,
including the Company's ability to demonstrate the safety and efficacy of such
products in the clinical setting. There can be no assurance that the Company's
products will be safe and effective in clinical trials or will ultimately be
cleared for marketing by U.S. or foreign regulatory authorities. Failure to
develop safe and effective products, which are approved for sale on a timely
basis would have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Government Regulation" and
"-- Products."
Uncertainty of Market Acceptance. Even if the Company is successful in
developing safe and effective products that have received marketing clearance,
there can be no assurance that the Company's products will gain market
acceptance. Acceptance of the Company's LES and Cragg Thrombolytic Brush will
require the Company to satisfactorily address the needs of potential customers.
The target customers for the Company's products are interventional radiologists
and interventional neuroradiologists. However, there can be no assurance that
acceptance of the Company's products by interventional radiologists and
interventional neuroradiologists will translate into sales. In addition, no
assurance can be given that the Company's market share for its existing products
will grow or that its products which have yet to be introduced will be accepted
in the market. If the Company is unable to gain market acceptance of its current
and future products, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business -- Products,"
"-- Sales and Marketing" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Rapid Technological Change; New Product Development. The markets for the
Company's products are characterized by rapidly changing technologies and new
product introductions and enhancements. In addition to the risks associated with
market acceptance of the Company's products, the Company's success will depend
to a significant extent upon its ability to enhance and expand the utility of
its products and to develop and introduce innovative new products that gain
market acceptance. Moreover, the Company may encounter technical problems in
connection with its product development that could delay introduction of new
products or product enhancements. There can be no assurance that new
technologies, products or drug therapies developed by others will not reduce the
demand for the Company's products. The Company maintains research and
development programs to continually improve its product offerings, including
adding interventional devices. There can be no assurance however that such
efforts will be successful or that other companies will not develop and
commercialize products based on new technologies that are superior in either
performance or cost-effectiveness to the Company's products. See
"Business -- Research and Development," "-- Background" and "-- Sales and
Marketing."
Intense Competition. The medical technology industry is characterized by
intense competition. The Company's products will compete with other medical
devices, surgical procedures and pharmaceutical products. A number of the
companies in the medical technology industry, including manufacturers of neuro
vascular and peripheral vascular products, have substantially greater capital
resources, larger customer bases, broader product lines, greater marketing and
management resources, larger research and development staffs and larger
facilities than the Company. Such entities have developed, or may develop,
additional products competitive with the Company's products. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more readily accepted than those
developed or marketed by the Company or that such competing products would not
render the Company's technology and products obsolete or noncompetitive.
Although the Company believes that its products may offer certain advantages
over its competitors' currently-marketed products, earlier entrants in the
market often obtain and maintain significant market share relative to later
entrants. While the Company has designed its
6
<PAGE> 8
products to be cost effective and more efficient than competing technologies,
there can be no assurance that competitors will not provide better methods or
products at comparable or lower costs. The Company may experience competitive
pricing pressures that may adversely affect unit prices and sales levels and,
consequently, materially adversely affect the Company's business, operating
results and financial condition.
The Company also competes with other manufacturers of medical devices for
clinical sites to conduct human trials. The Company's ability to locate such
clinical sites on a timely basis could have a material adverse effect on the
Company's ability to conduct trials of its products which may be necessary to
obtain required FDA clearance or approval of such products. Such delays could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Competition."
Limited Operating History; Absence of Profitability. The Company was
incorporated in 1993. To date, the Company's business has generated limited
product sales. From its inception through September 30, 1996, the Company
incurred cumulative losses of approximately $8.1 million. The Company expects to
incur additional losses as it expands its research and development,
manufacturing and marketing efforts. No assurance can be given that the Company
will achieve significant sales of its products or that such sales will lead to
profitability. There can be no assurance that the Company will not encounter
substantial delays and unexpected expenses related to the introduction of its
current and future products, or the Company's research and development,
manufacturing and marketing efforts. Such delays or expenses could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Products" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Possible Need for Additional Funds; Uncertainty of Additional
Financing. The Company's operations to date have consumed substantial amounts
of cash, and the Company expects its capital and operating expenditures to
increase. The Company believes that its existing capital resources and
anticipated cash flow from planned operations, together with the net proceeds of
this Offering and the interest earned thereon, should be adequate to satisfy its
capital requirements for at least the next two years. There can be no assurance,
however, that the Company will not need additional capital before such time. The
Company's need for additional financing will depend upon numerous factors,
including the extent and duration of the Company's future operating losses, the
level and timing of future revenues and expenditures, market acceptance of new
products, the results and scope of ongoing research and development projects,
competing technologies, and market and regulatory developments. The Company
currently has no committed external sources of funds. To the extent that
existing resources are insufficient to fund the Company's activities, the
Company may seek to raise additional funds through public or private financing.
There can be no assurance that additional financing will be available or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, further dilution to then-existing
stockholders may result. If adequate funds are not available, the Company's
business, operating results and financial condition may be materially adversely
affected. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business."
Dependence on Patents and Proprietary Technology. The success of the
Company will depend, in part, on its ability to obtain and maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of others. The patent position of a
medical device company may involve complex legal and factual issues. As of
November 30, 1996, the Company held eight issued U.S. patents, one issued
foreign patent and has seventeen U.S. and eight foreign patent applications
pending. The Company's issued U.S. patents cover technology underlying the Cragg
MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid Embolic System and
carotid and intra-cerebral stent products. The expiration dates of these patents
range from February 2009 to December 2015. The pending claims cover various
aspects of its infusion catheter, infusion wire, Thrombolytic Brush, micro
catheter, Liquid Embolic System, carotid and intra-cerebral stent technologies
and non-vascular liquid embolic products. Each product area the Company is
pursuing is covered by at least one issued and pending patent. One of the
patents used by the Company is currently licensed by the Company from Andrew
Cragg, M.D. There can be no assurance that issued patents will provide
significant proprietary protection, that pending patents will be issued, or that
products incorporating the technology in issued patents or pending applications
will be free of challenge from competitors. There also can be no assurance that
patents belonging to competitors will not require the
7
<PAGE> 9
Company to alter its technology and products, pay licensing fees or cease to
market or develop its current or future technology and products. The Company
also relies on trade secrets to protect its proprietary technology, and no
assurance can be given that others will not independently develop or otherwise
acquire equivalent technology or that the Company can maintain such technology
as trade secrets. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as the laws of the United
States. The failure of the Company to protect its intellectual property rights
could have a material adverse effect on its business, operating results and
financial condition. See "Business -- Patents and Proprietary Rights."
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that infringement, invalidity, right to use or ownership claims by
third parties will not be asserted against the Company in the future. Although
patent and intellectual property disputes in the medical device industry have
often been settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, should the Company decide to litigate such claims, such litigation
could be expensive and time consuming, could divert management's attention from
other matters and could have a material adverse effect on the Company's
business, operating results and financial condition, regardless of the outcome
of the litigation.
Limited Marketing Experience; Lack of Distribution. The Company's sales
force consists of nine people in the United States and one person in Europe all
of whom have been with the Company for a limited time. The Company believes it
will have to increase the number of sales personnel to fully cover its target
markets. Recently, there has been an increase in competition for sales personnel
experienced in interventional medical device sales and, as a result, the Company
has experienced significant turnover in its sales force. There can be no
assurance that the Company will be able to successfully respond to this
competition and attract, motivate and retain qualified sales personnel. The
Company intends to market and sell its products outside the United States
principally through distributors and believes that it will need to significantly
expand its distributor network or develop its own sales force. The Company's
ability to market its products in certain areas may depend on strategic
alliances with marketing partners. There can be no assurance that the Company
will be able to enter into distribution agreements on acceptable terms or at
all, that such agreements will be successful in developing the Company's
marketing capabilities or that the Company will be able to successfully develop
a direct sales force. Such failure could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Sales and Marketing."
Limited Manufacturing Experience. The Company's experience in
manufacturing its products is limited. The Company anticipates that it will be
necessary to expand its manufacturing capacity in connection with the continued
commercialization of its products. Such commercialization may require the
additional commitment of capital resources for facilities, tooling and equipment
and for leasehold improvements. The Company expects that the expansion of its
manufacturing capacity within the next eighteen months will be achieved from
improved efficiencies, automation and the acquisition of additional tooling and
equipment. The Company does not expect to require any expansion of its
manufacturing facilities during the next eighteen months. Any delay or inability
in expanding its manufacturing capacity or in obtaining the commitment of such
resources could materially adversely affect the Company's manufacturing ability,
business, operating results and financial condition. See "Business -- Sales and
Marketing" and "-- Manufacturing."
Government Regulation. The development, testing, manufacturing and
marketing of MTI's products in the United States are regulated by the U.S. Food
and Drug Administration ("FDA") as well as various state agencies. The FDA
requires governmental clearance of such products before they are marketed. The
process of obtaining FDA and other required regulatory clearances is lengthy,
expensive and uncertain. Moreover, regulatory clearance, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable regulatory requirements can result
in, among other things, warning letters, fines, suspensions of approvals,
product seizures, injunctions, recalls of products, operating
8
<PAGE> 10
restrictions and criminal prosecutions. The restriction, suspension or
revocation of regulatory approvals or any other failure to comply with
regulatory approvals or requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. The offer and
sale of the Company's current products required the submission of information to
the FDA in the form of a 510(k) pre-market notification to substantiate label
claims and to demonstrate "substantial equivalence" to a legally marketed Class
I or II medical device or a Class III medical device for which the FDA has not
called for premarket approvals ("PMAs"). Although the Company has received FDA
clearance for many of these products, there can be no assurance that the Company
will be able to obtain the necessary regulatory clearance for the manufacture
and marketing of enhancements to its existing products or future products either
in the United States or in foreign markets on a timely basis or at all. The
Company has made modifications which affect 17 of its products covered under
three 510(k) clearances, which modifications, the Company believes, do not
affect the safety or efficacy of the products and thus, under FDA guidelines, do
not require the submission of new 510(k) notices. There can be no assurance,
however, that the FDA would agree with any of the Company's determinations not
to submit a new 510(k) notice for any of these changes or would not require the
Company to submit a new 510(k) notice for any of the changes made to a device.
If the FDA requires the Company to submit a new 510(k) notice for any device
modification, the Company may be prohibited from marketing the modified device
until the 510(k) notice is cleared by the FDA. Utilization of the Company's LES
and its Cragg Thrombolytic Brush may require submission of a PMA application to
the FDA, which generally involves a substantially longer and less certain review
process than that of a 510(k) pre-market notification. In either event, such
approvals or clearances may require human clinical testing prior to any action
on such products by the FDA. Based on the information presented by the Company
regarding the material composition of the LES, the Company believes the LES
would be regulated as a device. There can be no assurance, however, that upon
more detailed review of the LES, the FDA will not at a later date determine that
the LES should be regulated as a drug. Such a change could significantly delay
the commercial availability of the LES and have a material adverse effect on the
Company's business, operating results and financial condition. Delays in receipt
of, or failure to receive, regulatory approvals or clearances to market such
products, or loss of previously received approvals or clearances, would
materially adversely affect the marketing of such products and the Company's
business, operating results and financial condition.
In the European Union, the Company will be required to obtain the
certifications necessary to affix the CE Mark to its products by mid-1998 in
order to continue sales in member countries of the European Union. Although the
CE Mark requirement for medical devices does not become effective until June
1998, the Company's experience to date in European Union countries is that the
CE Mark is already necessary to achieve meaningful sales. The Company intends to
acquire the certifications necessary to affix the CE Mark to its products;
however, there can be no assurance that the Company will be able to obtain such
certifications in a timely manner, if at all. In addition, federal, state, local
and international government regulations regarding the manufacture and sale of
health care products and diagnostic devices are subject to future change and
additional regulations may be adopted which may materially adversely affect the
Company's business, operating results and financial condition.
Commercial distribution and clinical trials in most foreign countries also
are subject to varying government regulations which may delay or restrict
marketing of the Company's products. Any inability or delay in obtaining
approvals would materially adversely affect the Company's business, operating
results and financial condition.
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed Good
Manufacturing Practices requirements, which include testing, control and
documentation requirements. The Company's manufacturing processes also are
subject to stringent federal, state and local regulations governing the use,
generation, manufacture, storage, handling and disposal of certain materials and
wastes. Although the Company believes that it has complied in all material
respects with such laws and regulations, the Company is subject to periodic
inspection to ensure its compliance with such laws and regulations. There can be
no assurance that the Company will not be required to incur significant costs in
the future in complying with manufacturing and environmental regulations, or
that the
9
<PAGE> 11
Company will not be required to cease operations in the event of its continued
failure to effect compliance. See "Business -- Government Regulation."
Risk of Product Liability Claims. The nature of the Company's business
exposes it to risk from product liability claims. The risk of such claims has
increased in light of a U.S. Supreme Court decision in 1996 concluding that the
FDA regulatory framework does not necessarily preempt personal injury actions
against medical device manufacturers. The Company currently maintains product
liability insurance for its products, with limits of $2 million per occurrence
and an annual aggregate maximum of $2 million. However, such coverage is
becoming increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at acceptable rates. Any losses that the Company may suffer from any liability
claims, and the effect that any product liability litigation may have upon the
reputation and marketability of the Company's products, may divert management's
attention from other matters and may have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Product Liability and Insurance."
Dependence on Single Source Suppliers; Independent Contract
Manufacturers. The Company purchases certain components used in its products
and receives certain services with respect to its products from third parties.
The Company's dependence on third-party suppliers involves several risks,
including limited control over pricing, availability, quality and delivery
schedules. Any delays in delivery of such components or provision of such
services or shortages of such components could cause delays in the shipment of
the Company's products, which could cause the Company's business, operating
results and financial condition to be adversely affected. The Company's
single-source components are generally acquired pursuant to purchase orders
placed in the ordinary course of business, and the Company has no guaranteed
supply arrangements with any of its single-source suppliers. Because of the
Company's reliance on these vendors, the Company may also be subject to
increases in component costs which could have a material adverse effect on its
business, operating results and financial condition. There can be no assurance
that the Company will not experience quality control problems, supply shortages
or price increases with respect to one or more of these components in the
future. The establishment of additional or replacement suppliers for certain of
these components may delay accessibility of such components as the Company
qualifies such suppliers. Any quality control problems, interruptions in supply
or component price increases with respect to one or more components could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company relies on independent contract manufacturers for the
manufacture and assembly of certain of its products and components. Reliance on
independent contract manufacturers involves several risks, including the
potential inadequacy of capacity, the unavailability of or interruptions in
access to certain process technologies and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Such manufacturers have
possession of and at times title to molds for certain manufactured components of
the Company's products. Shortages of raw materials, production capacity
constraints or delays by the Company's contract manufacturers could negatively
affect the Company's ability to meet its production obligations and result in
increased prices for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of the Company's products or increases in the
prices of components, either of which could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
has no supply agreements with its current contract manufacturers and utilizes
purchase orders which are subject to supplier acceptance. The unanticipated loss
of any of the Company's contract manufacturers could cause delays in the
Company's ability to deliver product while the Company identifies and qualifies
a replacement manufacturer. There can be no assurance that current or future
independent contract manufacturers will be able to meet the Company's
requirements for manufactured products. Such an event would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Manufacturing."
Dependence Upon Key Personnel. The Company is dependent to a significant
extent upon the contributions, experience and expertise of its founders, certain
members of its management team and key consultants. The Company maintains a
key-man life insurance policy in the amount of $1 million on the life of George
Wallace, the Company's President and Chief Executive Officer, however, there can
be no assurance that the
10
<PAGE> 12
Company's insurance is adequate. In addition, the Company's success will depend
upon its ability to attract and retain additional highly qualified management,
sales, technical, clinical and consulting personnel, particularly as the Company
increases its manufacturing capability. The loss of the services of any of such
key personnel or the inability to attract and retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Management."
Third-Party Reimbursement. In the United States, health care providers
such as hospitals and physicians that purchase medical devices generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs") in the
1980s, public and private payors began to reimburse providers on a fixed payment
schedule for patients depending on the nature and severity of the illness. Many
tests and procedures that would have been performed under cost-plus
reimbursement formulas are subject to scrutiny and must be justified in terms of
their impact on patient outcomes. As a result, the incentives are now to conduct
only those tests that will optimize cost-effective care.
The Company could be materially adversely affected by changes in
reimbursement policies of governmental (both domestic and international) or
private healthcare payors to the extent any such changes affect reimbursement
for therapeutic or diagnostic procedures in which the Company's products are
used. Adverse changes in governmental and private third party payors' policies
toward reimbursement for such procedures would have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Third-Party Reimbursement."
Risks Associated with International Sales. To date, the Company has
derived very little revenue from international sales. The Company believes that
its future performance will be dependent in part upon its ability to increase
international sales. Although the perceived demand for certain products may be
lower outside the United States, the Company intends to continue to expand its
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There can
be no assurance, however, that the Company will be able to successfully expand
its international sales. The Company's success in international markets will
depend on its ability to establish and maintain agreements with suitable
distributors, or establish a direct sales presence.
Furthermore, international sales in general are subject to inherent risks,
including unexpected changes in regulatory requirements, fluctuating exchange
rates, difficulties in staffing and managing foreign sales and support
operations, additional working capital requirements, customs, duties, tariff
regulations, export license requirements, political and economic instability,
potentially limited intellectual property protection and difficulties with
distributors. In addition, sales and distribution of the Company's products
outside the United States are subject to extensive foreign government
regulation. The Company has in the past avoided losses due to fluctuating
exchange rates associated with international sales by selling its products in
U.S. dollars; however, the Company expects to sell products in selected markets
in local currency and thus be subject to currency exchange risks in association
with such sales. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, operating results and financial
condition. See "Business -- Government Regulation -- International" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Large-scale market acceptance of the Company's products will depend on the
availability and level of reimbursement in international markets targeted by the
Company. Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Obtaining reimbursement approvals in each country
can require 12-18 months or longer.
Substantial and Immediate Dilution; Absence of Dividends. Purchasers of
the shares of Common Stock offered hereby will incur immediate dilution of
approximately $7.59 per share in net tangible book value (assuming an initial
public offering price of $12.00). The exercise of existing options and warrants
may also
11
<PAGE> 13
have a dilutive effect on the interests of the investors in this Offering. See
"Dilution." The Company has not paid any dividends on its Common Stock since its
inception and does not contemplate or anticipate paying any dividends in the
foreseeable future. It is currently anticipated that earnings, if any, will be
used to finance the development and expansion of the Company's business. See
"Dividend Policy."
Broad Discretion of Management to Allocate Offering Proceeds. The Company
expects that the proceeds of this Offering will be used for research and
development, sales and manufacturing activities, working capital and general
corporate purposes. The Company is not currently able to estimate precisely the
allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's management
will have broad discretion to allocate the proceeds of this Offering and to
determine the timing of expenditures. See "Use of Proceeds."
Anti-Takeover Provisions. The Company's Certificate of Incorporation
provides for 5,000,000 authorized shares of Preferred Stock, the rights,
preferences, qualifications, limitations and restrictions of which may be fixed
by the Board of Directors without any further vote or action by the
stockholders. In addition, the Company's stock option plans provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company.
Further, Section 203 of the General Corporation Law of Delaware prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders, and
therefore could materially adversely affect the price of the Company's Common
Stock. See "Description of Capital Stock."
Absence of Public Trading Market; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the
Company's Common Stock, and there can be no assurance that a significant public
trading market will develop or be sustained after the Offering. The initial
public offering price will be determined by negotiations among the Company and
the Underwriters. See "Underwriting." The negotiated initial public offering
price may not be indicative of the market price for the Common Stock after the
Offering. The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may materially adversely
affect the market price of the Company's Common Stock. In addition, the market
price of the shares of Common Stock is likely to be highly volatile. Factors
such as fluctuations in the Company's results of operations, failure of such
results of operations to meet the expectations of public market analysts and
investors, timing and announcements of technological innovations or new products
by the Company or its competitors, FDA and foreign regulatory actions,
developments with respect to patents and proprietary rights, timing and
announcements of developments, including clinical trials related to the
Company's products, public concern as to the safety of technology and products
developed by the Company or others, changes in health care policy in the United
States and internationally, changes in stock market analyst recommendations
regarding the Company, the medical device industry generally and general market
conditions may have a material adverse effect on the market price of the Common
Stock. In addition, it is likely that during a future quarterly period, the
Company's results of operations will fail to meet the expectations of stock
market analysts and investors and, in such event, the Company's stock price
could be materially and adversely effected.
Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and persons and entities beneficially
owning 5% or more of the Company's Common Stock immediately prior to this
Offering will, in the aggregate, beneficially own approximately 61% of the
Company's outstanding Common Stock following completion of this Offering. These
stockholders, if acting together, would be able to control substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal Stockholders."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the Offering could adversely affect the
prevailing market price of the Common Stock. In addition to the 2,000,000 shares
of Common Stock offered hereby, there will be 4,558,633 shares of Common Stock
outstanding as of the effective date of this Prospectus, assuming no exercise of
outstanding options after
12
<PAGE> 14
February 6, 1997. There are 2,925 shares which relate to vested options
exercisable at February 6, 1997 by former employees and former consultants of
the Company. All such shares are "restricted shares" (the "Restricted Shares")
under the Securities Act of 1933, as amended (the "Securities Act"). Beginning
180 days after the date of this prospectus, 3,236,505 Restricted Shares will
become eligible for sale in the public market pursuant to the expiration of
certain lock-up agreements with the Company, subject to the volume and other
restrictions of Rule 144 promulgated under the Securities Act. If public sales
of these shares occur contemporaneously in substantial amounts, they could
materially adversely affect the trading prices of the Common Stock. In addition,
the Company entered into an Amended and Restated Investors' Rights Agreement
(the "Investors' Rights Agreement") with the holders of its then outstanding
Common Stock and convertible Preferred Stock, which, subject to the 180-day
lock-up agreements, requires the Company to register an offering of Common Stock
held by such persons or their transferees at their request, subject to certain
conditions and restrictions. The Investors' Rights Agreement also allows the
parties thereto and their transferees to include their Common Stock in a
registered offering of Common Stock initiated by the Company or by another
stockholder of the Company. There can be no assurance as to what effect, if any,
the availability of such shares for sale may have on the market price for the
Common Stock or on the ability of the Company to raise additional capital. See
"Shares Eligible for Future Sale" and "Description of Capital Stock --
Registration Rights."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share are estimated to be $21,820,000 ($25,168,000 assuming
the Underwriters' over-allotment is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company expects to use approximately $8 million of the net proceeds
from this Offering to fund research and development, including clinical trials
and approximately $7 million to fund the expansion of the Company's sales and
marketing force to commercially market its products in the United States and
internationally. The balance of the net proceeds will be used for working
capital and other general corporate purposes. These amounts are estimates, and
the amount and timing of the expenditures of the net proceeds for these purposes
will depend on numerous factors, including the status of the Company's product
development efforts, the results of clinical trials, the regulatory approval
process, competition, manufacturing activities and the market acceptance of the
Company's products. See "Risk Factors -- Broad Discretion of Management to
Allocate Offering Proceeds." Pending such uses, the Company plans to invest the
net proceeds from this Offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid a dividend on its capital stock and does not
anticipate paying any dividends in the foreseeable future.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on a pro forma basis to give effect to the conversion of
outstanding shares of convertible Preferred Stock into shares of Common Stock
upon the closing of this Offering; (ii) to reflect an amendment to the Company's
Certificate of Incorporation that will be effective upon the closing of this
Offering increasing the number of authorized shares of Common Stock to
20,000,000 and authorizing the issuance of up to 5,000,000 shares of Preferred
Stock; and (iii) as adjusted to reflect the sale by the Company of 2,000,000
shares of Common Stock at an assumed initial public offering price of $12.00 per
share and after deducting the underwriting discount and estimated offering
expenses. This table should be read in conjunction with the Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------
PRO FORMA AS ADJUSTED
----------- --------------
<S> <C> <C>
Long-term portion of equipment line of credit.................... $ 152,011 $ 152,011
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized
pro forma and as adjusted; no shares outstanding, pro forma
and as adjusted............................................. -- --
Common stock, $0.001 par value; 20,000,000 shares authorized,
pro forma and as adjusted; 4,503,487 shares issued and
outstanding, pro forma; 6,503,487 shares issued and
outstanding, as adjusted(1)................................. 4,503 6,503
Additional paid-in capital..................................... 15,664,544 37,482,544
Unearned compensation.......................................... (413,285) (413,285)
Accumulated deficit............................................ (8,144,780) (8,144,780)
----------- -----------
Total stockholders' equity................................ 7,110,982 28,930,982
----------- -----------
Total capitalization................................... $ 7,262,993 $ 29,082,993
=========== ===========
</TABLE>
- ---------------
(1) Excludes: (i) 624,650 shares of Common Stock issuable pursuant to the
exercise of stock options outstanding as of September 30, 1996, at a
weighted average exercise price of $1.18 per share, of which 229,364 shares
were then exercisable under such options and of which 55,146 of such options
have been exercised subsequent to September 30, 1996; and (ii) 13,683 shares
of Common Stock issuable upon exercise of certain warrants at a weighted
average exercise price of $5.22 per share. See Notes 6, 10 and 15 to Notes
to Financial Statements. As of February 6, 1997, there were 704,600 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $2.33 per share, of which 230,898 shares
were then exercisable under such options.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $6,892,000, or $1.53 per share of Common Stock. "Pro
forma net tangible book value" per share represents the amount of total tangible
assets of the Company less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding. After giving effect to the sale of 2,000,000
shares of Common Stock offered hereby and the receipt by the Company of the
estimated net proceeds therefrom, based on an assumed initial public offering
price of $12.00 per share and after deducting the underwriting discount and the
estimated offering expenses, the pro forma net tangible book value of the
Company as of September 30, 1996, would have been approximately $28,712,000, or
$4.41 per share. This represents an immediate increase in the net tangible book
value of $2.88 per share to existing stockholders and an immediate dilution of
$7.59 per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Pro forma net tangible book value per share as of September 30,
1996........................................................... $1.53
Increase per share attributable to new investors.................. 2.88
------
Pro forma net tangible book value per share after the Offering...... 4.41
------
Dilution per share to new investors................................. $ 7.59
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by investors purchasing shares of Common Stock in this
Offering (based on an assumed initial public offering price of $12.00 per share
and before deducting the underwriting discount and the estimated offering
expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............... 4,503,487 69.2% $15,255,762 38.9% $ 3.39
New Investors....................... 2,000,000 30.8% 24,000,000 61.1% 12.00
--------- ----- ----------- ------
Total..................... 6,503,487 100.0% $39,255,762 100.0%
========= ===== =========== ======
</TABLE>
The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock after September 30, 1996. At September 30, 1996, there
were: (i) 624,650 shares of Common Stock issuable upon exercise of outstanding
stock options granted under the Company's stock option plans at a weighted
average exercise price of $1.18 per share, of which 229,364 shares were then
exercisable under such options; and (ii) 13,683 shares of Common Stock issuable
upon exercise of certain warrants at a weighted average exercise price of $5.22
per share.
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following table contains certain selected financial data and is
qualified by, and should be read in conjunction with, the Financial Statements
and the related Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus. The selected statement of operations data
for the periods ended December 31, 1993, 1994 and 1995 and the balance sheet
data at December 31, 1995 are derived from the Company's financial statements
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected financial data at September 30, 1996 and for the nine-month periods
ended September 30, 1995 and 1996 are derived from unaudited financial
statements included elsewhere in this Prospectus and include, in the opinion of
the Company, all adjustments consisting of only normal recurring adjustments
necessary for a fair presentation of the Company's results of operations for
those periods and financial position at that date. Operating results for the
nine month period ended September 30, 1996 are not necessarily indicative of
operating results for any subsequent period.
<TABLE>
<CAPTION>
JUNE 11, 1993 NINE MONTHS
(DATE OF INCEPTION) YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................. -- 26,978 316,404 161,261 1,115,658
--------- ----------- ----------- ----------- -----------
Gross profit (loss)........... -- (749) (24,102) (26,177) (146,668)
Research and development
expenses.................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and
administrative expenses..... 23,782 546,817 1,499,103 928,776 2,303,113
--------- ----------- ----------- ----------- -----------
Operating loss................ (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income
(expense), net.............. 209 17,390 202,378 161,327 118,513
--------- ----------- ----------- ----------- -----------
Loss before income taxes...... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Income tax expense............ 800 800 800 -- 800
--------- ----------- ----------- ----------- -----------
Net loss...................... $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= =========== =========== =========== ===========
Pro forma net loss per common
and common equivalent
share(1).................... $ (0.59) $ (0.83)
=========== ===========
Pro forma weighted average
common and common equivalent
shares(1)................... 4,743,000 4,732,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments................. $ 2,417,644 $ 6,065,067
Working capital................................................... 2,358,050 6,212,247
Total assets...................................................... 3,220,977 7,831,791
Long-term portion of equipment line of credit..................... -- 152,011
Accumulated deficit............................................... (4,223,556) (8,144,780)
Stockholders' equity.............................................. 2,878,041 7,110,982
</TABLE>
- ---------------
(1) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."
OVERVIEW
Since its inception in June 1993, MTI has been primarily engaged in the
design, development and marketing of minimally invasive devices for treatment of
neuro vascular and peripheral vascular disease. The Company has a limited
history of operations and has experienced significant operating losses since
inception. Operating losses are expected to continue as the Company expends
substantial resources to fund research and development, clinical trials,
regulatory approvals and increased marketing and sales activities.
The Company commenced U.S. commercial shipments of its first infusion
catheters in November 1994, but did not generate significant revenues until it
established a direct domestic sales force in the second half of 1995. The
Company currently sells its products in international markets through a limited
number of distributors. During September 1996, four of the Company's seven sales
representatives left the Company to join three other companies. The Company has
hired four sales representatives to replace them and has hired a sales
representative to cover an additional territory. The temporary reduction of the
sales force had the effect of reducing the rate of growth of sales during the
fourth quarter of 1996. The Company plans to increase its direct sales force in
the United States and has hired a Director of International Operations based in
Europe to establish a sales presence outside North America. Any increase in the
Company's direct sales force will require significant expenditures of capital
and additional management resources.
To date virtually all the Company's revenues have been derived from sales
of its initial infusion catheters, wires and related accessories. The Company
expects sales of these and similar products to provide the majority of the
Company's revenues at least through 1997. Clinical trials of the Cragg
Thrombolytic Brush are currently underway and market introduction is expected in
1997. However, there can be no assurance that FDA approval will be obtained or,
if obtained, that the Company will be successful in generating sales of this or
other future products. In addition, the Company expects to generate only minimal
revenues in the European Community nations until it obtains CE Mark notification
for its products.
The Company's infusion catheters, sidehole infusion wires and Cragg
Thrombolytic Brush are currently manufactured by the Company at its facility in
San Clemente, California. Certain other products and components are manufactured
by contract manufacturers. The Company recently expanded its manufacturing
facilities in order to provide sufficient capacity for future products and to
better control product costs and quality. Future revenues and results of
operations may fluctuate significantly from quarter to quarter and will depend
upon, among other factors, actions relating to regulatory and reimbursement
matters, the extent to which the Company's products gain market acceptance, the
rate at which the Company establishes its domestic and international sales and
distribution network, the progress of clinical trials and the introduction of
competitive products for diagnosis and treatment of neuro vascular and
peripheral vascular disease. The Company's limited operating history makes
accurate prediction of future operating results difficult or impossible.
Although the Company has experienced sales growth in recent periods, there can
be no assurance that the Company will sustain sales growth or gain profitability
on a quarterly or annual basis or that its growth will be consistent with
predictions made by securities analysts in the future.
The Company currently manufactures product for stock and ships product
shortly after the receipt of orders and anticipates that it will do so in the
future. Accordingly, the Company has not developed a significant backlog and
does not anticipate that it will develop one in the future.
17
<PAGE> 19
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 and 1995
Net sales for the nine months ended September 30, 1996 increased to
$969,000 from $135,000 for the same period in 1995. The increase was the result
of the growth in sales of its infusion products. Substantially all of the growth
occurred in the domestic market due to the establishment of a domestic sales
force in the second half of 1995.
Cost of sales for the nine months ended September 30, 1996 increased to
$1.1 million from $161,000 for the same period in 1995. The increase was
attributable to the increase in sales as well as additional fixed production
costs and inefficiencies associated with the rapid increase and expansion of
production operations, including low production yields, and to the expansion of
the Company's manufacturing facilities in conjunction with its move to a new
facility in November 1995 and a subsequent expansion thereof in July 1996. The
Company continues to incur high manufacturing overhead costs relative to sales
and does not expect to achieve positive gross margins until 1997.
Research and development expenses, which include clinical and regulatory
expenses, for the nine months ended September 30, 1996 increased to $1.6 million
from $947,000 for the same period in 1995. The increase was primarily
attributable to increases in the number of employees, increased expenditures
related to development of the Liquid Embolic System ("LES") and commencement of
clinical trials of the Cragg Thrombolytic Brush. The Company expects to
significantly increase research and development expenditures in 1997,
particularly for human clinical trials of the LES and completion of development
of the Cragg Thrombolytic Brush.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 increased to $2.3 million from $929,000 for the same period
in 1995. The increase was primarily the result of the growth of a direct sales
force in the United States, marketing expenses associated with the initial
promotion of the Company's products, facility expansion costs, hiring of
additional administrative personnel and the amortization of non-cash deferred
compensation charges associated with stock option grants to employees.
Net interest and other income decreased to $119,000 for the nine months
ended September 30, 1996 from $161,000 for the same period ended in 1995. This
difference was attributable to lower average cash balances versus the prior
year.
As a result of the items discussed above, the Company had a net loss of
$3.9 million for the nine months ended September 30, 1996 compared to a net loss
of $1.7 million for the same period in 1995.
Years ended December 31, 1995 and 1994
Net sales for the year ended December 31, 1995 increased to $292,000 from
$26,000 for the year ended December 31, 1994. The increase was the result of the
U.S. market launch of the Cragg-McNamara valved tip infusion catheters.
Substantially all of the growth occurred in the U.S. market due to the
establishment of a domestic sales force in the second half of 1995.
International sales represented 12% of total sales for the year ended December
31, 1995, versus 71% of total sales for the year ended December 31, 1994.
Cost of sales for the year ended December 31, 1995 increased to $316,000
from $27,000 for the year ended December 31, 1994. The increase was attributable
to the increase in sales as well as non-recurring production costs and
inefficiencies associated with the transition from contracting manufacturing to
in-house production operations, and the expansion of the Company's manufacturing
facilities in conjunction with its move to a new facility in November 1995.
Research and development expenses, which include regulatory and clinical
expenses, for the year ended December 31, 1995 increased to $1.5 million from
$769,000 for the year ended December 31, 1994. The increase was primarily
attributable to increases in the number of employees and increased expenditures
related to development of the LES and the Cragg Thrombolytic Brush.
Selling, general and administrative expenses increased for the year ended
December 31, 1995 to $1.5 million from $547,000 for the year ended December 31,
1994. This increase was primarily attributable to the establishment of a direct
sales force in the United States, the addition of administrative personnel and
the development of marketing programs and materials in support of new product
introductions.
18
<PAGE> 20
Net interest and other income for the year ended December 31, 1995
increased to $202,000 from $17,000 for the year ended December 31, 1994. This
difference was attributable to higher average cash balances in 1995 due to the
$5.2 million private placement of equity in February 1995.
As a result of the items discussed above, the Company had a net loss of
$2.8 million for the year ended December 31, 1995 compared to a net loss of $1.3
million for the year ended December 31, 1994.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's operating results to date.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $8.1 million at
September 30, 1996. The Company has funded its operations since inception
primarily through the private placement of equity securities, as well as through
interest income and equipment financing. Through September 30, 1996, the Company
has raised approximately $15.2 million from a series of private placements of
equity securities.
As of September 30, 1996, the Company had cash equivalents and short-term
investments of $6.1 million compared to $2.4 million at December 31, 1995, and
$457,000 at December 31, 1994. The balance at December 31, 1994 is primarily the
result of the private placement of $1.1 million of equity securities in July
1994. The increase during 1995 was due primarily to the private placement of
$5.2 million of equity securities in February 1995. The increase from December
31, 1995 to September 30, 1996 was due to the private placement of $8.2 million
of equity securities in May and June 1996.
Cash used in the Company's operations increased to $4.0 million for the
nine months ended September 30, 1996 from $1.8 million for the same period in
1995. This cash was used primarily to fund increasing levels of research and
development of the Company's products, clinical trials, the initial marketing of
the products in the United States and general and administrative expenses to
support increased operations. The Company's capital expenditures during the
first nine months of 1996 were $458,000, which included equipment purchased
under a lease-line of credit. The Company's lease-line of credit permits the
Company to finance qualified equipment purchases through June 15, 1997 up to a
maximum amount of $900,000, at an interest rate of 14.23% for a term of 48
months. As of September 30, 1996, a total of $191,174 was outstanding under the
Company's lease-line of credit. The Company plans to finance its capital and
operational needs principally from the net proceeds of the recent private
placement of equity securities and this Offering, including interest thereon,
its existing capital resources, and, to the extent available, from bank and
lease financing.
MTI believes that the anticipated net proceeds from this Offering together
with interest thereon and the Company's existing capital resources will be
sufficient to fund its operations for at least two years. However, the Company's
future liquidity and capital requirements will depend upon numerous factors,
including the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain regulatory
clearances and approvals, and the resources the Company devotes to developing,
manufacturing and marketing its products. The Company's capital requirements
will also depend on, among other things, (i) the resources required to expand
its direct sales force in the United States and increase its marketing and sales
presence internationally, (ii) the resources required to expand manufacturing
capacity and facilities requirements and (iii) the extent to which the Company's
products gain market acceptance. The Company does not have commitments for any
further expansion of its manufacturing facilities nor are any expected during
the following eighteen months. However, there can be no assurance that the
Company will not require additional financing within this time frame and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the Company,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
19
<PAGE> 21
BUSINESS
Micro Therapeutics, Inc. ("MTI" or the "Company") develops, manufactures
and markets minimally invasive medical devices for the diagnosis and treatment
of vascular disease. MTI focuses its efforts in two underserved markets: (i) the
treatment of neuro vascular disorders of the brain associated with stroke; and
(ii) the treatment of peripheral vascular disease, including blood clot therapy
in hemodialysis access grafts, arteries and veins. The Company's objective is to
provide physicians with new interventional treatment alternatives which improve
outcomes, reduce costs, shorten procedure times, reduce drug usage and allow
access to difficult-to-reach anatomical locations. The Company currently markets
more than forty products for the treatment of peripheral vascular disease and
will introduce products to treat neuro vascular disease in 1997.
The Company's products and products under development in the neuro vascular
market designed to address stroke include: (i) a range of infusion micro
catheters incorporating shaft designs and innovative materials, which allow
access to the smallest, most remote blood vessels; and (ii) the Liquid Embolic
System ("LES"), which combines a unique material and special purpose micro
catheters designed to treat aneurysms and arteriovenous malformations ("AVMs").
The Company's products in the peripheral vascular market, designed for less
invasive treatment of blood clots, include: (i) a broad offering of infusion
catheters, micro catheters and infusion wires; and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot.
BACKGROUND
Vascular disease is, by Company estimates, the leading cause of death in
the industrialized world, and, according to Medical Data International, Inc.
("MDI"), is responsible for over 40% of all deaths in the United States.
Vascular disease may occur in any blood vessel in the body, and is generally
manifested as an occlusion or rupture in a vessel. The vascular disease market
consists of three segments, defined by anatomical location: cardiovascular
disease, or disease in the coronary arteries; neuro vascular disease, or disease
in the vessels in the brain; and peripheral vascular disease, or disease in
blood vessels throughout the rest of the body. MTI is focused on the two
segments it believes to be underserved: neuro vascular and peripheral vascular
disease.
Neuro Vascular Disease
The Company believes that the leading complication of neuro vascular
disease is stroke, the diminished blood flow to critical regions of the brain. A
significant need for effective stroke therapy exists because of the severity of
the disorder, its prevalence in society, the inadequacy of current therapies and
the high cost of treatment and care. Acute stroke is the third leading cause of
death in the United States and a major cause of long-term disability, with,
according to the National Stroke Association, an estimated annual cost of over
$30 billion. There are approximately 500,000 cases of stroke per year in the
United States, of which approximately one-third of the victims die as a result
of the event and another one-third become severely and permanently disabled,
according to the National Stroke Association. Over three million people in the
United States are stroke survivors and stroke is the leading cause of disability
among adults, according to an article published in Neurology. The disabilities
caused by stroke include paralysis, coma, impaired cognition, reduced
coordination, loss of visual acuity, loss of speech, loss of sensation or a
combination of these effects. Currently, no medical intervention exists that can
reverse the brain damage resulting from stroke.
Strokes are typically caused either by blockages (vaso-occlusive stroke) or
ruptures (hemorrhagic stroke) of vessels within or leading to the brain.
According to the American Heart Association, the most common type of
vaso-occlusive stroke, thromboembolic stroke, is caused by the existence of a
blood clot, or thrombus, within an artery, blocking blood flow. These blood
clots can originate in the heart or a peripheral vascular site and travel into
the neuro vasculature. The other type of vaso-occlusive stroke, atherosclerotic
stroke, results from blockage of blood flow by plaque in a vessel. The majority
of atherosclerotic strokes result from blockage in the carotid artery in the
neck. According to MDI, the annual number of cases of thromboembolic and
atherosclerotic stroke in the United States is 325,000 and 95,000, respectively.
20
<PAGE> 22
Hemorrhagic stroke is generally caused by the rupture of a blood vessel in
the brain resulting from a vascular defect such as an aneurysm or AVM. According
to MDI, there are approximately 80,000 cases of hemorrhagic stroke per year in
the United States.
An aneurysm is a balloon-shaped structure which forms at a weak point in
the vessel wall and fills with blood. Aneurysms typically grow over time and,
due to pressure placed on the wall of the aneurysm, are prone to rupture. Burst
aneurysms result in massive intracranial bleeding and often death. Patients with
unruptured aneurysms may experience symptoms such as blurred vision, headaches
or dizziness; however, the large majority of these patients are asymptomatic.
While 30,000 hemorrhagic stroke cases are related to ruptured intracranial
aneurysms, autopsy studies have suggested that unruptured aneurysms may occur in
approximately 2% to 5% of the general population in the United States, according
to the American Association of Neurological Surgeons. The Company believes that
with the development of new diagnostic and interventional technologies, the pool
of candidate patients may be expanded to include those with unruptured aneurysms
discovered in conjunction with other examinations.
In an AVM, the flow of blood between arteries and veins, which normally
occurs through capillary vessels, is shortcut by the development of larger
vessels connecting directly from arteries to veins. The higher pressure on the
arterial side makes these vessels highly prone to rupture.
The Company believes that, while the interventional treatment of stroke in
the United States is estimated by MDI to be approximately 30,000 procedures
today, this market will grow significantly, driven by the development of
improved diagnostic, imaging and interventional technologies; conversion from
surgical to interventional procedures; the acceptance of preventive treatment of
unruptured aneurysms; the increasing number of trained interventional
neuroradiologists; the continued development of stroke centers; and the impact
of stroke public awareness programs.
Peripheral Vascular Disease
According to MDI, approximately eight million people have been diagnosed
with peripheral vascular disease in the United States, of which an estimated one
million are treated annually. Generally, these patients suffer from degenerative
atherosclerosis or blood clots, the same process that produces coronary artery
disease. For patients diagnosed with peripheral vascular disease, there is
currently no therapy of which the Company is aware, able to halt the
degenerative process.
Vascular obstruction, or the resulting lack of blood flow, can lead to skin
discoloration, pain, ulceration, swelling or a change in blood chemistry, and
can result in the loss of limb and even death. These symptoms are most often
present in the legs and arms and may also develop in the neck and torso.
Thrombosis, or the stagnation and clotting of blood, most often occurs at
locations in blood vessels where the flow of blood has become restricted. This
is most evident in vascular grafts placed to augment blood flow and in native
arteries where the vessel bifurcates or atherosclerosis has narrowed the channel
through which blood flows. Blood clots may form at the point of narrowing or may
originate elsewhere in the cardiovascular system, break off, travel downstream
and lodge in a smaller peripheral vessel, decreasing or completely blocking
flow. Unless this condition is alleviated, tissue ischemia and gangrene can
occur.
One common site for vascular obstruction is in hemodialysis access grafts.
According to the Health Care Financing Administration, hemodialysis access
grafts have been surgically implanted in approximately 140,000 kidney dialysis
patients in the United States. These grafts are used as the access site for
dialysis needles which are inserted to withdraw and return blood from a
dialyzer, a procedure performed every 2-3 days for each such patient. These
hemodialysis access grafts occlude over time and, according to an article
published in the Journal of Surgical Research, fail approximately every 5-10
months, requiring treatment, generally surgery.
According to MDI, thrombosis in peripheral arteries affects approximately
500,000 people per year in the United States. Approximately 200,000 of these
patients receive surgical or interventional treatment, as estimated by the
Company.
Clotting of the deep veins in the lower extremities and torso is commonly
referred to as deep venous thrombosis ("DVT"). DVT and other venous thrombosis
associated with superficial veins are, according to an
21
<PAGE> 23
article published in Cardiology Clinics, responsible for approximately 250,000
hospitalizations annually in the United States and approximately 600,000
additional cases result from long-term hospital stays, according to the American
Medical Association and an article published in American Family Physician.
Currently, virtually all treatment is systemic infusion of anticoagulant drug
over a seven day period or longer on an inpatient basis, followed by an oral
medication regimen for the remainder of the patient's life. This treatment only
stops the progression of the clotting and does not remove the clot. Surgical
removal of the obstruction is not considered to be a desirable treatment
alternative for DVT because of the potential injury to the vein.
The Company estimates that the interventional market of peripheral blood
clots in the United States is approximately 100,000 procedures per year, and
believes this market will grow significantly, driven by the conversion from
surgical to interventional procedures and the development of advanced
technologies that decrease overall procedure costs.
BUSINESS STRATEGY
MTI's goal is to be a leading provider of interventional solutions for
treatment of neuro vascular and peripheral vascular disorders. The Company's
strategy is composed of the following key elements:
- Focus on Underserved Markets. MTI is focusing on the development of
products for treatment of neuro vascular disorders associated with stroke
and peripheral vascular disorders, two market segments which the Company
believes are underserved. The Company works closely with leading
interventional radiologists and neuroradiologists worldwide who are
committed to advancing interventional techniques for treating these
disorders.
- Establish Early Market Presence. The Company has established an early
presence in the U.S. peripheral blood clot therapy market through the
development and rapid regulatory approval of a broad offering of
catheters and infusion wires for the interventional radiologist, and by
distributing these products through a direct sales force focused on this
specialty. The Company believes that this early market penetration
strategy has enabled it to establish a strong foundation in the
peripheral vascular therapy market and facilitate the introduction of new
technologies.
- Expand Interventional Therapy Alternatives. Through its development
efforts MTI is addressing the key issues to growth in interventional
vascular therapies, including ease of vessel access, ease of therapeutic
delivery, completeness and efficacy of therapy, conversion from an
inpatient to an outpatient setting, and reduction of procedure time and
cost. In so doing, MTI is expanding the pool of patients who may be
candidates for interventional therapy.
22
<PAGE> 24
PRODUCTS
The following table sets forth the Company's principal products and
products under development and their current status:
<TABLE>
<CAPTION>
PRODUCT LINE U.S. STATUS INTERNATIONAL STATUS
- ---------------------------------------- --------------------------- ----------------------
<S> <C> <C>
NEURO VASCULAR - STROKE THERAPY
Micro Catheters
EASY RIDER Valved Tip Sidehole 510(k) submission 1997 Submission for CE Mark
Infusion expected 1997
EASY RIDER Endhole Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997
Flow Directed Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997
Liquid Embolic System Preclinical Clinical trials
PERIPHERAL VASCULAR - BLOOD CLOT THERAPY
Infusion Catheters
Cragg-McNamara Valved Tip Sidehole 510(k) approved; 21 models Marketed in 7
currently marketed; countries
6 models to be launched in
first half 1997
Patency Sidehole and Endhole 510(k) approved; 10 models Marketed in 7
countries
currently marketed
MicroMewi Sidehole 510(k) approved; 2 models Submission for CE Mark
currently marketed expected first half
1997
MicroPatency Endhole 510(k) approved; 3 models Marketed in 7
countries
currently marketed
Katzen Select Variable Infusion 510(k) approved Submission for CE Mark
Length expected 1997
Infusion Wires
ProStream Multiple Sidehole 510(k) approved; 4 models Submission for CE Mark
currently marketed expected first half
1997
ProStream Endhole 510(k) approved; 2 models Submission for CE Mark
currently marketed expected first half
1997
Cragg Thrombolytic Brush 510(k) submitted Approved 2 countries;
September 1996 Submission for CE Mark
expected first half
1997
</TABLE>
23
<PAGE> 25
NEURO VASCULAR -- STROKE THERAPY PRODUCTS
Micro Catheters
The Company has developed multiple lines of micro catheters incorporating
unique shaft designs and innovative materials which allow access to small,
remote blood vessels in the brain. These micro catheters may be used for
infusion of drugs to dissolve blood clots associated with thromboembolic stroke.
The conventional treatment for neuro vascular blood clots involves the
systemic delivery of thrombolytic drugs capable of dissolving the clot.
Interventional thrombolytic therapy for neuro vascular occlusions involves the
use of subselective micro catheters to reach the site of the occlusion, followed
by the local infusion of thrombolytic drugs to dissolve the blood clot. The
Company believes that site-specific delivery of thrombolytic drugs may prove to
be more effective than traditional intravenous systemic administration by
requiring less drug, which may lead to reduced side effects such as bleeding in
other parts of the body.
Of the 325,000 patients who experience thromboembolic stroke each year, the
Company estimates that 150,000 of these patients could be treated by
interventional procedures with early intervention, patient selection and
improved micro catheters. One line of the Company's micro catheters is designed
for endhole infusion of thrombolytic drugs to dissolve short clots. Another
line, designed for longer clots, incorporates the Cragg MicroValve at the tip of
the catheter, which, when closed, forces fluid out infusion side holes over the
length of the clot.
The Company expects to submit 510(k) applications for its neuro micro
catheters and to introduce these products in 1997. Neuro micro catheters
historically have gained market clearance via the 510(k) process. Clinical data
has not been provided in support of neuro micro catheter 510(k) submissions.
Liquid Embolic System
The Company's proprietary LES, currently under development, is designed for
rapid and controlled embolization of aneurysms and AVMs. The LES consists of
unique biomaterials and special purpose micro catheters. The micro catheters are
used to deliver the material, in liquid form, to small remote blood vessels in
the brain where it fills a vascular defect and transforms into a solid polymer
cast. The LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke.
The conventional treatment of hemorrhagic stroke requires highly-invasive
neurosurgery, in which a portion of the skull is removed and brain tissue is
manipulated to gain access to the diseased vessel. This type of surgery
generally involves extensive blood loss and prolonged hospitalization.
Interventional treatment of aneurysms currently involves advancing a micro
catheter through the cerebral vasculature to the aneurysm site. Tiny metal coils
attached to a delivery wire are passed, one at a time, through the catheter and
into the aneurysm. The coil is then released from the delivery wire, the wire is
removed and the next coil is advanced through the catheter. This process is
repeated until approximately 30% of the volume of the aneurysm is filled with
coils. The presence of these coils in the aneurysm disrupts blood flow, leading
to the formation of thrombus in the spaces within the coil mass. Numerous
embolization coils are required to fill an aneurysm, a procedure which generally
takes two to three hours to complete.
Surgical treatment of AVMs includes both open neurosurgery and
radiosurgery. The Company estimates that 75% of AVM surgical procedures are
preceded by interventional embolization of the AVM. In the United States,
interventional AVM embolization, either as stand-alone treatment or as a bridge
to surgery, involves depositing polyvinyl alcohol ("PVA") particles, coils or
other embolic material into the AVM to reduce or stop blood flow. Embolization
with PVA particles is challenging due to the difficulty of placing the particles
into the proper location, the inability to visually confirm the placement of the
particles and the tendency for embolized vessels to reopen. Outside the United
States, the most widely used embolization technique for AVMs is the injection of
acrylic-based glues which have not been approved for use in the United States.
Glues have multiple drawbacks, such as lack of control in delivery and extreme
adhesion to all surfaces, including the delivery catheter.
24
<PAGE> 26
In an LES procedure, the micro catheter is positioned at the embolization
site and the material is delivered with a single injection. The LES material is
visible under fluoroscopy and thus the interventionalist is able to see and
continuously monitor the penetration and location of the material. When the
vascular defect is completely filled with the polymer cast, the delivery
catheter is removed. Since the LES material is nonadhesive, the controlled
injection and filling of the vascular defect can take place over a 30-second or
longer period, whereas a glue injection must be instantaneous to avoid gluing
the delivery catheter in place.
(SKETCH OF AN ANEURYSM, BEFORE AND AFTER TREATMENT
USING LES AND AN AVM BEFORE AND AFTER TREATMENT USING LES)
The Company believes that its LES will allow the interventionalist to fill
defects in a controlled fashion, leading to better outcomes for aneurysm and AVM
therapy by:
- Providing a means to fill an aneurysm or AVM with a single delivery
through a micro catheter, thereby reducing the catheter/guidewire
manipulation, exchange time and procedure time;
- Completely filling the vascular defect, rather than inducing formation of
thrombus; and
- Reducing potential for reformation of an aneurysm or AVM resulting from
inadequate filling.
The Company has been conducting preclinical studies of the LES and has
initiated human clinical trials outside of the United States. The Company
expects an investigational device exemption ("IDE") to conduct human clinical
trials in the United States to be filed in the first half of 1997. The Company
anticipates that the first indicated use of the LES for which it will seek an
IDE is the treatment of AVMs. There can be no assurance, however, that the
Company will be successful in obtaining an IDE. Additional potential uses for
the LES include tumor embolization, urinary incontinence and reproductive
sterilization. The Company does not intend to devote significant resources to
these applications, although it has undertaken preliminary animal testing.
25
<PAGE> 27
PERIPHERAL VASCULAR -- BLOOD CLOT THERAPY PRODUCTS
Catheters and Infusion Wires
MTI is introducing to the market a broad offering of less invasive
interventional catheters, micro catheters and infusion wires capable of
efficient delivery of thrombolytic agents for the dissolution of blood clots.
MTI's current offering of Cragg-McNamara valved tip infusion catheters and
ProStream infusion wires represents advanced technology in thrombolytic therapy
for the three peripheral vascular market subsegments: hemodialysis access
grafts, arteries and veins.
Surgical embolectomy is the most common procedure for removing blood clots
from the vascular system, including hemodialysis access grafts. In this
procedure, a surgical incision is made down to the occluded vessel,
the vessel is cut open and a balloon catheter is used to remove the clot through
the incision.
Vascular bypass surgery with native vessels or synthetic grafts is also
performed. In this procedure, either a native vessel, usually a vein surgically
harvested from the patient's leg, or an artificial graft is surgically connected
above and below the occlusion. Blood can then flow around, or bypass, the
occlusion.
These surgical procedures require an operating room and attendant staff,
anesthesia, intensive care and associated in-hospital recovery facilities and
supplies. If the surgery is performed on an occluded graft through which the
patient had been receiving hemodialysis, the dialysis therapy must be
discontinued at the site of the graft for approximately two weeks and an
alternate access site established for hemodialysis.
Thrombolysis, or the dissolving of blood clots, can be performed
interventionally, often on an outpatient basis, by delivering thrombolytic drugs
through an infusion catheter directly into the clot. Various techniques are used
in these procedures including the "pulse-spray" infusion technique where boluses
of the drug are repeatedly hand injected into the thrombus with high pressure
syringes, and the "weep" infusion technique where the drug is slowly infused
into the clot over a longer period of time. In coaxial infusion systems, a micro
catheter or infusion wire is placed through a larger catheter, and infusion is
performed through both devices. This technique allows simultaneous infusion into
small, distal vessels and larger, proximal vessels.
Available treatments for blood clots in veins are much more limited than
those for arteries. Currently, virtually all treatment for DVT is systemic
infusion of anticoagulant drugs over a seven day period, or longer, on an
inpatient basis, followed by an oral medication regimen for the rest of the
patient's life. This treatment only stops the progression of the clotting and
does not remove the clot already present. Surgical embolectomy is not considered
to be a treatment alternative for DVT because of the potential for injury to the
veins.
Recently, a number of high profile interventional radiology centers in the
United States have begun treating DVT with the infusion of thrombolytic drugs at
the site of the clot through sidehole infusion catheter and infusion wire
systems. The Company believes the interventional treatment of DVT with its
catheters and infusion wires may represent a significant opportunity to expand
the patient population for interventional therapy.
Of the 140,000 hemodialysis access graft treatments currently performed
each year in the United States, the Company estimates that one third are treated
interventionally. Of the 200,000 arterial blood clot treatments currently
performed each year in the United States, the Company estimates that 45,000 are
interventional. The Company also estimates that an additional 10,000 vein
procedures are performed interventionally each year in the United States for a
total of 100,000 interventional treatments for peripheral blood clots.
Cragg-McNamara Valved Tip Catheters. These catheters incorporate the
Company's Cragg MicroValve which allows a catheter to be advanced over a
guidewire, and when the wire is removed, the valve at the tip of the catheter
closes completely. This valve technology allows the use of the entire catheter
lumen for sidehole fluid delivery as compared to competitive products which
require a wire to be in place to occlude the catheter tip during sidehole
infusion.
26
<PAGE> 28
Patency Sidehole and Endhole Catheters. The Company's Patency catheters
provide sidehole or endhole infusion in the peripheral vasculature. These
catheters can be used alone or as the outer catheter of a coaxial infusion
system.
MicroMewi Sidehole Micro Catheters. The Company's MicroMewi micro
catheters provide sidehole infusion in small, distal vessels of the peripheral
vasculature. These catheters incorporate a two-section design which adds
pushability to the proximal segment and flexibility to the distal end. The
MicroMewi can be used either alone or as the inner catheter of a coaxial
infusion system.
MicroPatency Endhole Micro Catheters. These endhole micro catheters
provide infusion in small, distal vessels of the peripheral vasculature. They
incorporate a two-section design which adds pushability to the proximal segment
and flexibility to the distal end. The MicroPatency endhole micro catheters can
be used alone or as the inner catheter of a coaxial infusion system.
Katzen Select Variable Infusion Length Catheters. With the introduction of
the Katzen Select variable infusion length catheters, the Company will expand
the interventionalist's capability in thrombolytic therapy by offering, for the
first time, the ability to change the desired infusion characteristics while the
catheter is in the patient. With this catheter, the physician has the option of
changing the desired infusion length to match changing anatomical needs as the
blood clot dissolves. This unique sidehole infusion capability is made possible
by the proprietary Cragg MicroValve.
ProStream Infusion Wires. The Company's infusion wires can be inserted
into blood vessels, and navigated to the site of an obstruction to allow the
infusion of fluids through the wire to the distal anatomy. These infusion wires
can also be passed through infusion catheters to allow simultaneous infusion at
multiple sites.
MTI received 510(k) clearance of its Cragg-McNamara valved tip infusion
catheters in October 1994 and is currently marketing 21 models both domestically
and internationally. The Company received 510(k) clearance of the ProStream
sidehole infusion wires in January 1996, is currently marketing six models of
ProStream infusion wires in the United States and intends to begin selling
internationally in the first half of 1997. These products, together with MTI's
Patency, MicroPatency, MicroMewi and Katzen Select infusion catheter lines are,
or will be, marketed in the United States through its direct sales force and
internationally through a combination of direct sales and distributors.
Cragg Thrombolytic Brush
The Company believes that most treatments for blood clots in the peripheral
vasculature could be performed interventionally. However, in order for
interventional thrombolysis procedures to surpass surgical procedures as the
treatment of choice, three main issues need to be addressed, all of which have a
direct impact on procedure cost.
First, the length of time to achieve lysis of the clot must be shortened.
If a clot is relatively "fresh," that is, several hours old or less when
treated, dissolution time is quick and the procedure can be completed in a
single session in the catheterization or special procedures lab. If, however,
the clot becomes more "organized" in the vessel, dissolution time lengthens. In
these circumstances, thrombolysis starts in the catheterization lab and
continues in a hospital room for 24-72 hours, making it an inpatient procedure.
The patient is then moved back to the lab a second time for angiographic imaging
to determine whether the infusion has been successful. Even a single setting
thrombolytic procedure on a fresh clot can require the interventional
radiologist to administer the drug for a considerable length of time. Second,
the dissolution of the clot must be complete. An established clot is resistant
to complete dissolution and any residual clot becomes a site for repropagation
of new clot. Third, drug cost must be reduced. The cost of drugs for a long-term
thrombolytic infusion lasting several days is thousands of dollars.
MTI is conducting a controlled clinical evaluation of the Cragg
Thrombolytic Brush in hemodialysis access grafts, which addresses the clinical
issues that remain in standard thrombolysis. The Cragg Thrombolytic Brush is
designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the blood clot. A cylindrical,
soft nylon brush mounted on a wire cable is introduced
27
<PAGE> 29
into the vessel through an infusion catheter. The cable drive is attached to a
battery powered, low speed motor drive. A side port on the catheter allows
thrombolytic drugs to be infused through the catheter immediately adjacent to
the brush. Once positioned in the clotted graft, infusion of thrombolytic drug
is begun and the motor is switched on, starting the brush rotation. The rotation
of the brush within the clot actively mixes the drug into the clot, exposing
more clot surface to the drug, thus accelerating the thrombolytic process. The
Company is developing an over-the-wire version of the Cragg Thrombolytic Brush
that the Company believes will further improve vascular access and ease of use.
Future studies using this design may include clinical evaluation in other
applications, including peripheral artificial grafts, arteries and veins.
In June 1994, the Company filed its original 510(k) market clearance
application with the FDA for the Cragg Thrombolytic Brush. The FDA requested
that MTI conduct clinical trials to support its substantial equivalence claim.
In September 1996, the Company filed a 510(k) with the requested clinical data.
Included in the application was statistical analysis covering the first 40
patients treated under an IDE clinical study. In this study, patients are
randomized to treatment with either the Cragg Thrombolytic Brush or conventional
pulse-spray thrombolytic infusion. The key clinical endpoints being measured in
the study are the length of time to reopen the occluded graft and the amount of
thrombolytic drug used. The results as of December 31, 1996, including 63
patients, demonstrate substantial improvements with reductions in both of these
clinical endpoints for the Cragg Thrombolytic Brush, as compared to conventional
pulse-spray thrombolytic infusion. See "Government Regulation."
SALES AND MARKETING
The primary users of the Company's products are interventional radiologists
and neuroradiologists. The Company estimates that approximately 1,500 hospitals
in the United States perform interventional radiology procedures and an
estimated 500 institutions provide some neuro vascular and peripheral vascular
therapy.
In order to achieve early adoption of its products, the Company believes it
will need to establish and maintain relationships with the key interventional
radiologists and neuroradiologists. The Company believes that these
relationships can only be formed through the presence of a direct sales
organization. Currently the Company's domestic sales force consists of eight
direct sales representatives covering the United States. To date, sales
representatives have concentrated their efforts on 200 selected interventional
radiology centers, which the Company believes account for a majority of the
total procedures. It is anticipated that the interventional radiology and
neuroradiology centers will overlap substantially, allowing for efficient
selling into the overall interventional marketplace.
The Company has established international distribution arrangements in
Germany, the United Kingdom, the Netherlands, Belgium, Japan, Australia and
Canada through a network of specialty medical device distributors. These
arrangements provide the Company with distributors experienced in the
interventional device markets who are able to access the top interventional
physicians and institutions worldwide. MTI's distributor network has initially
focused on the introduction and market penetration of peripheral vascular
products. The Company's Director of International Operations, based in Europe,
directs the Company's international sales efforts, oversees the existing
distributor network, evaluates new distribution opportunities, and acts as a
liaison for the Company's clinical investigation programs.
RESEARCH AND DEVELOPMENT
The Company is directing its research efforts towards development of
products which expand the therapeutic alternatives available to interventional
radiologists and interventional neuroradiologists for treatment of vascular
disease. The primary efforts are directed at further expansion of its catheter
and infusion wire product offerings to simplify access to the venous system for
treatment of DVT, and extension of the Cragg Thrombolytic Brush technology for
application in native vessel grafts, arteries and veins.
While the development efforts for the LES are focused on AVMs and aneurysms
in the neuro vasculature, the Company believes that the LES may also have
utility for a variety of procedures throughout the vascular system, including
embolization of certain types of tumors whose growth is dependent on adequate
blood supply, and the Company has performed studies on representative animal
models. In addition, the Company
28
<PAGE> 30
has filed patents related to certain non-vascular applications of the LES, and
is sponsoring preclinical studies of its use in certain urological and
gynecological procedures.
In addition to its work on the LES, the Company is actively investigating
alternative treatment modalities for disease associated with stroke. The primary
focus of this work is the application of stent technology in the head and neck.
Stents are small tubular frameworks introduced percutaneously and deployed to
reestablish blood flow in an occluded section of a vessel. In recent years
stents have been used increasingly in coronary and certain peripheral arteries
that are blocked by atherosclerotic plaque. The Company believes stents may
provide a viable alternative to surgery for exclusion of such plaque in the
carotid arteries and exclusion of certain types of aneurysms in cerebral
arteries.
Work performed to date in the Company's stent program has been directed
principally towards establishment of intellectual property rights in relevant
technologies, development of designs and fabrication of initial prototypes. The
Company has executed two license agreements covering four issued and several
pending U.S. patents for certain stent technology and has filed an additional
patent of its own. Should the early research further confirm the potential of
the Company's technologies, efforts in 1997 would be directed towards refinement
of designs and initiation of preclinical trials.
All of these research efforts are at an early stage, and there can be no
assurance that any products will be successfully developed from them, receive
regulatory approvals, be capable of being manufactured cost-effectively, be
successfully introduced or receive market acceptance. See "Risk Factors" for
additional information regarding risks generally applicable to development of
new products.
The Company's research and development staff consists of 20 full-time
engineers, technicians and regulatory personnel, and two full time consultants,
all of whom have substantial experience in medical device development. In
addition to these technical personnel, the Company's product development process
incorporates teams organized around each of the Company's core technologies or
product groups, with each team having representatives from marketing, regulatory
and clinical affairs, manufacturing and finance. Consultants are utilized where
additional specialized expertise is required. See "Management -- Other Key
Advisors."
MANUFACTURING
The Company manufactures its proprietary catheters, infusion wires and the
Cragg Thrombolytic Brush in a clean room setting at its facilities in San
Clemente, California. The Company has implemented quality control systems as
part of its manufacturing process, which comply with U.S. Good Manufacturing
Practices ("GMP") requirements. The Company has also been inspected by the
California Department of Health Services ("CDHS") on behalf of the State and
under contract with the FDA, and is registered with the State of California to
manufacture its medical devices. The Company believes that it is in compliance
with FDA GMP for medical devices. There can be no assurance, however, that the
Company will remain in compliance with GMP. Failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company is also in the process of implementing policies and procedures
which are intended to allow the Company to achieve ISO 9001/EN 46001
certification of its quality control systems in the first half of 1997. The
European Union has promulgated rules which require that medical products receive
by mid-1998 the right to affix the CE Mark, an international symbol of adherence
to quality assurance standards. In order to obtain the right to affix the CE
Mark to its products, the Company will need to obtain certification that its
processes meet the ISO 9001/EN 46001 quality standards and applicable medical
device directives promulgated by the European Union. Failure to receive the
right to affix the CE Mark will prohibit the Company from selling its products
in member countries of the European Union, and there can be no assurance that
the Company will be successful in meeting the European quality standards or
other certification requirements.
The Company has developed the necessary capabilities for micro valve
molding, hole drilling, bonding, catheter assembly, balloon fabrication,
infusion wire assembly, tip forming, packaging and testing, and has
29
<PAGE> 31
developed proprietary know-how and manufacturing expertise in several of these
areas. An endhole infusion wire and certain accessories are manufactured for the
Company on an OEM basis; all other fabrication and assembly operations are
performed in the Company's manufacturing facilities. The Company uses outside
contractors for extrusion, injection molding, hydrophilic coating, motor drive
componentry and sterilization. Outside services will be brought in-house as
necessary or appropriate to meet the Company's production, quality and
profitability objectives.
Raw materials are purchased from various qualified vendors, subjected to
stringent quality specifications and assembled by the Company into final
products. The Company routinely conducts quality audits of suppliers and has
adopted a vendor qualification program. Certain products are obtained by the
Company from single source suppliers. However, the Company believes that
alternative suppliers are available for its raw materials and other product
components and plans to qualify additional suppliers as sales volume warrants.
Although the Company intends to maintain sufficient levels of inventory to avoid
any material disruption resulting from increased manufacturing, there can be no
assurance that the Company will be able to manufacture and supply products to
meet potential demand.
COMPETITION
The medical device industry is characterized by rapidly evolving
technologies and significant competition. The Company expects competition in the
interventional radiology and interventional neuroradiology markets to increase
substantially. The Company believes that interventional procedures with products
like its own are substantially less costly than highly invasive surgical
procedures and may ultimately replace these procedures in certain applications.
In certain cases, the Company's products may be used in conjunction with
traditional surgical techniques.
The Company competes primarily with other producers of catheter and wire
based products for interventional treatment of neuro vascular and peripheral
vascular disease. In neuro vascular interventional applications Target
Therapeutics, Inc. is the market leader. The Company expects to compete against
Target Therapeutics and other recent entrants in the neuro vascular
interventional market including Boston Scientific, Inc., the Cordis, Inc.
subsidiary of Johnson & Johnson, and Medtronic Micro Interventional Systems. In
peripheral blood clot therapy applications the Company competes with the
MediTech division of Boston Scientific, Inc., Cook, Inc., Target Therapeutics
and the AngioDynamics division of E-Z-EM Corporation. All of these companies
have significantly greater financial, manufacturing, marketing, distribution and
technical resources, name recognition and experience than the Company. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than those developed by the
Company or that would render the Company's products obsolete or noncompetitive.
Additionally, there can be no assurance that the Company will be able to compete
effectively against such competitors based on its ability to manufacture, market
and sell its products.
The length of time required for product development and regulatory approval
plays an important role in a company's competitive position. Consequently, the
Company's success will depend in part on its ability to respond quickly to
medical and technological changes through the development, clinical evaluation
and commercialization of new products. Product development involves a high
degree of risk and there can be no assurance that the Company's research and
development efforts will result in commercially successful products.
MEDICAL ADVISORY BOARD
The Company has a group of physicians which advise it on medical matters in
areas of the Company's business. The Company's Medical Advisory Board (the
"MAB") includes experts in vascular disease diagnosis and therapy in
interventional radiology and interventional neuroradiology. The Company
regularly consults with members of the MAB regarding the Company's research and
development, preclinical trials and clinical trials.
30
<PAGE> 32
The Micro Therapeutics Medical Advisory Board is composed of the following
individuals:
<TABLE>
<S> <C>
Andrew H. Cragg, M.D........ Director, Interventional Vascular Medicine,
Chairman of MAB and a Fairview Riverside Medical Center and Clinical
Founder of the Company Associate Professor of Radiology, University of
Minnesota Hospitals
Flavio Castaneda, M.D. ..... Clinical Associate Professor of Radiology and
Surgery, and Radiology Research Director, University
of Illinois College of Medicine at Peoria
Bart Dolmatch, M.D. ........ Section Head, Vascular and Interventional Radiology,
The Cleveland Clinic Foundation
Barry Katzen, M.D. ......... Medical Director, Miami Vascular Institute, and
Clinical Professor of Radiology, University of Miami
School of Medicine
Thomas O. McNamara, M.D. ... Professor of Radiological Sciences, UCLA School of
Medicine, Vascular Interventional Radiology
Section, UCLA Medical Center for the Health
Sciences
Mark Mewissen, M.D. ........ Associate Professor of Radiology, Director of
Vascular/ Interventional Radiology, Medical College
of Wisconsin, Froedtert Memorial Lutheran Hospital
Alex Norbash, M.D. ......... Assistant Professor of Interventional
Neuroradiology, Stanford University Hospital
John Perl II, M.D. ......... Section of Neuroradiology, The Cleveland Clinic
Foundation
Cass Pinkerton, M.D. ....... Senior Consultant, Interventional Cardiology,
Nasser, Smith & Pinkerton Cardiology
Don F. Schomer, M.D. ....... Assistant Professor of Radiology, The University of
Texas, M.D. Anderson Cancer Center, Diagnostic
Radiology
Donald Schwarten, M.D. ..... Director of Interventional Radiology, St. Vincent's
Hospital
Tony Smith, M.D. ........... Professor of Radiology and Director of
Interventional Neuro and Peripheral Vascular
Radiology, Duke University Medical Center
Sidney Wallace, M.D. ....... Professor Emeritus, Deputy Division Head for
Research, Division of Diagnostic Imaging, The
University of Texas, M.D. Anderson Cancer Center
</TABLE>
All MAB members have entered into consulting agreements with the Company.
These agreements generally provide that all inventions conceived by such
consultants in the course of rendering service to the Company are the exclusive
property of the Company. These agreements further provide that performance of
such agreements will not conflict with any individual consultant's obligation to
maintain the secrecy of confidential information of any third parties and that
all confidential information developed or made known to such consultants by the
Company during the course of such relationships with the Company is to be kept
confidential and not disclosed to third parties.
Except for Dr. Cragg, who receives compensation and holds a significant
number of shares of the Company's Common Stock, all MAB members have been
granted options to purchase shares of the Company's Common Stock for their
services and are reimbursed for reasonable expenses, but receive no other
compensation. All of the members of the MAB are employed by employers other than
the Company and may have commitments to, or consulting or advisory agreements
with, other entities, including potential competitors of the Company, that may
limit their availability to the Company. Although these advisors may
31
<PAGE> 33
contribute significantly to the affairs of the Company, none, other than Dr.
Cragg, is expected to devote more than a small portion of his time to the
Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively protect its proprietary position
by, among other things, filing U.S. and foreign patent applications to protect
technology, inventions and improvements that are important to the development of
its business. The Company's strategy includes extending the patent protection of
its licensed technology by filing procedure-specific method patents wherever
possible for the use of the Company's products in new clinical applications.
As of November 30, 1996, the Company held eight issued U.S. patents, one
issued foreign patent and has seventeen U.S. and eight foreign patent
applications pending. The Company's issued U.S. patents cover technology
underlying the Cragg MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid
Embolic System and carotid and intra-cerebral stent products. The expiration
dates of these patents range from February 2009 to December 2015. The pending
claims cover various aspects of its infusion catheter, infusion wire,
Thrombolytic Brush, micro catheter, Liquid Embolic Systems, carotid and
intra-cerebral stent technologies and non-vascular liquid embolic products.
Although the Company aggressively works to protect its technology, no
assurance can be given that any patents from pending patent applications or from
any future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held by the Company. Furthermore, there can be no
assurance that others have not developed or will not develop similar products,
duplicate any of the Company's products or design around the Company's patents.
In addition, others may hold or receive patents or file patent applications
which contain claims having a scope that covers products developed by the
Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an interference proceeding
declared by the U.S. Patent and Trademark Office ("PTO") to determine the
priority of inventions. The defense and prosecution of patent suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings involving the Company would
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
operating results and financial condition.
In addition to patents, the Company relies on trade secrets and proprietary
know-how to compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
32
<PAGE> 34
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
GOVERNMENT REGULATION
United States
The research, development, manufacture, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. The Company's products are regulated in the United States as medical
devices by the FDA under the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") and require clearance or approval by the FDA prior to commercialization.
In addition, significant changes or modifications to medical devices also are
subject to regulatory review and clearance or approval. Under the FDC Act, the
FDA regulates the research, clinical testing, manufacturing, safety, labeling,
storage, record keeping, advertising, distribution, sale and promotion of
medical devices in the United States. The testing for, preparation of and
subsequent review of applications by the FDA and foreign regulatory authorities
is expensive, lengthy and uncertain. Noncompliance with applicable requirements
can result in, among other things, warning letters, proceedings to detain
imported products, fines, injunctions, civil and criminal penalties against the
Company, its officers and its employees, recall or seizure of products, total or
partial suspension of production, refusal of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and a recommendation by the FDA that the Company not be permitted to enter into
government contracts.
In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and efficacy. Under FDA regulations,
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and Class II devices are subject
to general and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval ("PMA") by the FDA to
ensure their safety and efficacy (for example, life-sustaining, life-supporting
and implantable devices, or new devices that have not been found substantially
equivalent to legally marketed Class I or Class II devices).
The FDA also has the authority to require clinical testing of certain
medical devices as part of the clearance or approval process. If clinical
testing of a device is required and if the device presents a "significant risk,"
an IDE application must be approved prior to commencing clinical trials. The IDE
application must be supported by data, typically including the results of
laboratory and animal testing. If the IDE application is approved by the FDA,
clinical trials may begin at a specific number of investigational sites with a
maximum number of patients, as approved by the agency. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such costs do not exceed recovery of the costs of manufacture,
research, development and handling. The clinical trials must be conducted under
the auspices of investigational sites institutional review boards pursuant to
FDA regulations.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) submission or approval of a PMA application. If a medical device
manufacturer or distributor can establish, among other things, that a device is
"substantially equivalent" in intended use and technological characteristics to
a legally marketed Class I or Class II medical device, or to a Class III medical
device for which the FDA has not required a PMA, the manufacturer or distributor
may seek clearance from the FDA to market the device by filing a 510(k). The
510(k) submission must establish to the satisfaction of the FDA the claim of
substantial equivalence to the predicate device. In recent years, the FDA has
been requiring a more rigorous demonstration of substantial equivalence,
including the requirement for IDE clinical trials.
Following submission of the 510(k), the manufacturer or distributor may not
place the device into commercial distribution unless and until an order is
issued by the FDA finding the product to be substantially equivalent. In
response to a 510(k), the FDA may declare 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, however, may require further
information, including clinical data, to make a determination regarding
33
<PAGE> 35
substantial equivalence, or may determine that the proposed device is not
substantially equivalent and require a PMA. Such a request for additional
information including clinical trials or a determination that the device is not
substantially equivalent would delay market introduction of the products that
are the subject of the 510(k). It generally takes four to twelve months from the
date of submission to obtain 510(k) clearance, although it may take longer, in
particular if clinical trials are required.
If the manufacturer or distributor cannot establish that a proposed device
is substantially equivalent to a legally marketed Class I or II predicate
device, the manufacturer or distributor must seek premarket approval of the
proposed device through submission of a PMA application. A PMA application must
be supported by extensive data, including laboratory, preclinical and clinical
trial data to prove the safety and efficacy of the device, as well as extensive
manufacturing information. If the FDA determines, upon initial review, that a
submitted PMA application is sufficiently complete to permit substantive review,
the FDA will accept the PMA application for filing. FDA review of a PMA
application generally takes approximately two years or more from the date of
acceptance for filing, but review times vary depending upon FDA resources and
workload demands and the complexity of PMA submissions. There can be no
assurance that the FDA will review and approve the PMA in a timely manner, if at
all. Failure to obtain PMA approvals could have a material adverse effect on the
Company's business, operating results and financial condition. Additionally, as
one of the conditions for approval, the FDA will inspect the manufacturing
establishment at which the subject device will be manufactured to determine
whether the quality control and manufacturing procedures conform to GMP
regulations. If granted, the PMA approval may include significant limitations on
the indicated uses for which a product may be marketed.
As of November 30, 1996, the Company had received three 510(k) clearances
for certain diagnostic or therapeutic indications of its infusion catheters,
micro catheters and infusion wires which cover 40 products offered to the
market. The Company has made modifications which affect 17 of its products
covered under these 510(k) clearances, which modifications, the Company
believes, do not affect safety or efficacy of the products and thus, under FDA
guidelines, do not require the submission of new 510(k) notices. There can be no
assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the device. If the FDA requires the Company to submit a new
510(k) notice for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice is cleared by the FDA.
The use of certain materials may require that the device be evaluated as a
drug rather than as a device, and thus the FDA's investigational new drug
("IND") and new drug application ("NDA") regulations would be applicable to the
clinical study and commercialization of the product. Otherwise the product will
be treated as a medical device. The steps required before a drug may be marketed
in the United States include preclinical and laboratory tests, the submission to
the FDA of an application for an IND which must become effective before clinical
trials may commence, adequate and well controlled clinical trials to establish
the safety and efficacy of the drug, the submission to the FDA of an NDA, and
FDA approval of the NDA prior to any commercial sale or shipment of the product.
In January 1996, the Company met with representatives of both the drug and
device divisions of the FDA to discuss their respective new product approval
requirements. Based on the information presented by the Company regarding the
material composition of the LES, the Company believes the LES would be regulated
as a device. There can be no assurance, however, that upon more detailed review
of the LES, the FDA will not at a later date determine that the LES should be
regulated as a drug. Such a change could significantly delay the commercial
availability of the LES and have a material adverse effect on the Company's
business, operating results and financial condition.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMA or NDA approvals to market its products for the
intended uses on a timely basis, if at all, and delays in receipt of or failure
to receive such approvals, the loss of previously received approvals, or failure
to comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, such as the CDHS and to list its products with
the FDA. As such, the Company will be inspected by
34
<PAGE> 36
both the FDA and CDHS for compliance with GMP and other applicable regulations.
These regulations require that the Company manufacture its products and maintain
its documents in a prescribed manner. The Company has not yet been inspected by
the FDA for GMP compliance. In September 1995, the Company's original facility
in Aliso Viejo, California was inspected by the CDHS, acting on behalf of the
State and under contract with the FDA. The Company received no significant
inspection observations and was subsequently granted a California medical device
manufacturing license. In November 1995, the Company's present facility in San
Clemente was inspected by the CDHS, again acting on behalf of the State and
under contract with the FDA. No significant inspection observations were
received. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's ability to do business.
The Company is required to provide information to the FDA on death or
serious injuries that its medical devices have allegedly caused or contributed
to, as well as product malfunctions that would likely cause or contribute to
death or serious injury if the malfunction were to recur. In addition, the FDA
strictly prohibits the marketing of approved devices for uses other than those
specifically cleared for marketing by the FDA. If the FDA believes that a
company is not in compliance with the law or regulations, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against a company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, operating
results and financial condition.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses. The Company is also subject to regulation by the Occupational
Safety and Health Administration and by other government entities.
Regulations regarding the manufacture and sale of the Company's products
are subject to change. The Company cannot predict what impact, if any, such
changes might have on its business, operating results and financial condition.
International
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing a
product in a foreign country may differ significantly from FDA requirements.
Some countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in others.
The Company or its distributors have received registrations and approvals
to market its Cragg-McNamara and Patency infusion catheters in Germany, The
Netherlands, Belgium, the United Kingdom, Canada, Japan and Australia.
The European Union has promulgated rules which require that medical
products receive by mid-1998 the right to affix the CE Mark, an international
symbol of adherence to quality assurance standards. ISO 9000/EN 46001
certification is one of the CE Mark certification requirements. In order to
obtain the right to affix the CE Mark to its products, the Company will need to
obtain certification that its processes meet the ISO 9001/EN 46001 quality
standards and applicable medical device directives promulgated by the European
Union. Failure to receive the right to affix the CE Mark will prohibit the
Company from selling its products in member countries of the European Union and
there can be no assurance that the Company will be successful in meeting the
European quality standards or other certification requirements.
Exports of products subject to the 510(k) notification requirements, but
not yet cleared to market, are permitted without FDA export approval provided
certain requirements are met. Unapproved products subject to the PMA
requirements must receive prior FDA export approval unless they are approved for
use by any member country of the European Union and certain other countries,
including Australia, Canada, Israel, Japan, New Zealand, Switzerland and South
Africa, in which case they can be exported to any country without prior FDA
approval. To obtain FDA export approval, when it is required, certain
requirements must be met
35
<PAGE> 37
and information must be provided to the FDA, including documentation
demonstrating that the product is approved for import into the country to which
it is to be exported and, in some instances, safety data from animal or human
studies. The Company has received export approvals for the Cragg Thrombolytic
Brush in the Netherlands and Australia, and is seeking approvals for other key
European countries. There can be no assurance that the Company will receive FDA
export approval when such approval is necessary, or that countries to which the
devices are to be exported will approve the devices for import. Failure of the
Company to receive import approval from foreign countries, or to obtain
Certificates for Products for Export, meet FDA's export requirements, or obtain
FDA export approval when required to do so, could have a material adverse effect
on the Company's business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
In the United States, hospitals, catheterization laboratories, physicians
and other healthcare providers that purchase medical devices generally rely on
third-party payors, such as private health insurance plans, to reimburse all or
part of the costs associated with the treatment of patients.
The Company's success will depend upon, among other things, its customer's
ability to obtain satisfactory reimbursement from healthcare payors for its
products. Reimbursement in the United States for the Company's infusion catheter
and infusion wire products is currently available under existing procedure codes
from most third-party payors, including most major private health care insurance
plans, Medicare and Medicaid. The Company does not expect that third-party
reimbursement in the United States will be available for use of its other
products unless and until FDA clearance or approval is received. If FDA
clearance or approval is received, third-party reimbursement for these products
will be dependent upon decisions by individual health maintenance organizations,
private insurers and other payors. However, the Company believes that procedures
using its Cragg Thrombolytic Brush may be reimbursed in the United States under
existing procedure codes for diagnosis and re-establishment of patency of
hemodialysis access grafts and native vessels. Similarly, the Company believes
that procedures using its LES may be reimbursed in the United States under
existing procedure codes for diagnosis and treatment of aneurysms and AVMs.
However, there can be no assurance that such procedure codes will remain
available or that the reimbursement under these codes will be adequate. Given
the efforts to control and decrease health care costs in recent years, there can
be no assurance that any reimbursement will be sufficient to permit the Company
to achieve or maintain profitability.
Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Large-scale market acceptance of the Company's
thrombolytic infusion and other products will depend on the availability and
level of reimbursement in international markets targeted by the Company.
Currently, the Company has been informed by its international distributors that
its Cragg-McNamara and Patency infusions catheters have been approved for
reimbursement in countries in which the Company markets such products. Obtaining
reimbursement approvals can require 12-18 months or longer. There can be no
assurance that the Company will obtain reimbursement in any country within a
particular time, for a particular amount, or at all. Failure to obtain such
approvals could have a material adverse effect on the Company's sales, business,
operating results and financial condition.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of its products will be required to obtain reimbursement.
Availability of reimbursement will depend on the clinical efficacy and cost of
the Company's products. There can be no assurance that reimbursement for the
Company's products will be available in the United States or in international
markets under either government or private reimbursement systems, or that
physicians will support and advocate reimbursement for use of the Company's
systems for all uses intended by the Company. Failure by physicians, hospitals
and other users of the Company's products to obtain sufficient reimbursement
from health care payors or adverse changes in government and private third-party
payors' policies toward reimbursement for procedures employing the
36
<PAGE> 38
Company's products would have a material adverse effect on the Company's
business, operating results and financial condition.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves an inherent risk of exposure to product
liability claims. The risk of such claims has increased in light of a U.S.
Supreme Court decision in 1996 concluding that the FDA regulatory framework does
not necessarily preempt personal injury actions against medical device
manufacturers. Although the Company has not experienced any product liability
claims to date, there can be no assurance that the Company will be able to avoid
significant product liability claims and potential related adverse publicity.
The Company maintains product liability insurance with coverage limits of $2
million per occurrence and an annual aggregate maximum of $2 million, which the
Company believes is comparable to that maintained by other companies of similar
size serving similar markets. However, there can be no assurance that product
liability claims will not exceed such insurance coverage limits, which could
have a material adverse effect on the Company, or that such insurance will
continue to be available on commercially reasonable terms, or at all.
FACILITIES
The Company occupies approximately 19,000 square feet in a multi-user
complex in San Clemente, California. The facility is subject to a lease which
expires in May 1997, with two one-year renewal options. The current monthly rent
is approximately $13,300. The Company believes that this space is adequate for
its immediate needs, and that it will be able to renew its lease or obtain
additional space if necessary.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information concerning the executive
officers, directors and key employees of the Company as of November 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ------------------------------------------------
<S> <C> <C>
George Wallace...................... 38 Chief Executive Officer, President, Director
Thomas Berryman..................... 41 Chief Financial Officer
George (Robert) Greene, Jr.......... 43 Vice President -- Research & Development
William M. McLain................... 46 Vice President -- Operations
Glenn Latham........................ 42 Vice President -- Sales
John L. Gehrich, Ph.D............... 60 Vice President -- Regulatory & Clinical Affairs
Karen L. Davis...................... 37 Director of Marketing
Martine Forissier................... 47 Director of International Operations
Helene Spencer...................... 49 Director of Quality and Compliance
H. DuBose Montgomery(2)............. 47 Chairman of the Board, Director
Dick Allen(1)(2).................... 52 Director
Wende Hutton(1)(2).................. 37 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Wallace is a founder of the Company and has served as President and
Chief Executive Officer since the Company's formation in June 1993. From 1989 to
1993, Mr. Wallace was with Applied Medical Resources (AMR) holding a number of
positions, the last of which was the General Manager of its Applied Vascular and
Applied Urology Divisions. AMR is a manufacturer of specialty surgical products
used in general, vascular and urologic surgery. From 1986 to 1989, Mr. Wallace
was Vice President of Marketing and Sales for Vaser, Inc., a laser angioplasty
company with peripheral and coronary laser angioplasty systems. From 1980 to
1986, Mr. Wallace held various positions in sales, sales management, marketing
and marketing management at Edwards Laboratories, a division of American
Hospital Supply and later Baxter International. Mr. Wallace holds a B.S. in
Marketing from Arizona State University.
Mr. Berryman initially served as a consultant to the Company beginning in
December 1993, and joined the Company as Chief Financial Officer on a full time
basis in January 1995. During 1994, Mr. Berryman served as Chief Financial
Officer of Oncotech, Inc., a biotechnology company focused on the oncology
market. From June 1988 to December 1993, Mr. Berryman was Chief Financial
Officer of Advanced Surgical Intervention, Inc., a medical device company
focused on the urology market. From March 1985 through June 1988, Mr. Berryman
was Chief Financial Officer of VLI Corporation, a publicly held manufacturer of
women's healthcare products. Mr. Berryman holds an M.B.A. from the University of
California, Irvine and a B.S. in Accounting from California State Polytechnic
University, Pomona. Mr. Berryman is a licensed CPA in the State of California.
Mr. Greene joined the Company in October 1995 as Vice
President -- Operations and became Vice President -- Research & Development in
September 1996. From January 1994 to September 1995, he served as Vice President
of Operations of Vesica Medical, Inc., a medical device company focused on
developing and manufacturing products for urological applications, with
responsibilities including research, development and manufacturing. From May
1987 to September 1993, Mr. Greene served as Vice President of Manufacturing at
Advanced Surgical Intervention, Inc., a medical device company focused on the
urology market. From May 1979 to May 1987, Mr. Greene served as Senior
Manufacturing Engineer for Shiley, Inc., a division of Pfizer, Inc. and
manufacturer of artificial heart valves. Mr. Greene holds a B.S. in Industrial
Technology from California State University, Long Beach.
38
<PAGE> 40
Mr. McLain joined the Company in September 1996 as Vice
President -- Operations. From January 1990 until joining the Company, Mr. McLain
held several positions at Applied Medical Resources, including Vice President of
Operations from January 1994 until January 1995, Director of Materials and
Planning, Director of Product Development for Laparoscopy and Director of
Process Development from January 1990 until January 1994. From 1976 to 1990, Mr.
McLain held various engineering and management positions with C.R. Bard,
American Hospital Supply, and Allergan, Inc. Mr. McLain holds an M.B.A. from
Pepperdine University and a B.S. in Physics from the University of Colorado.
Mr. Latham joined the Company in May 1995 as National Sales Manager and
became Vice President -- Sales in January 1996. From 1981 to 1995, Mr. Latham
held various sales and marketing positions with Cordis, Inc., a medical device
manufacturer, serving most recently as Sales Manager for its Cordis Endovascular
Systems subsidiary, specializing in the development and marketing of
interventional radiology and neuroradiology devices. From 1978 to 1981, Mr.
Latham held positions in market research and sales administration with Althin
Medical (formerly Cordis Dow Corporation), a manufacturer of hemodialysis
disposable products. Mr. Latham holds a B.S. in Chemistry and an M.B.A. in
Marketing from the University of Florida.
Mr. Gehrich joined the Company in December 1996 as Vice
President -- Regulatory & Clinical Affairs. From 1981 to 1996, Mr. Gehrich was
with Cardiovascular Devices, Inc. (CDI), a division of 3M Healthcare, holding a
number of positions, the last of which was Vice President, R&D and Scientific
and Regulatory Affairs. CDI, which Mr. Gehrich co-founded, is a manufacturer of
products for real time measurement of blood gases. From 1978 to 1981, Mr.
Gehrich was Manager, Product Evaluation and Planning for the Edwards
Laboratories division of American Hospital Supply, a manufacturer of
cardiovascular catheters and artificial heart valves. Mr. Gehrich holds a Ph.D.
in Electrical/Biomedical Engineering from the University of Southern California
(USC), an MSEE from USC, and BSEE from the University of Dayton.
Ms. Davis joined the Company in April 1995 as Marketing Manager and became
Director of Marketing in July 1995. From 1992 to 1994, Ms. Davis was Product
Director for Applied Medical Resources. From 1989 to 1992, Ms. Davis was a Vice
President in Corporate Finance for Needham & Company, Inc., an investment
banking firm based in New York City. From 1984 to 1988, Ms. Davis was an
Associate in Corporate Finance for Merrill Lynch Capital Markets. Ms. Davis
holds an M.B.A. from Stanford University and a B.A. in Mathematics from The
Colorado College, Colorado Springs.
Ms. Forissier joined the Company in August 1996, as a Director of
International Operations. From 1993 to 1996, Ms. Forissier served as
International Clinical Manager with Cyberonics, Inc., a manufacturer of a vagus
nerve stimulation devices for epilepsy patients. From 1990 to 1993, she was
Manager of Trade Marketing and Sales for Magneti Marelli Distribution, a
division of Group FIAT. From 1986 to 1990, Ms. Forissier was Area Sales Manager
with Valeo, a major supplier to Renault. From 1975 to 1986, she held various
positions in marketing management with Renault. Ms. Forissier holds a D.U. in
International Management from the University of Paris -- Val de Marne.
Ms. Spencer joined the Company in January 1996, as the Director of Quality
and Compliance. From 1993 to 1995, Ms. Spencer was the Director of Regulatory
Affairs and Quality Assurance for Vesica Medical, Inc., a medical device company
focused on developing and manufacturing products for urological applications,
which was acquired by Boston Scientific, Inc. From 1992 to 1993, she held the
same position at Pilot Cardiovascular Systems, Inc., a manufacturer of
angioplasty guidewires, which was acquired by C.R. Bard. Prior to 1992, Ms.
Spencer directed quality assurance and regulatory functions of start-up
companies, including Directed Energy, Inc. and Orange Medical Instruments, Inc.
Ms. Spencer holds a B.S. in Chemistry from the University of California at Santa
Barbara.
Mr. Montgomery has served as Chairman of the Board of the Company since
December 1993. Since 1976, Mr. Montgomery has been a general partner of Menlo
Ventures, a venture capital firm in Menlo Park, California. Mr. Montgomery is a
director of EndoVascular Technologies, Inc. and Infoseek Corporation, as well as
several private companies. Mr. Montgomery holds a B.S. in Electrical Engineering
and Management Science and an M.S. in Electrical Engineering from M.I.T. and an
M.B.A. from the Harvard University Graduate School of Business.
39
<PAGE> 41
Mr. Allen has been a director of the Company since June 1994. He is the
President of DIMA Ventures, Inc., a private investment firm providing seed
capital and board-level support for start-up companies in the healthcare field
which he founded in 1987. He was a founder of Caremark, Inc., a home infusion
therapy company, and served as a Vice President from its inception in 1979 until
1986. From 1968 to 1978, Mr. Allen held various management positions with Baxter
International. Mr. Allen also served as a Lecturer in Management at the Stanford
University Graduate School of Business from 1989 to 1992. He was a founder and
Director of Pyxis Corporation (recently acquired by Cardinal Health Inc.) and a
member of the boards of Hoag Memorial Hospital Presbyterian and several private
companies. Mr. Allen holds a B.S. from Yale University and an M.B.A. from
Stanford University Graduate School of Business.
Ms. Hutton has been a director of the Company since February 1995. From
July 1993 until March 1995, Ms. Hutton was a venture partner, and since March
1995 has been a general partner of Mayfield Fund VIII, a venture capital firm,
in Menlo Park, California. Since August 1993, Ms. Hutton has served as a
director of Heartstream where she served as Vice President of Marketing from
February 1993 until November 1993. From March 1991 to January 1993 she was
General Manager of the Transgenic Laboratory products division of GenPharm
International, Inc., a biotechnology company. From August 1986 to March 1991,
Ms. Hutton was employed by Nellcor, Inc., where she held various senior
positions in international marketing and business development. Ms. Hutton holds
a B.A. in Human Biology from Stanford University and an M.B.A. from Harvard
University Graduate School of Business.
OTHER KEY ADVISORS
Ms. Linda D'Abate joined the Company in August 1994 as Vice
President -- Regulatory & Clinical Affairs. Starting in January 1997, Ms.
D'Abate became a consultant for the Company, focusing her efforts on regulatory
and clinical support for the Liquid Embolic System.
Richard Greff, Ph.D. began consulting for the Company in August 1994. Dr.
Greff has focused on the development and clinical evaluation of the Company's
Liquid Embolic System.
Jay Lenker, Ph.D. began consulting for the Company in August 1996. Dr.
Lenker has focused on the development and clinical evaluation of the Company's
carotid and intracerebral stent technology.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued for services rendered to the Company in all capacities during
the year ended December 31, 1996, to the Company's Chief Executive Officer, and
the Company's other most highly compensated executive officers whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------------
----------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION(1)
- -------------------------------------------- -------- ------ --------------------- ---------------
<S> <C> <C> <C> <C>
George Wallace.............................. $159,000 $ -- -- $ --
Chief Executive Officer and President
Thomas Berryman............................. 113,250 -- 9,750 --
Chief Financial Officer
Robert Greene, Jr........................... 107,333 -- 3,250 --
Vice President -- Research & Development
Glenn Latham................................ 100,875 7,025(2) 22,750 50,855(3)
Vice President -- Sales
</TABLE>
- ---------------
(1) Does not reflect certain personal benefits, which in the aggregate are less
than 10% of each Named Executive Officer's salary and bonus.
(2) Performance bonus based upon achieving certain revenue amounts.
(3) Consists of an automobile allowance of $6,000 and a moving expense
reimbursement of $44,855 to reimburse Mr. Latham for his expenses incurred
in moving from Florida to Southern California.
40
<PAGE> 42
OPTION GRANTS TABLE
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in fiscal year 1996 to the
Named Executive Officers.
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED (#)(1) FISCAL YEAR(%)(2) ($ PER SHARE) EXPIRATION DATE
- ------------------------------------ -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
George Wallace...................... -- -- -- --
Thomas Berryman..................... 9,750 2.9 1.54 5/23/02
Robert Greene, Jr................... 3,250 1.0 1.54 5/23/02
Glenn Latham........................ 22,750 6.7 1.87 1/01/02 - 10/09/02
</TABLE>
- ---------------
(1) One quarter of the options vest on the first anniversary of the date of
grant and the remainder vest in equal quarterly installments over the next
three succeeding years.
(2) Options to purchase an aggregate of 340,925 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1996.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
None of the Named Executive Officers exercised any options to purchase
shares of the Company's Common Stock during fiscal year 1996. The following
table sets forth certain information regarding options held at December 31, 1996
by the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Wallace............................. 9,750 16,250 $ 112,500 $ 187,500
Thomas Berryman............................ 25,148 39,202 290,169 441,832
Robert Greene, Jr.......................... 10,563 34,937 121,881 399,619
Glenn Latham............................... 10,157 28,843 117,199 300,801
</TABLE>
- ---------------
(1) Calculated by determining the difference between an assumed initial public
offering price of $12.00 per share and the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with any of its
executive officers or key employees.
INCENTIVE STOCK PLANS
1993 Stock Option Plan
The Company's 1993 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "Plan") was adopted by the Company's
stockholders and Board of Directors as of December 1993 and provides for the
granting of "incentive stock options," within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
options. The Plan authorized for issuance up to 650,000 shares of the Company's
Common Stock. Under the Plan, shares of the Company's Common Stock may be
granted to directors, officers, employees and consultants of the Company, except
that incentive stock options may not be granted to non-employee directors or
consultants. The Plan is administered by the Compensation Committee, which has
sole discretion and authority, consistent with the provisions of the Plan,
41
<PAGE> 43
to determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the Plan. As of February 6, 1997,
there were 568,750 options outstanding under the Plan at a weighted average
exercise price of $1.33.
The exercise price of incentive stock options must be not less than the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the outstanding Common
Stock). Nonstatutory options shall have such exercise price as determined by the
Board. The Board of Directors has the authority to determine the time or times
at which options granted under the Plan become exercisable, provided that
options expire no later than ten years from the date of grant (five years with
respect to optionees who own at least 10% of the outstanding Common Stock).
Options are nontransferable, other than upon death by will and the laws of
descent and distribution, and generally may be exercised only by an employee
while employed by the Company or within 90 days after termination of employment
(one year for termination resulting from death or disability).
1996 Stock Incentive Plan
The Company adopted the 1996 Stock Incentive Plan (the "1996 Plan") in July
1996. The 1996 Plan provides for the granting of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonstatutory options. The 1996 Plan provides for
options to purchase shares of the Company's Common Stock and restricted stock
grants covering an aggregate of 600,000 shares of the Company's Common Stock
which may be granted to directors, officers, employees and consultants of the
Company, except that incentive stock options may not be granted to non-employee
directors or consultants. In addition, the 1996 Plan provides each non-employee
director of the Company who is initially elected as a director during the term
of the Director Plan shall be granted an option consisting of 8,000 shares of
Common Stock, which option shall vest and become exercisable at the rate of 25%
immediately and 25% on each anniversary of such director's initial election
during the three-year period following the grant date. In addition, upon
reelection as a director for each year of such non-employee director's term of
office such non-employee director shall receive an additional option covering
2,000 shares of Common Stock, with the same vesting schedule, subject to the
limitations set forth in the 1996 Plan. The existing non-employee directors
shall be granted options under the 1996 Plan as of the date hereof at the price
of the Offering. The purpose of the 1996 Plan is to provide participants with
incentives which will encourage them to acquire a proprietary interest in, and
continue to provide services to, the Company. The 1996 Plan is administered by
the Compensation Committee, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine which eligible participants
will receive options, the time when options will be granted, the terms of
options granted and the number of shares which will be subject to options
granted under the 1996 Plan. As of February 6, 1997, there were 135,850 options
outstanding under the 1996 Plan at a weighted average exercise price of $6.51
per share.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors as of July 1996 and approved by the Company's
stockholders as of July 1996, covering an aggregate of 100,000 shares of Common
Stock. The Purchase Plan, which is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code, will be
implemented by six-month offerings with purchases occurring at six month
intervals commencing on the date of this Prospectus. The Purchase Plan will be
administered by the Board of Directors of the Company. Employees will be
eligible to participate if they are employed by the Company for at least 20
hours per week and if they have been employed by the Company for at least 90
days. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's
compensation. The price of stock purchased under the Purchase Plan will be 85%
of the lower of the fair market value of the Common Stock at the beginning of
the six-month offering period or on the applicable purchase date. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment. The Board may
at any time amend or terminate the Purchase Plan, except that no
42
<PAGE> 44
such amendment or termination may adversely affect options previously granted
under the Purchase Plan. The Purchase Plan will in all events terminate ten
years after its effective date.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. Prior to the closing of
this Offering, the Company will continue to maintain its $1 million director and
officer liability insurance policy and expects to have in place following this
Offering liability insurance coverage for its directors and officers in the
amount of $5 million.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company has entered into separate indemnification agreements with its
directors and officers. These agreements require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from actions not taken in good faith or in a manner the indemnitee
believed to be opposed to the best interests of the Company) to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified and to obtain directors' insurance if available on
reasonable terms. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. The Company
believes that its Certificate of Incorporation and Bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
43
<PAGE> 45
CERTAIN TRANSACTIONS
Pursuant to the terms of a Consulting Agreement dated June 1, 1993, as
replaced by a Consulting Agreement dated October 1, 1996, and a License
Agreement dated June 1, 1993, the Company has paid fees and royalties to Andrew
Cragg, M.D., a stockholder of the Company, totaling $135,500 and $10,853,
respectively, for the period from October 1, 1994 through September 30, 1996.
Pursuant to the terms of the current Consulting Agreement, Dr. Cragg will
consult with the Company for a period of two years on an exclusive basis with
respect to the development of less invasive, percutaneous catheters used to
dissolve, disrupt or remove blood clots from the human body and to treat
cerebral aneurysms, and, on a nonexclusive basis, with respect to the
development of less invasive, percutaneous catheters used to diagnose and treat
disorders of the circulatory system. Under the Consulting Agreement, the Company
pays Dr. Cragg $7,000 per month for services provided plus a royalty for
products developed under the Consulting Agreement equal to 1% of net sales of
certain products of the Company that bear his name and 1.5% of net sales of the
Company's products that are primarily based upon an issued U.S. patent for which
Dr. Cragg was the inventor. Dr. Cragg's Consulting Agreement may be terminated
by either party at any time upon written notice. Under the License Agreement,
the Company pays Dr. Cragg a royalty equal to 1% of net sales of any product
utilizing the Cragg MicroValve.
On February 9, 1995, the Company entered into a Series B Stock Purchase
Agreement with Menlo Ventures VI, L.P. ("Menlo VI"), which is a principal
stockholder of the Company, together with other investors, pursuant to which the
Company issued 465,741 shares of Series B Preferred Stock to Menlo VI for $4.23
per share. H. DuBose Montgomery, a director of the Company, is the general
partner of the general partner of Menlo VI.
On May 17, 1996, the Company entered into a Series C Stock Purchase
Agreement with Menlo VI and Mayfield VII both of which are principal
stockholders of the Company, together with other investors, pursuant to which
the Company issued 224,315 and 155,350 shares of Series C Preferred Stock to
Menlo VI and Mayfield VII, respectively, for $6.46 per share.
Certain holders of shares of Common Stock of the Company, including Common
Stock issued upon conversion of the Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
The Company has granted options to certain of its directors and executive
officers. See "Management -- Option Grants Table" and "Principal Stockholders."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could otherwise be obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors on the Board of
Directors.
44
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1996
(assuming conversion of all outstanding shares of convertible preferred stock),
and as adjusted to give effect to the sale by the Company of the shares of
Common Stock offered hereby, by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially 5% or more of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Menlo Ventures VI, L.P............................. 1,674,209 36.7% 1,674,209 25.5%
Menlo Entrepreneurs Fund VI, L.P.(3)
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
Mayfield VII....................................... 864,441 19.0 864,441 13.2
Mayfield Associates Fund II(4)
2800 Sand Hill Road
Suite 250
Menlo Park, California 94025
The CIT Group/Venture Capital, Inc.(5)............. 309,725 6.8 309,725 4.7
650 CIT Drive
Livingston, New Jersey 07039-5795
Kingsbury Capital Partners II, L.P.(6)............. 309,725 6.8 309,725 4.7
3655 Nobel Drive
Suite 490
San Diego, California 92122
H. DuBose Montgomery(7)............................ 1,674,209 36.7 1,674,209 25.5
c/o Menlo Ventures
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
George Wallace(8).................................. 307,666 6.7 307,666 4.7
Andrew Cragg....................................... 297,916 6.5 297,916 4.5
Getz Bros. Co. Ltd.(9)............................. 253,500 5.6 253,500 3.9
Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
Dick Allen(10)..................................... 44,262 1.0 44,262 *
Wende Hutton(11)................................... -- -- -- --
Thomas Berryman(12)................................ 28,194 * 28,194 *
Robert Greene, Jr.(13)............................. 13,203 * 13,203 *
Glenn Latham(14)................................... 10,157 * 10,157 *
All executive officers and directors as a group (12
persons)(15)..................................... 2,958,003 63.7 2,958,003 44.5
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address for each of the indicated owners is
1062 Calle Negocio #F, San Clemente, California 92673.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
45
<PAGE> 47
(3) Includes (i) 1,649,467 shares owned by Menlo Ventures VI, L.P. and (ii)
24,742 shares owned by Menlo Entrepreneurs Fund VI, L.P.
(4) Includes (i) 821,187 shares owned by Mayfield VII and (ii) 43,254 shares
owned by Mayfield Associates Fund II. A. Grant Heidrich is a General
Partner of Mayfield VII Management Partners, the General Partner of
Mayfield VII and, accordingly, may be deemed to beneficially own such
shares. Mr. Heidrich disclaims beneficial ownership of the shares owned by
Mayfield VII, except to the extent of his pecuniary interest therein.
(5) All of the outstanding shares of capital stock of The CIT Group/Venture
Capital, Inc. are owned by The CIT Group/Equity Investments, Inc., the
beneficial owner of which is CIT Group Holdings, Inc. The outstanding
capital stock of CIT Group Holdings, Inc. is beneficially owned by The
Dai-Ichai Kangyo Bank, Ltd. and a holding Company for the Chase Manhattan
Corporation. None of their respective officers or directors are affiliated
with the Company.
(6) Timothy P. Wollaeger is the General Partner of Kingsbury Associates, L.P.,
the General Partner of Kingsbury Capital Partners II, L.P., and,
accordingly, may be deemed to beneficially own such shares. Mr. Wollaeger
disclaims beneficial ownership of the shares owned by Kingsbury Capital
Partners II, L.P., except to the extent of his pecuniary interest therein.
(7) Includes shares described in Note (3) above. Mr. Montgomery is the general
partner of MV Management VI, L.P., the general partner of both Menlo
Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P. and accordingly,
may be deemed to beneficially own such shares. Mr. Montgomery disclaims
beneficial ownership of the shares owned by Menlo Ventures VI, L.P. and
Menlo Entrepreneurs Fund VI, L.P. except to the extent of his pecuniary
interest therein.
(8) Includes 9,750 shares subject to options exercisable within 60 days of
November 30, 1996.
(9) Getz Bros. Co. Ltd. is a publicly held Japanese corporation. None of its
officers or directors are affiliated with the Company.
(10) Includes 10,462 shares subject to options exercisable within 60 days of
November 30, 1996. Also includes 7,800 shares owned by The Allen Investment
Partnership, of which Mr. Allen is the managing partner and 26,000 shares
owned by DIMA Ventures, Incorporated. Mr. Allen disclaims beneficial
ownership of the shares owned by The Allen Investment Partnership, except
to the extent of his pecuniary interest therein.
(11) Ms. Hutton is a general partner in Mayfield VIII, but is not a general
partner of either Mayfield VII nor Mayfield Associates Fund II.
(12) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(13) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(14) Consists of shares subject to options exercisable within 60 days of
November 30, 1996.
(15) Includes directors' and executive officers' shares listed above, including
87,637 shares subject to options exercisable within 60 days of November 30,
1996 and includes the shares described in Notes (3) and (4) above.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of common stock, $0.001 par value ("Common Stock"), and 5,000,000 shares of
preferred stock, $0.001 par value ("Preferred Stock").
COMMON STOCK
As of February 6, 1997, assuming conversion of all outstanding Preferred
Stock, there were 4,558,633 shares of Common Stock outstanding, which was held
of record by 49 stockholders. Following the sale of the shares of Common Stock
offered by the Company hereby, there will be 6,558,633 shares of Common Stock
outstanding.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred
46
<PAGE> 48
Stock, if any, the holders of Common Stock are entitled to receive such lawful
dividends as may be declared by the Board of Directors. In the event of
liquidation, dissolution or winding up of the Company, and subject to the rights
of the holders of outstanding shares of Preferred Stock, if any outstanding, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and shares of Common Stock to be issued pursuant to this Offering
shall be fully paid and nonassessable.
PREFERRED STOCK
Effective prior to the closing of this Offering, each issued and
outstanding share of Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock will be converted into
shares of Common Stock of the Company at prices of $1.38, $1.85, $4.23 and $6.46
per share, respectively, and no shares of Preferred Stock will be outstanding.
Upon the closing of this Offering, the Board of Directors will have the
authority, without further action by the stockholders, to issue the authorized
shares of Preferred Stock in one or more series and to fix the rights,
preferences and privileges thereof, including voting rights, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Although it presently has no intention to do so,
the Board of Directors, without stockholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company. See
"Risk Factors -- Anti-Takeover Provisions."
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investors' Rights Agreement, subject
to the terms and conditions therein, and upon expiration of lock-up agreements
with the Underwriters, persons who are the holders of the aggregate of 4,493,744
outstanding shares of Common Stock, including 3,612,664 shares of Common Stock
issuable upon conversion of all outstanding shares of convertible Preferred
Stock, are entitled to certain rights, including demand registration rights and
piggyback rights, with respect to the registration of such shares.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless either
(i) prior to the date at which the person becomes an interested stockholder, the
board of directors approves such transaction or business combination, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to such interested stockholder. For
purposes of Section 203, "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation in Glendale, California.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. As described
below, no shares will be available for sale shortly after this Offering (other
than shares sold in this Offering) because of certain contractual restrictions
on resale. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this Offering, the Company will have outstanding
6,558,633 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options granted under the
Company's stock option plans. Of these shares, the 2,000,000 shares sold in this
Offering will be available for immediate sale in the public market without
restriction under the Securities Act of 1933 (the "Securities Act"), unless
purchased by "affiliates" of the Company as the term is defined in Rule 144
under the Securities Act.
The remaining 4,558,633 shares held by existing stockholders will be
restricted securities as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act,
which are summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.
Nearly all of the Restricted Shares are also subject to lock-up agreements
under which the holders of such shares have agreed not to sell, directly or
indirectly, any shares owned by them for 180 days after the date of this
Prospectus without the prior written consent of UBS Securities LLC. As a result
of these contractual restrictions, notwithstanding possible earlier eligibility
for sale under the provisions of Rule 701, shares subject to lock-up agreements
will not be saleable until the agreements expire. Upon expiration of the 180-day
lock-up period, 63,051 shares of Common Stock will be eligible for sale pursuant
to Rule 701, and an additional 3,236,505 shares will be eligible for sale under
Rule 144. The remaining 1,256,906 shares held by existing stockholders will
become eligible for public resale at various times over a period of less than
two years following the completion of this Offering, subject in some cases to
vesting provisions and volume limitations. In addition, as of February 6, 1997,
options to purchase an aggregate of 704,600 shares of Common Stock were
outstanding under the Company's option plans, substantially all of which are
subject to the 180-day lock-up described above. Upon expiration of the lock-up,
approximately 300,000 shares subject to such options will be vested.
In general, Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years (including the holding period of any prior owner except an affiliate)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the numbers of shares of
Common Stock then outstanding (approximately 65,586 shares immediately after
this Offering), or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
48
<PAGE> 50
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts 90 days after the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144, but without compliance with certain
restrictions including the holding period requirements contained in Rule 144.
Shortly after this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Company's stock plans. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such shares are subject to vesting restrictions with the Company or the
lock-up agreements described above.
49
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Volpe, Welty & Company are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------- ---------
<S> <C>
UBS Securities LLC............................................
Volpe, Welty & Company........................................
---------
Total............................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriter's obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own an aggregate of 4,455,457 shares of Common
Stock outstanding prior to this Offering have agreed that they will not, without
the prior written consent of UBS Securities LLC, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them for a period of 180 days after the effective date of this
Offering. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock for a period
of 180 days after the date of this Prospectus, except that the Company may grant
additional options under its stock option plans, or issue shares upon the
exercise of outstanding stock options.
50
<PAGE> 52
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Certain persons and entities associated with UBS Securities LLC and Volpe,
Welty & Company purchased equity securities of the Company in May 1996 and July
1993, respectively.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price was negotiated among the
Company and the Representatives. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market and economic conditions, were certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present stage of the Company's development, and the above factors
in relation to market values and various measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "MTIX."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, Newport Beach,
California. Bruce Feuchter, a shareholder of Stradling, Yocca, Carlson & Rauth,
is the Corporate Secretary of the Company and beneficially owns 10,835 shares of
the Company's Common Stock. Certain legal matters will be passed upon for the
Underwriters by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
The balance sheets as of December 31, 1994 and 1995, and the statements of
operations, stockholders' equity and cash flows for the period from inception
(June 11, 1993) through December 31, 1993, and for the years ended December 31,
1994 and 1995, included in this Prospectus have been so included in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
In September 1995, the Board of Directors appointed Coopers & Lybrand
L.L.P. as the Company's auditors, replacing Ernst & Young LLP, who were
dismissed.
There were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, auditing
scope or procedure or any reportable event. Ernst & Young LLP's reports on the
financial statements for the fiscal years ending March 31, 1994 and 1995,
respectively, contained no adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology,"
"Business -- Patents and Proprietary Rights" and other references herein to
intellectual property of the Company have been reviewed and approved by the
Company's patent counsel who are Breimayer Law Office, Minneapolis, Minnesota;
Burns, Doane, Swecker & Mathis, Menlo Park, California; and Crockett & Fish, Los
Angeles, California, as experts on such matters, and are included herein in
reliance upon that review and approval.
51
<PAGE> 53
REPORTS TO SECURITY HOLDERS
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its stockholders with annual reports containing audited financial
statements certified by its independent public accountants and quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of all or any part of
the Registration Statement may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon the
payment of the fees prescribed by the Commission. Such materials, including
reports, proxy and information statements and other information, may be obtained
electronically by visiting the Commission's Web site on the internet at
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
52
<PAGE> 54
MICRO THERAPEUTICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets At December 31, 1994 And 1995, And At September 30, 1996 (Unaudited).... F-3
Statements Of Operations For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-4
Statements Of Stockholders' Equity For The Period From Inception (June 11, 1993)
Through December 31, 1993 And for The Years Ended December 31, 1994 And 1995, And For
The Nine Months Ended September 30, 1996 (Unaudited)................................. F-5
Statements Of Cash Flows For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-6
Notes To Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Micro Therapeutics, Inc.
We have audited the accompanying balance sheets of Micro Therapeutics, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from inception (June 11,
1993) through December 31, 1993 and for the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Micro Therapeutics, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from inception (June 11, 1993) through December 31, 1993 and for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 2, 1996
F-2
<PAGE> 56
MICRO THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 457,414 $ 2,417,644 $ 2,347,751
Short-term investments......................... -- -- 3,717,316
Accounts receivable............................ 11,618 76,608 191,643
Inventories.................................... 59,645 165,026 393,190
Prepaid expenses and other current assets...... 21,888 41,708 131,145
----------- ----------- -----------
Total current assets................... 550,565 2,700,986 6,781,045
Property and equipment, net...................... 91,489 345,034 669,491
Patents and licenses, net of accumulated
amortization of $2,067, $3,553 and $13,906 as
of December 31, 1994, 1995 and September 30,
1996, respectively............................. 43,316 152,164 218,844
Other assets..................................... 9,501 22,793 162,411
----------- ----------- -----------
Total assets........................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment line of credit.... $ -- $ -- $ 39,163
Accounts payable............................... 148,608 248,891 362,080
Accrued salaries and benefits.................. 25,212 78,401 130,665
Accrued liabilities............................ 5,043 15,644 36,890
----------- ----------- -----------
Total current liabilities.............. 178,863 342,936 568,798
Equipment line of credit......................... -- -- 152,011
----------- ----------- -----------
Total liabilities...................... 178,863 342,936 720,809
----------- ----------- -----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Convertible preferred stock, no par value
($0.001 par value pro forma), 1,126,667,
2,355,758, 3,663,395 and 5,000,000 shares
authorized at December 31, 1994, 1995,
September 30, 1996 and pro forma,
respectively; 1,126,667, 2,355,758 and
3,612,664 shares issued and outstanding as
of December 31, 1994, 1995 and September 30,
1996, respectively, no shares pro forma..... 1,795,066 6,962,415 15,034,497
Common stock, no par value ($0.001 par value
pro forma), 6,500,000 shares authorized,
20,000,000 shares authorized pro forma;
945,747, 883,997 and 890,823 shares issued
and outstanding as of December 31, 1994,
1995 and September 30, 1996, respectively,
4,503,487 shares pro forma.................. 137,500 145,700 634,550 $ 4,503
Additional paid-in capital..................... -- -- -- 15,664,544
Unearned compensation.......................... -- (6,518) (413,285) (413,285)
Accumulated deficit............................ (1,416,558) (4,223,556) (8,144,780) (8,144,780)
----------- ----------- ----------- -----------
Total stockholders' equity............. 516,008 2,878,041 7,110,982 $ 7,110,982
===========
----------- ----------- -----------
Total liabilities and stockholders'
equity............................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 57
MICRO THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE NINE
(JUNE 11, 1993) FOR THE YEARS ENDED MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
--------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................... 26,978 316,404 161,261 1,115,658
--------- --------- --------- ---------
Gross profit (loss)... (749) (24,102) (26,177) (146,668)
Costs and expenses:
General and administrative.... $ 23,782 336,831 597,368 423,527 803,100
Research and development...... 90,421 647,424 1,147,403 733,567 1,201,133
Regulatory/quality
assurance.................. 2,000 121,364 337,968 213,617 388,023
Marketing and sales........... -- 209,986 901,735 505,249 1,500,013
--------- --------- --------- --------- ---------
Total costs and
expenses............ 116,203 1,315,605 2,984,474 1,875,960 3,892,269
--------- --------- --------- --------- ---------
Loss from
operations.......... (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Other income (expense):
Interest income............... 209 17,390 202,378 161,327 134,323
Interest expense.............. -- -- -- -- (9,779)
Other......................... -- -- -- -- (6,031)
--------- --------- --------- --------- ---------
209 17,390 202,378 161,327 118,513
--------- --------- --------- --------- ---------
Loss before provision
for income taxes.... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Provision for income taxes...... 800 800 800 -- 800
--------- --------- --------- --------- ---------
Net loss.............. $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= ========= ========= ========= =========
Pro forma net loss.............. $(2,806,998) $(3,921,224)
========= =========
Pro forma net loss per share.... $ (0.59) $ (0.83)
========= =========
Pro forma weighted average
shares outstanding............ 4,743,000 4,732,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 58
MICRO THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
----------------------- ------------------ UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY
--------- ----------- ------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 11, 1993
(inception).......................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash...... -- -- 650,000 1,000 -- -- 1,000
Issuance of common stock for cash...... -- -- 295,747 136,500 -- -- 136,500
Issuance of Series A-1 convertible
preferred stock (net of costs of
$25,624)............................. 541,667 724,376 -- -- -- -- 724,376
Net loss............................... -- -- -- -- -- (116,794) (116,794)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1993.......... 541,667 724,376 945,747 137,500 -- (116,794) 745,082
Issuance of Series A-2 convertible
preferred stock (net of costs of
$9,310).............................. 585,000 1,070,690 -- -- -- -- 1,070,690
Net loss............................... -- -- -- -- -- (1,299,764) (1,299,764)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1994.......... 1,126,667 1,795,066 945,747 137,500 -- (1,416,558) 516,008
Issuance of Series B convertible
preferred stock (net of costs of
$32,651)............................. 1,229,091 5,167,349 -- -- -- -- 5,167,349
Repurchase of common stock............. -- -- (65,000) (100) -- -- (100)
Exercise of stock options.............. -- -- 3,250 1,500 -- -- 1,500
Unearned compensation related to stock
options granted...................... -- -- -- 6,800 (6,800) -- --
Compensation related to stock options
vesting.............................. -- -- -- -- 282 -- 282
Net loss............................... -- -- -- -- -- (2,806,998) (2,806,998)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1995.......... 2,355,758 6,962,415 883,997 145,700 (6,518) (4,223,556) 2,878,041
Issuance of Series C convertible
preferred stock (net of costs of
$49,458) (unaudited)................. 1,256,906 8,072,082 -- -- -- -- 8,072,082
Exercise of stock options
(unaudited).......................... -- -- 6,826 3,150 -- -- 3,150
Unearned compensation related to stock
options granted (unaudited).......... -- -- -- 485,700 (485,700) -- --
Compensation related to stock options
vesting (unaudited).................. -- -- -- -- 78,933 -- 78,933
Net loss (unaudited)................... -- -- -- -- -- (3,921,224) (3,921,224)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at September 30, 1996
(unaudited).......................... 3,612,664 $15,034,497 890,823 $634,550 $(413,285) $(8,144,780) $ 7,110,982
========= =========== ======= ======== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 59
MICRO THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE NINE
FROM INCEPTION FOR THE YEARS ENDED MONTHS ENDED
(JUNE 11, 1993) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization................. -- 15,749 72,496 42,628 144,156
Compensation related to stock options
vesting..................................... -- -- 282 -- 78,933
Change in operating assets and liabilities:
Accounts receivable......................... -- (11,618) (64,990) (24,336) (115,036)
Inventories................................. -- (59,645) (105,381) (45,475) (228,164)
Prepaid expenses and other assets........... -- (31,388) (33,112) (45,576) (98,933)
Accounts payable............................ -- 148,608 100,283 (1,683) 44,211
Accrued salaries and benefits............... -- 25,212 53,189 21,958 52,265
Accrued liabilities......................... 800 4,243 10,601 10,812 21,246
---------- ----------- ----------- ----------- -----------
Net cash used in operating activities.... (115,994) (1,208,603) (2,773,630) (1,782,482) (4,022,546)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments.............. -- -- (1,955,688) (1,955,688) (3,717,316)
Sale of short-term investments.................. -- -- 1,955,688 1,955,688 --
Additions to property and equipment............. (860) (102,244) (322,850) (155,691) (458,249)
Additions to patents and licenses............... (8,487) (38,963) (112,039) (72,950) (77,044)
---------- ----------- ----------- ----------- -----------
Net cash used in investing activities.... (9,347) (141,207) (434,889) (228,641) (4,252,609)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Receivable from stockholder..................... (10,000) 10,000 -- -- --
Proceeds from issuance of common stock.......... 137,500 -- -- -- --
Proceeds from issuance of preferred stock....... 750,000 1,080,000 5,200,000 5,200,000 8,121,540
Costs of equity issuances....................... -- (34,935) (32,651) (32,651) (49,458)
Payment of deferred offering costs.............. -- -- -- -- (61,143)
Proceeds from exercise of stock options......... -- -- 1,500 1,500 3,150
Repurchase of common stock...................... -- -- (100) (100) --
Borrowings on equipment line of credit.......... -- -- -- -- 206,343
Repayments on equipment line of credit.......... -- -- -- -- (15,170)
---------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 877,500 1,055,065 5,168,749 5,168,749 8,205,262
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 752,159 (294,745) 1,960,230 3,157,626 (69,893)
Cash and cash equivalents at beginning of
period.......................................... -- 752,159 457,414 457,414 2,417,644
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period........ $ 752,159 $ 457,414 $ 2,417,644 $ 3,615,040 $ 2,347,751
========== =========== =========== =========== ===========
Supplemental cash flow disclosures:
Cash paid during the period for interest........ $ -- $ -- $ -- $ -- $ 9,779
========== =========== =========== =========== ===========
Cash paid during the period for income taxes.... $ -- $ 1,600 $ 800 $ -- $ 800
========== =========== =========== =========== ===========
Supplemental schedule of noncash activities:
Deferred equity issuance costs.................. $ 25,624 $ -- $ -- $ -- $ --
Deferred offering costs......................... -- -- -- -- 68,978
Unearned compensation related to stock options
granted....................................... -- -- 6,800 -- 485,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 60
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated on June
11, 1993 to develop, manufacture and market minimally invasive medical devices
to diagnose and treat vascular diseases. The Company's activities to date have
been primarily research and development and financing. The Company believes that
it has adequate resources to fund operations in the normal course of business
for the next fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash and cash equivalents approximates market value.
Short-Term Investments
Short-term investments are administered by an outside firm and consist of
United States government treasury bills with acquired maturities of greater than
three months. The carrying amount of short-term investments is at cost, which
approximates market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property And Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Maintenance and repairs are expensed as incurred while
renewals or betterments are capitalized. Upon sale or disposition of assets, any
gain or loss is included in the statement of operations.
The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are generally not greater than five years. Leasehold improvements are
amortized over the lesser of the estimated useful lives of the assets or the
related lease terms.
Patents And Licenses
Costs incurred to obtain patents and licenses are capitalized. All amounts
assigned to these patents and licenses are amortized on a straight-line basis
over an estimated five-year useful life from date of issue or acquisition. The
Company continually evaluates the amortization period and carrying basis of
patents and licenses to determine whether later events and circumstances warrant
a revised estimated useful life or reduction in value.
Research And Development
The Company's research and development costs are expensed as incurred.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
The Company's products are generally under warranty against defects in material
and workmanship for a period of one year.
F-7
<PAGE> 61
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed by dividing pro forma net
loss by the pro forma weighted average number of common shares and certain
common equivalent shares, as described below, outstanding during the period.
Weighted average common shares and common equivalent shares include common
shares and common shares issuable upon conversion of all outstanding shares of
the Company's preferred stock. Additionally, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 4-D, stock options and warrants
granted during the twelve months prior to the date of the initial filing of the
Company's proposed public offering, at prices less than the per share initial
public offering price, have been included in the calculation of common
equivalent shares using the treasury stock method as if they were outstanding as
of the beginning of the period. Historical net loss per share is not presented
as it is not indicative of the ongoing entity.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair value of the
stock option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period.
A company may elect to adopt SFAS No. 123 or elect to continue accounting
for its stock option or similar equity awards using the intrinsic method, where
compensation costs are measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise price. If a company
elects not to adopt SFAS No. 123, then it must provide pro forma disclosure of
net income and earnings per share, as if the fair value based method had been
applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the intrinsic method must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994. The
F-8
<PAGE> 62
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company currently continues to account for stock-based compensation plans under
the intrinsic method and is evaluating the impact of adopting SFAS No. 123.
Reverse Stock Split
In December 1996, the Board of Directors authorized a 0.65 to 1.0 reverse
stock split of all outstanding common stock, preferred stock and common stock
options and warrants. All share and per share amounts have been adjusted to give
retroactive effect to the reverse stock split for all periods presented.
Unaudited Interim Financial Information
The financial information at September 30, 1996 and for the nine-month
periods ended September 30, 1995 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results of the
September 30, 1996 period are not necessarily indicative of the results for the
entire year.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash........................................... $457,414 $ 244,499 $ 1,657,196
Cash equivalents............................... -- 2,173,145 690,555
-------- ---------- -----------
$457,414 $2,417,644 $ 2,347,751
======== ========== ===========
</TABLE>
Cash equivalents consist of United States government treasury bills and
commercial paper.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and work-in-process................. $ 8,594 $ 57,423 $ 209,955
Finished goods.................................... 51,051 107,603 183,235
------- -------- ---------
$59,645 $165,026 $ 393,190
======= ======== =========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $ 50,319 $223,976 $ 431,871
Tooling.......................................... 14,255 11,718 14,493
Furniture and fixtures........................... 25,031 70,241 121,554
Leasehold improvements........................... 10,963 89,832 254,466
Construction-in-progress......................... 2,536 30,189 61,819
-------- -------- ----------
103,104 425,956 884,203
Less, Accumulated depreciation and
amortization......................... (11,615) (80,922) (214,712)
-------- -------- ----------
$ 91,489 $345,034 $ 669,491
======== ======== ==========
</TABLE>
F-9
<PAGE> 63
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. EQUIPMENT LINE OF CREDIT
On December 20, 1995, the Company entered into an equipment line of credit
to finance qualified equipment purchases through December 15, 1996 up to a
maximum amount of $400,000, at an implicit interest rate of 14.23%. Outstanding
amounts are collateralized by the assets financed. The amounts outstanding at
December 15, 1996 will be due in 48 monthly installments to expire on December
20, 2000. The agreement contains a provision to extend these terms of payment
for an additional year. There were no outstanding balances under this equipment
line of credit as of December 31, 1995, and a total of $191,174 was outstanding
at September 30, 1996 (unaudited).
In connection with this equipment line of credit, the Company issued a
warrant to the lessor to purchase up to 7,638 shares of the Company's Series B
preferred stock at a price of $4.23 per share. This warrant is convertible into
a warrant for common stock in the event that the remaining outstanding preferred
stock is converted to common stock. This warrant is exercisable for a period of:
(a) ten years, or (b) five years from the effective date of an initial public
offering, whichever is longer.
7. PREFERRED STOCK
At December 31, 1995, the Company had authorized 2,355,758 shares of
preferred stock with no par value which may be issued in one or more series and
were designated as 541,667 shares of Series A-1, 585,000 shares of Series A-2
and 1,229,091 shares of Series B (collectively, "convertible preferred stock").
Under a stock purchase agreement entered into in December 1993, 541,667 shares
of Series A-1 convertible preferred stock were sold in December 1993 for net
cash proceeds of $724,376 and 585,000 shares of Series A-2 convertible preferred
stock were sold in July 1994 for net cash proceeds of $1,070,690. Under a stock
purchase agreement entered into in February 1995, 1,229,091 shares of Series B
convertible preferred stock were sold in February 1995 for net proceeds of
$5,167,349.
In April 1996, the Company increased the total authorized shares of
preferred stock to 3,663,395 with the increase allocated to a total of 1,236,728
shares of Series B and 1,300,000 shares of Series C (see Note 15).
Shares of convertible preferred stock are convertible at the holder's
option into shares of common stock on a share-for-share basis. The conversion
ratio may be adjusted from time to time in the event of certain subsequent sales
of common stock, grants of stock options, stock splits, stock dividends or other
distributions of common stock. Conversion is automatic in the event of a public
offering of the Company's common stock meeting certain specified criteria.
Dividends are noncumulative, and if declared, are payable at the rate of
$0.09, $0.12 and $0.27 per annum on each share of Series A-1, A-2 and B
convertible preferred stock, respectively. Each share of convertible preferred
stock has voting rights equal to the number of shares of common stock into which
it is then convertible. In the event of liquidation, dissolution or merger of
the Company, each share of Series A-1, A-2 and B preferred stock entitles its
holder to receive an amount equal to $1.38 per Series A-1 share, $1.85 per
Series A-2 share and $4.23 per Series B share of convertible preferred stock
plus declared but unpaid dividends and, thereafter, to receive on a
share-for-share basis with common stock outstanding the remaining assets in an
amount not to exceed in the aggregate $4.15 per Series A-1 share, $5.54 per
Series A-2 share and $6.34 per Series B share of convertible preferred stock. No
dividends have been declared through December 31, 1995.
8. COMMON STOCK
In June 1993, the Company issued 650,000 shares of its common stock to
founding stockholders in exchange for $1,000. In October 1993, the Company
issued 295,747 shares of common stock for $126,500 in cash and a note receivable
of $10,000. The note receivable was paid in cash in 1994.
F-10
<PAGE> 64
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to a September 1993 stockholders' agreement between the Company
and holders of 650,000 shares of its common stock (the "founding stockholders"),
in the event that a founding stockholder's involvement with the Company as an
employee or consultant is terminated before September 30, 1996, the Company may
be obligated to repurchase all or a portion of the stockholder's shares of
common stock for $0.001 per share. The Company's obligation under this agreement
terminates automatically in the event of a public offering of the Company's
common stock meeting certain specified criteria. In March 1995, the Company
terminated a consulting agreement with one of its founding stockholders. In
conjunction with the termination, the Company repurchased 65,000 shares of
common stock from the stockholder. There were no other terminations/repurchases
through September 30, 1996 (unaudited).
9. UNAUDITED PRO FORMA FINANCIAL STATEMENT INFORMATION
Upon the closing of an initial public offering of the Company's common
stock, each outstanding share of the Company's preferred stock will be converted
automatically to common stock as described in Note 7. If an initial public
offering is consummated under terms presently anticipated, all of the
outstanding preferred stock will automatically convert to 3,612,664 shares of
common stock. The pro forma effect of the conversion has been presented as a
separate column in the Company's balance sheet assuming the conversion had
occurred as of September 30, 1996.
10. STOCK OPTION PLAN
The 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (the "Plan") provides for the direct sale of shares and the
grant of options to purchase shares of the Company's common stock to employees,
officers, consultants and directors. The Plan includes nonqualified stock
options ("NSOs") and incentive stock options ("ISOs"). The option price for the
ISOs and NSOs shall not be less than the fair market value of the shares of
Company's stock on the date of the grant. For ISOs, the exercise price per share
may not be less than 110% of the fair market value of a share of common stock on
the grant date for any individual possessing more than 10% of the total
outstanding stock of the Company. The timing of exercise for individual option
grants is at the discretion of the administrator. Options expire within a period
of not more than ten years from the date of grant. Options expire ninety days
after termination of employment.
F-11
<PAGE> 65
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Plan provides for the issuance of up to 650,000 shares of common stock.
A summary of the option activity under the 1993 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
INCENTIVE NONQUALIFIED TOTAL PER SHARE
--------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Granted............................ 187,200 121,225 308,425 $0.46
Exercised.......................... -- -- -- --
Canceled........................... -- -- -- --
-------- ------- -------- -------------
Balances at December 31, 1994...... 187,200 121,225 308,425 $0.46
Granted............................ 217,100 9,100 226,200 $0.46
Exercised.......................... -- (3,250) (3,250) $0.46
Canceled........................... (48,750) -- (48,750) $0.46
-------- ------- -------- -------------
Balances at December 31, 1995...... 355,550 127,075 482,625 $0.46
Granted (unaudited)................ 158,275 57,850 216,125 $0.46 - $5.38
Exercised (unaudited).............. (6,826) -- (6,826) $0.46
Canceled (unaudited)............... (67,274) -- (67,274) $0.46 - $5.38
-------- ------- -------- -------------
Balances at September 30, 1996
(unaudited)...................... 439,725 184,925 624,650 $0.46 - $5.38
======== ======= ======== =============
Exercisable at September 30, 1996
(unaudited)...................... 120,296 109,068 229,364 $0.46 - $5.38
======== ======= ======== =============
</TABLE>
The difference between the exercise price and the fair market value of the
options at the date of grant of $6,800 at December 31, 1995 is accounted for as
unearned compensation and will be amortized to expense over the related service
period. During the nine months ended September 30, 1996, an additional $485,700
(unaudited) of unearned compensation was recorded. During the year ended
December 31, 1995, amortized compensation expense was $282, and for the nine
months ended September 30, 1996, amortized compensation expense was $78,933
(unaudited).
11. INCOME TAXES
The following table presents the current and deferred income tax provision
for federal and state income taxes:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, --------------
1993 1994 1995
--------------- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ --
State............................................... 800 800 800
---- ---- ----
800 800 800
---- ---- ----
Deferred:
Federal............................................. -- -- --
State............................................... -- -- --
---- ---- ----
$800 $800 $800
==== ==== ====
</TABLE>
F-12
<PAGE> 66
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences which give rise to the deferred
tax provision (benefit) consist of:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 11, 1993) FOR THE YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------
1993 1994 1995
--------------- -------- ----------
<S> <C> <C> <C>
Capitalized research and development costs..... $ (8,586) $(59,289) $ (85,033)
Capitalized inventory costs.................... -- (6,863) (12,126)
Intangibles.................................... (1,400) 321 572
Property and equipment......................... 74 1,197 (4,109)
Accrued expenses............................... -- (8,578) (10,058)
State taxes.................................... (272) -- --
Tax credit carryforwards....................... (7,054) (80,433) (134,103)
Net operating loss carryforwards............... (37,478) (437,910) (886,806)
Valuation allowance............................ 54,716 591,555 1,131,663
-------- -------- ----------
$ -- $ -- $ --
======== ======== ==========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------
1993 1994 1995
--------------- ------ ------
<S> <C> <C> <C>
Statutory regular federal income tax rate........... (34.00)% (34.00)% (34.00)%
Meals and entertainment............................. 0.05 0.09 3.03
State taxes......................................... 0.46 0.04 0.02
Tax credits......................................... (2.86) (2.92) (2.25)
Change in valuation allowance....................... 37.05 36.82 33.22
Other............................................... -- 0.03 0.01
------ ------ ------
Effective tax rate........................ 0.70% 0.06% 0.03%
====== ====== ======
</TABLE>
The components of the deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Capitalized research and development costs.................. $ 67,875 $ 152,908
Capitalized inventory costs................................. 6,863 18,989
Intangibles................................................. 1,079 507
Property and equipment...................................... (1,271) 2,838
Accrued expenses............................................ 8,578 18,636
State taxes................................................. 272 272
Tax credit carryforwards.................................... 87,487 221,590
Net operating loss carryforwards............................ 475,388 1,362,194
--------- -----------
646,271 1,777,934
Valuation allowance.................................... (646,271) (1,777,934)
--------- -----------
Net deferred tax asset............................ $ -- $ --
========= ===========
</TABLE>
F-13
<PAGE> 67
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax assets.
At such time as it is determined that it is more likely than not that deferred
tax assets are realizable, the valuation allowance will be reduced.
At December 31, 1995, the Company had net operating loss carryforwards for
federal and state purposes of approximately $3,714,000 and $1,069,000,
respectively. The net operating loss carryforwards begin expiring in 2009 and
1999, respectively. The Company also has research and experimentation credit
carryforwards for federal and state purposes of approximately $158,000 and
$63,000, respectively. The research and experimentation credits begin to expire
in 2009 for federal purposes and carry forward indefinitely for state purposes.
The utilization of net operating loss and research and experimentation
credit carryforwards may be limited under the provisions of Internal Revenue
Code Section 382 and similar state provisions.
12. COMMITMENTS AND CONTINGENCIES
On February 1, 1994, the Company entered into a three-year operating lease
for office, research and manufacturing space. On December 1, 1995, the Company
entered into a one-year operating lease for additional office space. As of
December 31, 1995, future minimum lease payments for the years ending December
31 are as follows:
<TABLE>
<S> <C>
1996.............................................. $128,920
1997.............................................. 3,954
--------
$132,874
========
</TABLE>
Rent expense for the years ended December 31, 1994 and 1995 were $47,448
and $66,828, respectively. There was no rent expense incurred from the period
from inception through December 31, 1993. On December 15, 1995, the Company
entered into an agreement to sublease certain office space. The Company received
$989 of rental income for the year ended December 31, 1995, and is to receive
$22,735 of rental income in the year ended December 31, 1996.
13. RELATED PARTY TRANSACTIONS
License And Royalty Agreements
In June 1993, the Company acquired from a stockholder an exclusive
worldwide license to manufacture, market and sell devices utilizing certain
catheter technology developed by the stockholder/licensor. As consideration for
the license, the Company is obligated to pay the stockholder/licensor royalties
at the rate of 1% of the net revenues from products developed utilizing the
patented technology for a period of twelve years from the first commercial sale
of such products. Commercial sale of the products commenced in November 1994.
Royalty expense under the license agreement totaled $138 and $4,868 for the
years ended December 31, 1994 and 1995, respectively.
Contract Services
Through March 1995, the Company contracted with Novel Biomedical, Inc.
("Novel"), a stockholder of the Company, for design, development and patent
services. Research and development expenses for the period from inception
through December 31, 1993, and for the years ended December 31, 1994 and 1995
include $88,159, $320,954 and $65,745, respectively, of charges from Novel which
approximates cost of these services. As of December 31, 1994, the Company had
approximately $35,000 payable to Novel included in accounts payable.
F-14
<PAGE> 68
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. CONCENTRATIONS OF CREDIT RISK
At December 31, 1994 and 1995, the Company had approximately $382,000 and
$2,395,000, respectively, of cash balances that were in excess of the
federally-insured limit of $100,000 per bank.
The Company's customers are primarily hospitals in the United States and
distributors in certain foreign countries. There were no customers which
accounted for greater than 10% of accounts receivable or net sales for any date
or period presented.
15. SUBSEQUENT EVENTS (UNAUDITED)
Board Of Director Authorizations:
In July 1996, the Board of Directors (i) authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public; (ii) adopted the
1996 Stock Incentive Plan and the 1996 Employee Stock Purchase Plan and reserved
600,000 and 100,000 shares of common stock, respectively, for issuance
thereunder; and (iii) authorized the Company's re-incorporation in the State of
Delaware. In conjunction with this re-incorporation, the Company's common stock
will become $0.001 par value stock with 20,000,000 shares authorized, and the
Company's preferred stock will become $0.001 par value with 5,000,000 shares
authorized.
Common Stock Options
For the nine months ended September 30, 1996, the Company granted 216,125
options to purchase common stock pursuant to the 1993 Stock Option Plan at
exercise prices ranging from $0.46-$5.38 per share, resulting in unearned
compensation of $485,700. In October and November 1996, the Company granted an
additional 16,900 options pursuant to the 1993 Stock Option Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.
In October and November 1996, the Company granted 92,300 options to
purchase common stock pursuant to the 1996 Stock Incentive Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.
Series C Preferred Stock
In May and June 1996, the Company sold in a private placement 1,256,906
shares of Series C convertible preferred stock at a price of $6.46 per share
raising net cash proceeds of $8,072,082.
Shares of Series C convertible preferred stock are convertible at the
holder's option into shares of common stock on a share-for-share basis and this
conversion is automatic in the event of a public offering of the Company's
common stock meeting certain specified criteria.
Dividends are noncumulative, and if declared, are payable at the rate of
$0.43 per annum on each share outstanding. Each share of Series C convertible
preferred stock has voting rights equal to the number of shares of common stock
into which it is then convertible. In the event of liquidation, dissolution or
merger of the Company, each share is entitled to an amount equal to $6.46 plus
declared but unpaid dividends, and thereafter, to receive on a share-for-share
basis with common stock outstanding the remaining assets in an amount not to
exceed in the aggregate $8.08 per share.
Lease
On May 1, 1996, the Company entered into an agreement to extend the current
operating lease and to lease additional office space for a period of one year.
Additional future payments required under this lease in
F-15
<PAGE> 69
MICRO THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 and 1997 will be $36,212 and $3,292, respectively. This lease contains a
provision to extend the lease for three additional one-year terms.
Equipment Line Of Credit
On May 21, 1996, the Company amended the equipment line of credit (Note 6)
to allow for equipment purchases up to a maximum of $900,000. In connection with
this amendment, the Company issued a warrant to the lessor to purchase up to
6,045 shares of the Company's Series C preferred stock at a price of $6.46 per
share. This warrant is convertible into a warrant for common stock in the event
that the remaining outstanding preferred stock is converted to common stock.
This warrant is exercisable for a period of: (a) ten years, or (b) five years
from the effective date of an initial public offering, whichever is longer.
F-16
<PAGE> 70
APPENDIX
INSIDE FRONT COVER:
AVM -- Hemorrhagic Stroke. In an arteriovenous malformation, the flow of
blood is shortcut by the development of vessels connecting directly from
arteries to veins. MTI's Liquid Embolic System material enters the diseased site
as a liquid and transforms into a solid polymer cast.
ANEURYSM -- Hemorrhagic Stroke. An aneurysm is a balloon-shaped structure
which forms at a weak point in the vessel wall. MTI's Liquid Embolic System
material completely fills the space, which may reduce potential for reformation
of an aneurysm resulting from inadequate filling.
BLOOD CLOT -- Vaso-Occlusive Stroke. Interventional therapy for neuro blood
clots involves the use of micro catheters to access the site and infuse
thrombolytic drugs. MTI's sidehole micro catheters infuse fluid directly into
the clot.
INSIDE FRONT COVER (LEFT FOLDOUT):
THROMBOLYSIS
PULSE-SPRAY AND WEEP INFUSION -- MTI's Cragg-McNamara Valved Tip Infusion
Catheters allow pulse-spray and weep infusion with or without a guidewire in
place.
SIDEHOLE INFUSION -- MTI's Cragg-McNamara Valved Tip Infusion Catheters
allow the use of the entire catheter lumen for sidehole infusion.
COAXIAL INFUSION -- MTI's ProStream Sidehole Infusion Wire is passed
through the Cragg-McNamara Valved Tip Infusion Catheter for coaxial infusion.
INSIDE FRONT COVER (RIGHT FOLDOUT):
ADVANCED THROMBOLYSIS
MTI'S CRAGG THROMBOLYTIC BRUSH CATHETER is designed for rapid percutaneous
clot disruption and dissolution through mechanical mixing of a thrombolytic
agent with the blood clot.
MTI has begun a controlled clinical evaluation of the Cragg Thrombolytic
Brush in hemodialysis access grafts. Results of these evaluations as of November
30, 1996, demonstrate substantial reductions in the length of time to open
grafts and amount of drug used.
BEFORE -- Angiogram of occluded hemodialysis access graft.
AFTER -- Angiograms of hemodialysis access graft after treatment with the
Cragg Thrombolytic Brush.
INSIDE BACK COVER:
LIQUID EMBOLIC SYSTEM (LES)
(PAGE )
[Color Illustration of the Liquid Embolic System being used to fill an
aneurysm and a photograph of catheter in a beeker of water injecting the LES
material forming a solid and bearing the following captions:]
ANEURYSM -- Hemorrhagic Stroke. An aneurysm is a balloon-shaped structure
which forms at a weak point in the vessel wall. MTI's Liquid Embolic System
material completely fills the space, which may reduce potential for reformation
of an aneurysm resulting from inadequate filling.
The LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke.
A microcatheter is used to deliver the LES material in liquid form, to
small remote blood vessels in the brain where it fills a vascular defect and
transforms into a solid polymer cast.
<PAGE> 71
BACK PAGE -- BOTTOM
The LES is an investigational product and has not been cleared by the FDA
for marketing in the United States.
STROKE
[Color illustrations indicating an AVM, an aneurysm and a blood clotted
artery and referring to locations in an illustrated human head and an
illustrated human form showing a vascular system, together with a photographs of
certain catheters, infusion wires and the Cragg Thrombolytic Brush, bearing the
following captions:]
STROKE PAGE -- Above Stabilization language and slug line (see conceptus
example):
The Liquid Embolic System and Cragg Thrombolytic Brush are investigational
products and have not been cleared by the FDA for marketing in the United
States. In September 1996, the Company filed a 510(k) market clearance
application with the FDA for the Cragg Thrombolytic Brush.
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the Common Stock to which it relates or an offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such an offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 13
Dividend Policy........................ 13
Capitalization......................... 14
Dilution............................... 15
Selected Financial Data................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 38
Certain Transactions................... 44
Principal Stockholders................. 45
Description of Capital Stock........... 46
Shares Eligible for Future Sale........ 48
Underwriting........................... 50
Legal Matters.......................... 51
Experts................................ 51
Reports to Security Holders............ 52
Additional Information................. 52
Index to Financial Statements.......... F-1
</TABLE>
------------------------
Until , 1997 (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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
UBS SECURITIES
VOLPE, WELTY & COMPANY
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE COMPANY
-------------
<S> <C>
SEC registration fee............................................ $ 9,060.61
NASD filing fee................................................. 3,490.00
Nasdaq National Market application fee.......................... 33,762.78
Printing expenses............................................... 125,000.00
Legal fees and expenses......................................... 200,000.00
Accounting fees and expenses.................................... 100,000.00
Blue sky fees and expenses...................................... 10,000.00
Transfer agent and registrar fees............................... 2,000.00
Miscellaneous................................................... 50,000.00
-----------
Total................................................. $ 533,313.39
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Company (Exhibit 3.1 hereto) eliminates the
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a directors, except to the extent otherwise
required by the Delaware General Corporation Law.
(b) The Restated Certificate of Incorporation provides that the Company
will indemnify each person who was or is made a party to any proceeding by
reason of the fact that such person is or was a director or officer of the
Company against all expense, liability and loss reasonably incurred or suffered
by such person in connection therewith to the fullest extent authorized by the
Delaware General Corporation Law. The Company's Bylaws (Exhibit 3.2 hereto)
provide for a similar indemnity to directors and officers of the Company to the
fullest extent authorized by the Delaware General Corporation Law.
(c) The Restated Certificate of Incorporation also gives the Company the
ability to enter into indemnification agreements with each of its directors and
officers. The Company has entered into indemnification agreements with each of
its directors and officers (Exhibit 10.1 hereto), which provide for the
indemnification of directors and officers of the Company against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act of 1993 (the
"Securities Act"):
(1) From time to time during the three years preceding the date
hereof, the Registrant issued incentive stock options and nonqualified
stock options to purchase Common Stock pursuant to the Registrant's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan -- 1993 (the "1993 Plan") and 1996 Stock Incentive Plan (the
"1996 Plan") to officers, directors, employees
II-1
<PAGE> 74
and consultants of the Registrant. During such three year period, options
to purchase 759,850 shares of Common Stock were granted pursuant to the
1993 Plan and options to purchase 135,850 shares of Common Stock were
granted pursuant to the 1996 Plan. Through February 6, 1997, options to
purchase 65,222 shares of Common Stock granted pursuant to the 1993 Plan
were exercised for an aggregate exercise price of $30,101, and no options
were exercised pursuant to the 1996 Plan. During the period referred to
above, options granted pursuant to 1993 Plan were exercised. Exemption from
the registration provisions of the Securities Act is claimed, with respect
to the grant of options referred to above, on the basis that the grant of
options did not involve a "sale" of securities and, therefore, registration
thereof was not required and, with respect to the exercise of options
referred to above, on the basis that such transactions met the requirements
of Rule 701 as promulgated under Section 3(b) of the Securities Act.
(2) In September 1993, the Registrant issued 650,000 shares of Common
Stock in connection with the formation and organization of the Registrant.
The shares were issued to the following persons: (i) George Wallace; (ii)
Andrew Cragg; (iii) Novel Biomedical Inc.; and (iv) JK Holdings, Inc.
(3) In September 1993, the Registrant issued 295,747 shares of Common
Stock at a price of $.46 per share to thirteen individuals in connection
with an initial financing of the Registrant.
(4) In December 1993, the Registrant issued 541,667 shares of Series
A-1 Preferred Stock at a price of $1.38 per share to Menlo Ventures, L.P.
and a related partnership.
(5) In July 1994, the Registrant issued 585,000 shares of Series A-2
Preferred Stock at a price of $1.85 per share to Menlo Ventures and a
related partnership, and 5 other purchasers.
(6) In February 1995, the Registrant issued 1,229,091 shares of Series
B Preferred Stock at a price of $4.23 per share to Menlo Ventures and a
related partnership, Mayfield Partners and 2 other purchasers.
(7) In May and June 1996, the Registrant issued 1,256,906 shares of
Series C Preferred Stock at a price of $6.46 per share to Menlo Ventures
and a related partnership, two related Mayfield partnerships, and twelve
other purchasers.
Except as set forth in item (1) above, exemption from the registration
requirements of the Securities Act for the transactions described above was
claimed under Section 4(2) of the Securities Act, among others, on the basis
that such transactions did not involve any public offering and the purchasers
were sophisticated with access to the kind of information registration would
provide. No underwriting or broker's commissions were paid in connection with
the foregoing transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Amended Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics, Inc., a
California corporation, effective November 6, 1996.(1)
3.1 Certificate of Incorporation of the Company.(1)
3.2 Bylaws of the Company, as currently in effect.(1)
3.3 Specimen Certificate of Common Stock.
3.4 Certificate of Amendment to Certificate of Incorporation (to be filed in Delaware).
4.1 Warrant Agreement dated December 20, 1995 between the Company and Comdisco, Inc.(1)
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco, Inc.(1)
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.
10.1 Form of Directors' and Officers' Indemnification Agreement.(1)
10.2 License Agreement dated June 1, 1993 between the Company and Andrew Cragg.(1)
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
10.3 Consulting Agreement dated October 1, 1996 between the Company and Andrew Cragg.(1)
10.4 Real Property Lease dated April 15, 1996 between the Company and Reuben L.
Casey.(1)
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995, among the
Company, the Investors named therein and the Common Holders named therein, as
amended on May 17, 1996 and June 27, 1996.(1)
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.(1)
10.7 1996 Stock Incentive Plan.(1)
10.8 Employee Stock Purchase Plan.
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the Company and
ComDisco Ventures, as amended on May 21, 1996.(1)
16.1 Letter from Ernst & Young LLP on changes in certifying accountant.(1)
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (see
Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Breimayer Law Office.(1)
23.4 Consent of Burns, Doane, Swecker & Mathis.(1)
23.5 Consent of Crockett & Fish.(1)
24.1 Power of Attorney.(1)
27.1 Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
II-3
<PAGE> 76
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Clemente of California, on the 5th day of February, 1997.
MICRO THERAPEUTICS, INC.
By: /s/ GEORGE WALLACE
-----------------------------------
George Wallace
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------- -------------------
<C> <S> <C>
/s/ GEORGE WALLACE President, Chief Executive February 5, 1997
- ---------------------------------------- Officer and Director (Principal
George Wallace Executive Officer)
/s/ THOMAS BERRYMAN* Vice-President of Finance and February 5, 1997
- ---------------------------------------- Chief Financial Officer
Thomas Berryman (Principal Financial and
Principal Accounting Officer)
/s/ H. DUBOSE MONTGOMERY* Chairman and Director February 5, 1997
- ----------------------------------------
H. DuBose Montgomery
/s/ WENDE HUTTON* Director February 5, 1997
- ----------------------------------------
Wende Hutton
/s/ DICK ALLEN* Director February 5, 1997
- ----------------------------------------
Dick Allen
*By: /s/ GEORGE WALLACE February 5, 1997
-----------------------------------
George Wallace,
as Attorney-In-Fact
</TABLE>
II-5
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- --------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Amended Form of Underwriting Agreement....................................
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics,
Inc.,
a California corporation, effective November 6, 1996 (1)..................
3.1 Certificate of Incorporation of the Company (1)...........................
3.2 Bylaws of the Company, as currently in effect (1).........................
3.3 Specimen Certificate of Common Stock......................................
3.4 Certificate of Amendment to Certificate of Incorporation (to be filed in
Delaware).................................................................
4.1 Warrant Agreement dated December 20, 1995 between the Company and
Comdisco, Inc. (1) .......................................................
4.2 Warrant Agreement dated May 21, 1996 between the Company
and Comdisco, Inc. (1) ...................................................
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation...............................................................
10.1 Form of Directors' and Officers' Indemnification Agreement (1)............
10.2 License Agreement dated June 1, 1993 between the Company and Andrew Cragg
(1).......................................................................
10.3 Consulting Agreement dated October 1, 1996 between the Company and
Andrew Cragg (1)..........................................................
10.4 Real Property Lease dated April 15, 1996 between the Company
and Reuben L. Casey (1)...................................................
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995,
among the Company, the Investors named therein and the Common Holders
named therein, as amended on May 17, 1996 and June 27, 1996 (1)...........
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (1)...................................................
10.7 1996 Stock Incentive Plan (1).............................................
10.8 Employee Stock Purchase Plan..............................................
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the
Company and ComDisco Ventures, as amended on May 21, 1996 (1).............
16.1 Letter from Ernst & Young LLP on changes in certifying accountant (1).....
21.1 Subsidiaries of the Registrant (1)........................................
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation
(see Exhibit 5.1).........................................................
23.2 Consent of Coopers & Lybrand L.L.P........................................
23.3 Consent of Breimayer Law Office (1).......................................
23.4 Consent of Burns, Doane, Swecker & Mathis (1).............................
23.5 Consent of Crockett & Fish (1)............................................
24.1 Power of Attorney (1).....................................................
27.1 Financial Data Schedule (1)...............................................
</TABLE>
- ---------------
(1) Previously filed.
<PAGE> 1
Exhibit 1.1
2,000,000 Shares
MICRO THERAPEUTICS, INC.
Common Stock
FORM OF
UNDERWRITING AGREEMENT
January __, 1997
UBS SECURITIES LLC
VOLPE, WELTY & COMPANY
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
C/O UBS SECURITIES LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Micro Therapeutics, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell 2,000,000 shares (the "Firm Shares") of its authorized but
unissued Common Stock, $0.001 par value per share (the "Common Stock"), to the
several underwriters listed on Schedule A to this Agreement (collectively, the
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement on Form SB-2 (File No.
333-17345) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed. promptly by the Company with the .Commission. If such
registration statement has become effective, a final prospectus containing all
Rule 430A Information (as hereinafter defined) will be filed by the Company with
1
<PAGE> 2
the Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement
shall mean such registration statement (including all exhibits and financial
statements) at the time such registration statement becomes or became effective
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall include all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and shall also mean any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary Prospectus included
in the Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) The Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituted proceeds for that purpose, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the Rules and Regulations. When the Registration
Statement became or becomes, as the case may be, effective (the "Effective
Date") and at all times subsequent thereto up to and at the Closing Date (as
hereinafter defined) , any later date on which Option Shares are to be purchased
(the "Option Closing Date") and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The foregoing representations and warranties
in this section 2(a) do not apply to any statements or omissions made in
reliance on and in conformity with the information contained in the section of
the Prospectus entitled "Underwriting" (except for the paragraph thereof) and
the information in the last paragraph on the front cover page of the
2
<PAGE> 3
Prospectus. The Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration Statement,
the Preliminary Prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries. Other than its
interest in Cardio Vascular Dynamics, Inc., the Company does not own, directly
or indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the certificates of incorporation and of the bylaws of the Company and
all amendments thereto have been delivered to the Representatives, and except as
set forth in the exhibits to the Registration Statement no changes therein will
be made subsequent to the date hereof and prior to the Closing Date or, if
later, the Option Closing Date.
(c) The Company has full power and authority (corporate and
otherwise) to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by applicable laws
or equitable principles and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights generally or by general equitable principles.
The performance of this Agreement by the Company and the consummation by the
Company of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company is a party or by which its
properties are bound, or (ii) the certificate of incorporation or bylaws of the
Company (iii) any law, order, rule, regulation, writ, injunction or decree of
any court or governmental agency or body to which the Company is subject,
except where such breach, violation or default would not have a Material
Adverse Effect. The Company is not required to obtain or make (as the case
may be) any consent, approval, authorization, order, designation or filing by or
with any court or regulatory, administrative or other governmental agency or
body as a requirement for the consummation by the Company of the transactions
herein contemplated, except such as may be required under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or under state
securities or blue sky ("Blue Sky") laws or under the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD").
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or any of their respective
3
<PAGE> 4
officers or any of their respective properties, assets or rights before any
court or governmental agency or body or otherwise which might result in a
Material Adverse Effect or have a material adverse effect on the Company's
properties, assets or rights, or prevent consummation of the transactions
contemplated hereby. There are no statutes, rules, regulations, agreements,
contracts, leases or documents that are required to be described in the
Prospectus, or to be filed as exhibits to the Registration Statement by the Act
or by the Rules and Regulations that have not been accurately described in all
material respects in the Prospectus or filed as exhibits to the Registration
Statement.
(e) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms in all material respects to the
description thereof contained in the Registration Statement and the Prospectus
(and such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable. Except as set forth in the Prospectus, no
preemptive right, co-sale right, right of first refusal or other similar rights
of security holders exist with respect to any of the Shares or the issue and
sale thereof other than those that have been expressly waived prior to the date
hereof. No holder of securities of the Company has the right to cause the
Company to include such holder's securities in the Registration Statement. No
further approval or authorization of any security holder, the Board of Directors
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of the Shares, except as may be required under the Act, the
Exchange Act or under state securities or Blue Sky laws. Except as disclosed in
or contemplated by the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, the Company does not
have outstanding any options or warrants to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option and other plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents, in all material
respects, the information required to be shown with respect to such plans,
arrangements, options and rights.
(f) Coopers & Lybrand L.L.P. (the "Accountants"), who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. All
financial statements, together with the related schedules and notes, filed
4
<PAGE> 5
with the Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No other financial
statements or schedules are required by the Act or the Rules and Regulations to
be included in the Registration Statement.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not been
(i) any material adverse change, or any development which, in the Company's
reasonable judgment, is likely to cause a material adverse change, in the
business, properties or assets described or referred to in the Registration
Statement, or the results of operations, condition (financial or otherwise),
business or operations of the Company taken as a whole, (ii) any transaction
which is material to the Company, except transactions in the ordinary course of
business, (iii) any obligation, direct or contingent, which is material to the
Company taken as a whole, incurred by the Company, except obligations incurred
in the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or (v) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company. The Company
has no material contingent obligation which is not disclosed in the Registration
Statement.
(h) Except as set forth in the Prospectus, (i) the Company has
good and marketable title to all material properties and assets described in the
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, (ii)
the agreements to which the Company is a party described in the Prospectus are
valid agreements, enforceable against the Company in accordance with their
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and,
to the Company's knowledge, the other contracting party or parties thereto are
not in material breach or default under any of such agreements and (iii) the
Company has valid and enforceable leases for the properties described in the
Prospectus as leased by it, and such leases conform in all material respects to
the description thereof, if any, set forth in the Registration Statement.
(i) The Company now holds or has rights to and at the Closing
Date and any later Option Closing Date, as the case may be, will hold or have
rights to, all licenses, certificates, approvals and permits from all state,
United States, foreign and other regulatory authorities, including but not
limited to the United States Food and Drug Administration (the "FDA") and any
foreign regulatory authorities performing functions similar to those performed
by the FDA, that are material to the conduct of the business of the Company (as
such business is currently conducted), except for such licenses, certificates,
approvals and permits the failure of which to hold would not have a Material
Adverse Effect, all of which are valid and in full force and effect (and there
is no proceeding pending or, to the knowledge of the Company, threatened which
may cause any such license, certificate, approval or permit to be withdrawn,
canceled, suspended or not renewed). The
5
<PAGE> 6
Company is not in violation of its certificate of incorporation or bylaws, in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a party or by which it
or any of its properties are bound, or in violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body, including, but not limited to, the FDA, except for defaults or violations
which would not have a Material Adverse Effect. All of the descriptions in the
Registration Statement and Prospectus of the legal and governmental proceedings
by or before the FDA or any foreign, state or local government body exercising
comparable authority are true, complete and accurate in all material respects.
(j) The Company has filed on a timely basis all necessary
federal, state and foreign income, franchise and other tax returns and has paid
all taxes shown thereon as due, and the Company has no knowledge of any tax
deficiency which has been or might be asserted against the Company which might
have a Material Adverse Effect. All material tax liabilities are adequately
provided for within the financial statements of the Company.
(k) The Company maintains insurance of the types and in the
amounts adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering clinical trial liability, product liability and
real and personal property owned or leased against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(l) The Company is not involved in any labor dispute or
disturbance nor, to the knowledge of the Company, is any such dispute or
disturbance threatened.
(m) Except as described in the Prospectus, the Company owns or
possess adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, tradenames, copyrights, manufacturing processes, formulae, trade
secrets, know-how, franchises, and other material intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of their
businesses as conducted and as proposed to be conducted as described in the
Prospectus. The Company has no knowledge of any facts which would preclude it
from having rights to its patent applications referenced in the Prospectus. The
Company has no knowledge that it lacks or will be unable to obtain any rights or
licenses to use any of the Intellectual Property necessary to conduct the
business now conducted or proposed to be conducted by it as described in the
Prospectus. The Prospectus fairly and accurately describe(s) the Company's
rights with respect to the Intellectual Property. The Company has not received
any notice of infringement or of conflict with rights or claims of others with
respect to any Intellectual Property. The Company is not aware of any patents of
others which are infringed upon by potential products or processes referred to
in the Prospectus in such a manner as to materially and adversely affect the
Company taken as a whole, except as described in the Prospectus.
6
<PAGE> 7
(n) The Company is conducting its businesses in compliance
with all of the laws, rules and regulations of the jurisdictions in which it is
conducting business, including, but not limited to, the laws, rules and
regulations administered or promulgated by the FDA.
(o) The Company is not an "investment company," or a
"promoter" or "principal underwriter" for a registered investment company, as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than the underwriting discounts and commissions contemplated hereby.
(q) The Company is (i) in compliance with any and all
applicable United States, state and local environmental laws, rules,
regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and safety,
the environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business as currently conducted and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's activities involving Hazardous Materials. "Hazardous
Materials" means any material or substance (i) that is prohibited or regulated
by any environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment.
(r) The Company has not engaged in the generation, use,
manufacture, transportation of storage of any Hazardous Materials on any of the
Company's properties or former properties, except where such use, manufacture,
transportation or storage is in compliance with Environmental Laws. No Hazardous
Materials have been treated or disposed of on any of the Company's properties or
on properties formerly owned or leased by the Company during the time of such
ownership or lease, except in compliance with Environmental Laws. The Company
is not aware of any spills, discharges, releases, deposits, emplacements,
leaks or disposal of any Hazardous Materials that have occurred on or under or
have emanated from any of the Company's properties or former properties.
(s) The Company has not at any time during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law or (ii) made any
payment to any foreign, United States or state governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments required or permitted by the laws of the United States.
7
<PAGE> 8
(t) The Common Stock is registered pursuant to Section 12(b)
of the Exchange Act. The Shares have been duly authorized for quotation on the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System ("Nasdaq National Market"). The Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Shares.
(v) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True and
complete copies of all such reports and other documents have been delivered to
you.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of Firm Shares set forth opposite its name on Schedule A, plus such additional
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to Section 3(b) hereof. The price at which such Firm Shares shall be
sold by the Company and purchased by the several Underwriters shall be $_____
per share. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraphs (b) and (c) of this Section 3,
the agreement of each Underwriter is to purchase only the respective number of
Firm Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within twenty-four (24) hours after such default to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the nondefaulting
Underwriters fail to make such arrangements with respect to all such Shares and
portion, the number of Shares which each nondefaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on a
pro rata basis (as adjusted by you in such manner as you deem advisable to avoid
fractional shares) to absorb the remaining
8
<PAGE> 9
Shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the nondefaulting Underwriters shall not be
obligated to purchase the Shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such Shares exceeds
10% of the total number of Shares which all Underwriters agreed to purchase
hereunder. If the total number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within
twenty-four (24) hours next succeeding the 24-hour period referred to above, to
make arrangements with other underwriters or purchasers reasonably satisfactory
to you for purchase of such Shares and portion on the terms herein set forth. In
any such case, either you or the Company shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
the aggregate number of Shares which the defaulting Underwriter or Underwriters
agreed to purchase exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase all
or any portion of the Option Shares from the Company at the same price per share
as the Underwriters shall pay for the Firm Shares. Said option may be exercised
only to cover over-allotments in the sale of the Firm Shares by the Underwriters
and may be exercised in whole or in part at any time (but not more than once) on
or before the 30th day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Shares as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Shares, and
payment therefor, shall be made as provided in Section 5 hereof. Each
Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of Firm Shares that such Underwriter is purchasing, the exact
number of shares to be adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of initial public offering of the Shares in the
United States by the Underwriters shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price(s) after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
9
<PAGE> 10
(b) You, on behalf of the Underwriters, represent and warrant
that (i) the information set forth in the last paragraph on the front cover page
of the Prospectus and paragraph 3 under the caption "Underwriting" in the
Registration Statement, any Preliminary Prospectus and the Prospectus relating
to the Shares (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and that the statements made therein are correct and do not omit to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were made
not misleading, and (ii) the Underwriters have not distributed and will not
distribute prior to the Closing Date or on any Option Closing Date, as the case
may be, any offering material in connection with the offering and sale of the
shares other than the Preliminary Prospectus, the Prospectus, the Registration
Statement, and other materials permitted by the Act.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Option Shares (if the option granted pursuant to Section 3(c) hereof shall have
been exercised not later than ____ p.m., _____________ time, the date at least
two business days preceding the Closing Date), and payment therefor, shall be
made at the office of Stradling, Yocca, Carlson & Rauth, 660 Newport Center
Drive, Suite 1600, Newport Beach, California 92660 at 9:00 a.m., New York City
time, on the third business day after the date of this Agreement (or, at your
option, on the fourth full business day after such date if the pricing of the
Shares occurs after 4:30 p.m., New York City time), or at such time on such
other day, not later than seven full business days after such third business
day, as shall be agreed upon in writing by the Company and you (the "Closing
Date").
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 1:00 p.m., New York City time, on the date two business
days preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the Option Shares, and payment
therefor, shall be made at the office of Stradling, Yocca, Carlson & Rauth,
660 Newport Center Drive, Suite 1600, Newport Beach, California 92660 at
9:00 a.m., New York City time, on the third business day after the exercise
of such option.
(c) Payment for the Shares purchased from the Company shall be
made to the Company or its order, by either a same day funds check or Federal
Funds wire transfer. Such payment shall be made upon delivery of certificates
for the Shares to you for the respective accounts of the several Underwriters
against receipt therefor signed by you. Certificates for the Shares to be
delivered to you shall be registered in such name or names and shall be in such
denominations as you may request at least three business days before the Closing
Date, in the case of Firm Shares, and at least two business days prior to the
Option Closing Date, in the case of the Option Shares. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at a
location in New York, New York, designated by the Underwriters not less than one
full business day prior to the Closing Date or, in the case of the Option
Shares, by 3:00 p.m., New York City time, on the business day preceding the
Option Closing Date.
10
<PAGE> 11
(d) It is understood that you, individually and not on behalf
of the Underwriters, may (but shall not be obligated to) make payment to the
Company for shares to be purchased by any Underwriter whose check shall not have
been received by you on the Closing Date or any later Option Closing Date. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) , the Company will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed, within
the time period prescribed, with the Commission pursuant to subparagraph (1) or
(4) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
to the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the Underwriters.
The Company will promptly prepare and file with the Commission, and promptly
notify you of the filing of, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In case any
Underwriter is required to deliver a prospectus within the nine-month period
referred to in Section 10(a)(3) of the Act in connection with the sale of the
Shares, the Company will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act. The Company will file no
amendment or supplement to the Registration Statement or Prospectus that shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall
11
<PAGE> 12
reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation, or to execute a general
consent to service of process in any jurisdiction, or to make any undertaking
with respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified, the Company will make and file such
statements, reports and other documents in each year as are or may be reasonably
required by the laws of such jurisdictions so as to continue such qualifications
in effect for so long a period as you may reasonably request for distribution of
the Shares, or as otherwise may be required by law.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act, all in such quantities as
you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve-month period beginning after the effective
date of the Registration Statement, and will advise you in writing when such
statement has been made available.
(f) During a period of five years after the date hereof, the
Company, as soon as practicable after the end of each respective period, will
furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
stockholders; (ii) concurrently with the furnishing thereof to its stockholders,
a balance sheet of the Company as of the end of such fiscal year, together with
12
<PAGE> 13
statements of operations, of stockholders, equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the Nasdaq National Market
by the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company are consolidated with any subsidiaries, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) Prior to or simultaneously with the execution and delivery
of this Agreement, the Company will obtain agreement from each beneficial owner
of the Company's Common Stock listed on Schedule B to this Agreement providing
that such person will not, for a period of 180 days after the date of the
Prospectus, without the prior written consent of UBS Securities LLC, directly or
indirectly, offer to sell, sell, hypothecate, contract to sell, grant any option
to purchase, or otherwise dispose of, any shares of Common Stock beneficially
owned as of the date such lockup agreement is executed (including, without
limitation, shares of Common Stock which may be deemed to be beneficially owned
in accordance with the Rules and Regulations and shares of Common Stock which
may be issued upon exercise of a stock option or warrant) or any securities
convertible into or exercisable or exchangeable for such Common Stock except,
(a) by operation of law or (b) pursuant to a bona fide gift to any person or
other entity which agrees in writing to be bound by this restriction. Each such
person or entity shall also agree and consent to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such person or entity, except in compliance with the
foregoing restriction. With respect to options granted pursuant to the Company's
1993 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Plan and 1996 Stock Incentive Plan (collectively, the "Plans"), the Company
represents and warrants that holders of any rights to acquire stock under the
Plans have agreed to a provision substantially similar to that set forth in
this Section 6(g) and that the Company will not release any such person from
its rights under such provision without the prior written consent of UBS
Securities LLC.
(h) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior written
consent as Representatives, file a registration statement covering any of its
shares of capital stock, except that one or more registration statements on Form
S-8 may be filed at any time following the effective date of the Registration
Statement.
(i) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior written
consent as Representatives, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any options, rights or warrants with respect to shares of Common
13
<PAGE> 14
Stock, or any securities convertible into or exchangeable for Common Stock,
other than (i) the sale of Shares hereunder, (ii) the grant of options or the
issuance of shares of Common Stock under the Company's stock option plans or
stock purchase plan, as the case may be, existing on the date hereof, and (iii)
the issuance of shares of Common Stock upon exercise of the currently
outstanding options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain listing
of its shares of Common Stock on the Nasdaq National Market.
(m) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(n) If at any time during the 180-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth above
consult with you in good faith regarding the necessity of disseminating a press
release or other public statement responding to or commenting on such rumor,
publication or event and, if the Company in its reasonable judgment determines
that such a press release or other public statement is appropriate, the
substance of any press release or other public statement.
7. EXPENSE.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
reproduction of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Memoranda and any Supplemental Blue
Sky Memoranda and any instruments related to any of the foregoing; the issuance
and delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any; the cost of all stock certificates representing the
Shares and Transfer Agents' and Registrars, fees; the fees and disbursements of
corporate, patent and regulatory counsel for the
14
<PAGE> 15
Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and expenses incident to securing any required
review and the cost of qualifying the Shares under the laws of such
jurisdictions within the United States as you may designate (including filing
fees and attorneys fees and disbursements of Underwriters' Counsel in connection
with such NASD filings and Blue Sky qualifications); listing application fees of
the Nasdaq National Market; and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in clause (a) above,
reimburse the several Underwriters for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of Underwriters' Counsel)
incurred by the Underwriters in reviewing the Registration Statement and the
Prospectus and in otherwise investigating, preparing to market or marketing the
Shares. The Company will in no event be liable to any of the several
Underwriters for any loss of anticipated profits from the sale by them of
the Shares.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m., New York City time, on the first business day following
the date of this Agreement, or such later time or date as shall be consented to
in writing by you. If the filing of the Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b) and Rule 430A of the Rules and
Regulations, the Prospectus shall have been filed in the manner and within the
time period required by Rule 424(b) and Rule 430A of the Rules and Regulations.
No stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceeding for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and
15
<PAGE> 16
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing
Date and on any later Option Closing Date, as the case may be, the opinions of
(i) Stradling, Yocca Carlson & Rauth, corporate counsel to the Company, (ii)
Breimayer Law Office, Burns, Doane, Swecker & Mathis and Crockett & Fish, all
patent counsel to the Company, all dated the Closing Date or such later Option
Closing Date, in the forms attached hereto on Appendix A, addressed to the
Underwriters and with reproduced copies of signed counterparts thereof for
each of the Representatives.
(d) You shall have received from Morrison & Foerster LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
it may have reasonably requested for the purpose of enabling it to pass upon
such matters.
(e) You shall have received on the Closing Date and on any
later Option Closing Date, as the case may be, a letter from the Accountants
addressed to the Company and the Underwriters, dated the Closing Date or such
later Option Closing Date, as the case may be, confirming that it is, an
independent certified public accountant with respect to the Company within the
meaning of the Act and the Rules and Regulations thereunder and based upon the
procedures described in its letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than three days prior to the Closing Date or any such
later Option Closing Date, as the case may be, (i) confirming that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later Option Closing Date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter that are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your reasonable judgment, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In addition, you shall have received from the Accountants a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent it is deemed necessary in establishing the
scope of its latest examination of the Company's financial statements, did not
disclose any weaknesses in internal controls that it considered to be material
weaknesses. All such letters shall be in a form reasonably satisfactory to the
Representatives and their counsel.
(f) You shall have received on the Closing Date and on any
later Option Closing Date, as the case may be, a certificate of the President
and the Chief Financial Officer of
16
<PAGE> 17
the Company, dated the Closing Date or such later date, to the effect that as of
such date (and you shall be satisfied that as of such date):
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of
the Closing Date or any later Option Closing Date, as the case
may be; and the Company has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to the Closing Date or
any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement or preventing or suspending the
use of the Prospectus has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the
best of their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration
Statement and the Prospectus; and, when the Registration
Statement became effective and at all times subsequent thereto
up to the delivery of such certificate, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contained all statements and information required to
be included therein or necessary to make the statements
therein not misleading; and when the Registration Statement
became effective, and at all times subsequent thereto up to
the delivery of such certificate, none of the Registration
Statement, the Prospectus or any amendment or supplement
thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has not been (A) any material adverse change
in the properties or assets described or referred to in the
Registration Statement and the Prospectus or in the condition
(financial or otherwise), operations, business or prospects of
the Company, (B) any transaction which is material to the
Company, except transactions entered into in the ordinary
course of business, (C) any obligation, direct or contingent,
incurred by the Company, which is material to the Company
taken as a whole, (D) any change in the capital stock or
outstanding indebtedness of the Company which is material to
the Company taken as a whole or (E) any dividend or
distribution of any kind declared, paid or made on the capital
stock of the Company.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy of
the representations and
17
<PAGE> 18
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have
been approved for designation upon notice of issuance on the Nasdaq National
Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration statement)
or any post-effective amendment thereto (including any 462(b) registration
statement), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission is contained in
the section of the Prospectus entitled "Underwriting" (except for the sixth
paragraph thereof) or the last paragraph of text on the cover page of the
Prospectus and (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
18
<PAGE> 19
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (a) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of any payment
for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its executive officers, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Act, the Exchange Act, or the common
law or otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in the cases of clauses (i) and (ii) above,
such statement or omission is contained in the Section of the Prospectus
entitled "Underwriting" (except for the sixth paragraph thereof) or the last
paragraph on the cover page of the Prospectus. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the Provision of paragraphs
(a) and (b) of this Section 9 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the
19
<PAGE> 20
Notice, but the omission so to notify such indemnifying party or parties of any
such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified p
through (c) of this Section 9 for any legal or other expenses subsequently
incurred by the indemnified party or parties in connection with the defense of
the action, suit, investigation, inquiry or proceeding, except that (A) the
indemnifying party or parties shall bear the legal and other expenses incurred
in connection with the conduct of the defense as referred to in clause (i) of
the proviso to the preceding sentence and (B) the indemnifying party or parties
shall bear such other expenses as it or they have authorized to be incurred by
the indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding. The indemnifying party or parties shall
not be liable for any settlement of any proceeding effected without its or their
written consent, provided such consent has not been unreasonably withheld.
20
<PAGE> 21
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriters, on the other, shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of the Shares received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation to defend or defense against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
total price of the Shares purchased by such Underwriter, less any damages such
Underwriter has already been required to pay pursuant to this Section 9. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 9).
21
<PAGE> 22
(e) An indemnifying party will not, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any person who controls such indemnified party within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such indemnified party and each
such controlling person from all liability arising out of such claim, action,
suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
10. TERMINATION. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect regardless
of whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in the reasonable judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
reasonable judgment of the Representatives, adversely affects the marketability
of the Shares, or (vi) if since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall have
occurred any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial
or otherwise, of the Company or the business affairs, management, or business
prospects of the Company, whether or not arising in the ordinary course of
business, or (vii) if any foreign, federal or state statute, regulation, rule
or order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise
22
<PAGE> 23
promulgated which in the reasonable judgment of the Representatives materially
and adversely affects or will materially and adversely affect the business or
operations of the Company, or trading in the Common Stock shall have been
suspended, or (viii) there shall have occurred a material adverse decline in the
value of securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market or (ix) action shall be taken by any
foreign, federal, state or local government or agency in respect of its monetary
or fiscal affairs which, in the reasonable judgment of the Representatives, has
a material adverse effect on the securities markets in the United States. If
this Agreement shall be terminated in accordance with this Section 10, there
shall be no liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to pay the Underwriters all costs and expenses
referred to in Section 7.
If you elect to terminate this Agreement as provided in this Section 10,
the Company shall be notified immediately by you by telephone, telecopy or
telegram, confirmed by letter.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section 9 of
this Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 9 of
this Agreement, the Underwriters hereby agree to reimburse on a quarterly basis
the Company for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of
23
<PAGE> 24
Section 9 hereof, the several parties (in addition to the Company and the
several Underwriters) indemnified under the provisions of said Section 9, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Shares from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171, Attention: Richard Messina; and if to the Company, shall be
mailed, telegraphed or delivered to it at its office, 1062 Calle Negocio #F, San
Clemente, CA 92673, Attention: George Wallace. All notices given by telegraph
shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
24
<PAGE> 25
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
MICRO THERAPEUTICS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written
UBS SECURITIES LLC
VOLPE, WELTY & COMPANY
BY: UBS SECURITIES LLC
By:______________________________________
Name:____________________________________
Title:___________________________________
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
25
<PAGE> 26
SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
------------ ---------
UBS Securities LLC.......................................
Volpe, Welty & Company...................................
Total [ ]
=========
<PAGE> 27
SCHEDULE B
Lock-Up Agreement
<PAGE> 28
APPENDIX A
1. OPINION OF COUNSEL TO THE COMPANY
Stradling, Yocca, Carlson & Rauth shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Delaware;
(B) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification;
(C) The authorized capital stock of the Company consists of (i)
20,000,000 shares of Common Stock, $.001 par value, of which there are
outstanding [9,429,692] shares (including the Firm Shares plus the number of
Option Shares issued on the date hereof ) and (ii) 5,000,000 shares of Preferred
Stock, $.001 par value, none of which are outstanding; the authorized shares of
the Company's Common Stock have been duly authorized; the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(D) The Shares to be issued by the Company pursuant to this Agreement
have been duly authorized and will be, upon issuance and delivery against
payment therefor in accordance with the terms hereof, validly issued, fully paid
and nonassessable, and, to the knowledge of such counsel, the shareholders of
the Company do not have any preemptive right, co-sale right, registration right,
right of first refusal or other similar right, which rights have not previously
been waived, in connection with the purchase or sale of any of the Shares;
(E) The Company has full corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be, to be issued and sold by it
hereunder;
(F) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms (standard exceptions permitted);
(G) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued and no
A-1
<PAGE> 29
proceedings for that purpose have been instituted or are pending or threatened
under the Act; any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been made in the manner
and within the time period required by such Rule 424(b);
(H) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included therein, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations and to such counsel's knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(I) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock", to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of law;
(J) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the corporation law and
the description of the certificate of incorporation and bylaws are accurate and
fairly and correctly present the information required to be presented by the Act
or the Rules and Regulations in all material respects; and such counsel does not
know of any statutes, rules or regulations required to be described in the
Registration Statement or the Prospectus that are not described or referred to
therein as required;
(K) The statements under the captions "Risk Factors -- Shares Eligible
for Future Sale", "Management -- Executive Compensation," "Certain
Transactions," and "Description of Capital Stock" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law, are accurate summaries and fairly and correctly present, in all material
respects, the information called for with respect to such documents and matters;
provided that such counsel shall be entitled to rely on representations of the
Company with respect to certain factual matters contained in such statements,
and provided further that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such representations
are not true and correct in all material respects;
(L) The information required to be set forth in the Registration
Statement in answer to Items 9, 12 and 13 (insofar as it relates to such
counsel) of Form SB-2 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items;
(M) The execution, delivery and performance of this Agreement and the
consummation of the transactions therein contemplated do not and will not (a)
conflict with or
A-2
<PAGE> 30
result in a breach of any of the terms or provisions of or, constitute a default
under, the certificate of incorporation or bylaws of the Company, any agreement
or document filed as an exhibit to the Registration Statement, or any statute,
rule or regulation applicable to the Company (except that no opinion need be
expressed with respect to compliance with federal and state securities laws) or
(b) to the knowledge of such counsel, result in the creation or imposition of
any lien or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default or result in the acceleration of any
obligation under, any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company is a party or by which its
property is bound or (c) to the knowledge of such counsel, conflict with or
result in a violation or breach of, or constitute a default under, any
applicable license, authorization, approval, permit, judgment, franchise, order,
writ or decree of any court or governmental agency or body;
(N) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under state securities or Blue Sky laws or by the bylaws
and rules of the NASD in connection with the purchase and distribution of the
Shares by the Underwriters;
(O) The Company is not in violation of its certificate of
incorporation or bylaws, and to the best of such counsel's knowledge, the
Company is not in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument by which it or any of its properties may be bound or
affected, except where such default would not materially adversely affect the
Company and, to the best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders and
statutes of any court or jurisdiction to which it is subject, except where
noncompliance would not materially adversely affect the Company;
(P) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause
not to be renewed any existing license, certificate, registration, approval or
permit, known to such counsel, from any state, federal, or regulatory authority
that is material to the conduct of the business of the Company as presently
A-3
<PAGE> 31
conducted, or that is of a character otherwise required to be disclosed in the
Registration Statement or the Prospectus under the Act or the applicable Rules
and Regulations;
(Q) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
(R) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
[(S) Such counsel has read the description of the Company's business in
the Prospectus and the statements in the Prospectus under the captions "Business
- -- Government Regulation" (the "FDA Portion") and, to the best of such counsel's
knowledge, (i) the statements included in the FDA Portion, insofar as such
statements summarize provisions of applicable FDA statutes and regulations, are
accurate in all material respects and (ii) the FDA statutes and regulations
summarized in the FDA Portion are the FDA statutes and regulations that are
material to the Company's business as described in the Prospectus.]
(T) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," or a "promoter" or
"principal underwriter" for, a "registered investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements, financial and statistical data and
supporting schedules contained therein, as to which such counsel need express no
opinion) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later Option Closing Date,
as the case may be, the Registration Statement or the Prospectus (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
A-4
<PAGE> 32
Counsel rendering the foregoing may rely (i) as to questions
of law not involving the laws of the State of the United States or the General
Corporation Law of the State of Delaware upon opinions of local counsel, and
(ii) as to questions of fact upon representations or certificates of officers of
the Company and of governmental officials, as the case may be, in which case its
opinion is to state that it is so doing and that it has no actual knowledge of
any material misstatement or inaccuracy in such opinions, representations or
certificates, and that they believe that they and the Underwriters are justified
in relying on such opinions or certificates. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you/ as
Representatives of the Underwriters, and to Underwriters' Counsel.
2. OPINION OF PATENT COUNSEL.
Knobbe, Martin, Bear & Olsen shall indicate that they served as special
counsel to the Company with respect to patents and proprietary rights, and shall
opine that:
The statements in the Registration Statement and the
Prospectus under the captions "Risk Factors -- Dependence on Patents
and Proprietary Technology" and "Business -- Patents and Proprietary
Rights", and other references to intellectual property of the Company
contained in the Prospectus, to the best of such counsel's knowledge
and belief, are accurate and complete statements or summaries of the
matters therein set forth. Nothing has come to such counsel's attention
that causes them to believe that the above-described portions of the
Registration Statement and the Prospectus contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
To the best of such counsel's knowledge and belief, there are
no legal or governmental proceedings pending relating to patent rights,
trade secrets, trademarks service marks or other proprietary
information or materials of the Company. Also, to the best of such
counsel's knowledge and belief, no such proceedings are threatened or
contemplated by governmental authorities or others.
Such counsel does not know of any contracts or other
documents, relating to the Company's patents, trade secrets,
trademarks, service marks or other proprietary information or
materials, of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus, that are not filed or described as
required.
To the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets,
trademarks, service marks, or other proprietary information or
materials, of others, and to the best of such counsel's knowledge and
belief, there are no infringements by others of any of the Company's
patents, trade secrets, trademarks, service marks, or other proprietary
information or materials which in such counsel's judgment could affect
materially the use thereof by the Company.
A-5
<PAGE> 33
Such counsel has no knowledge of any facts which would
preclude the Company from having valid license rights or clear title to
the patents referenced in the Prospectus. Such counsel has no knowledge
that the Company lacks or will be unable to obtain any rights or
licenses to use all patents and other material intangible property and
assets necessary to conduct the business now conducted or proposed to
be conducted by the Company as described in the Prospectus, except as
described in the Prospectus. Counsel is unaware of any facts which form
a basis for a finding of unenforceability or invalidity of any of the
Company's patents and other material intangible property and assets.
Subject to any disclosure to the contrary in the Prospectus,
such counsel is not aware of any material fact with respect to the
patent applications of the Company presently on file that (i) would
preclude the issuance of patents with respect to such applications or
(ii) would lead such counsel to conclude that such patents, when
issued, would not be valid and enforceable in accordance with
applicable regulations.
In addition, such counsel shall state that although they have
not verified the accuracy or completeness of the statements contained
in the Prospectus, nothing has come to the attention of such counsel
that caused them to believe that, at the time the Registration
Statement became effective, the Prospectus (i) under the caption "Risk
Factors -- Dependence on Patents and Proprietary Technology", (ii)
under the caption "Business -- Patents and Proprietary Rights", or
(iii) where otherwise referring the intellectual property of the
Company, contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion,
they have relied on certain factual representations of the Company and that they
have not independently verified the accuracy and completeness of such
representations.
Certain patent counsel shall consent to the reference of their firm under
the captions "Legal Matters" and "Experts" in the Prospectus included in the
Registration Statement and to the filing of their opinion as an exhibit to the
Registration Statement.
A-6
<PAGE> 1
COMMON STOCK COMMON STOCK
[LOGO] [Micro Therapeutics, Inc. LOGO] [LOGO]
Incorporated under the laws of See reverse for
the state of Delaware certain definitions
CUSIP 59500W 10 0
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
- -------------------------- MICRO THERAPEUTICS, INC. ---------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[Corporate Seal]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
By
AUTHORIZED SIGNATURE
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MICRO THERAPEUTICS, INC.
GEORGE WALLACE and BRUCE FEUCHTER certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of MICRO THERAPEUTICS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation").
2. The filing date of the original Certificate of Incorporation of the
Corporation with the Delaware Secretary of State is July 31, 1996.
3. The Board of Directors of the Corporation has duly adopted resolutions
setting forth a proposed amendment of the Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing said
amendment to be submitted to the stockholders of the Corporation. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that Article 4, Section A. of the Certificate of
Incorporation of the Corporation be amended to read, in its entirety, as
follows:
ARTICLE 4
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is Twenty-Five Million (25,000,000) shares. Twenty
Million (20,000,000) shares shall be Common Stock, $.001 par value and Five
Million (5,000,000) shares shall be Preferred Stock, $.001 par value. The
Preferred Stock shall be issued in one or more series to be designated by
the Company's Board of Directors, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
<PAGE> 2
(d) Whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amount of
such sinking fund; and
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series.
Upon the effectiveness of this Certificate of Amendment of Certificate
of Incorporation ("Reclassification Date") (i) each issued and outstanding
share of the Corporations' Common Stock shall automatically and without any
action on the part of the holder thereof be reclassified as and changed
into .65 of a share of the Corporation's Common Stock, subject to the
treatment of fractional share interests as described below. From and after
the Reclassification Date, the Corporation shall issue, upon surrender for
cancellation of the certificates representing the stock of the Corporation
issued and outstanding prior to the Reclassification Date, new certificates
representing the applicable number of shares of Common Stock, which shall
be rounded to the nearest whole share. By way of illustration, a holder of
a certificate or certificates representing .5 or more of a fraction of a
share of Common Stock of the Corporation shall be rounded up to the nearest
whole number of shares of Common Stock of the Corporation and a holder of a
certificate or certificates representing less than .5 of a fraction of a
share of Common Stock of the Corporation shall be rounded down to the
nearest whole number of shares of Common Stock of the Corporation.
4. This Certificate of Amendment of Certificate of Incorporation was duly
adopted by the Board of Directors in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
5. This Certificate of Amendment of Certificate of Incorporation of the
Corporation was approved by the written consent of the stockholders of the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware. The total number of outstanding shares of each class entitled
to vote with respect to the foregoing amendment was 1,373,000 shares of Common
Stock, 833,333 shares of Series A-1 Preferred Stock, 900,000 shares of Series
A-2 Preferred Stock, 1,890,909 shares of Series B Preferred Stock and 1,933,700
shares of Series C Preferred Stock.
6. This Certificate of Amendment of Certificate of Incorporation required
the approval of a majority of the outstanding shares of Common Stock, Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, and
Series C Preferred Stock voting together as a single class, and the approval of
a majority of the outstanding shares of Common Stock voting as a separate class,
a majority of the outstanding shares of Preferred Stock voting as a separate
class, and the approval of the holders of 51% or more of the outstanding shares
of Series C Preferred Stock voting
2
<PAGE> 3
as a separate class. The number of shares of each class voting in favor of the
foregoing amendment equaled or exceeded the vote required, such required vote
being a majority of the outstanding shares of Common Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by George Wallace, its President, and attested to by
Bruce Feuchter, its Secretary, this 30th day of December, 1996.
/s/ GEORGE WALLACE
---------------------------
George Wallace,
President
ATTEST:
/s/ BRUCE FEUCHTER
- ---------------------------
Bruce Feuchter,
Secretary
<PAGE> 1
[STRADLING, YOCCA, CARLSON & RAUTH LETTERHEAD]
EXHIBIT 5.1
February 6, 1997
Micro Therapeutics, Inc.
1062 Calle Negocio #F
San Clemente, California 92673
Re: Registration Statement on Form SB-2
Registration No. 333-17345
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2, Registration
No. 333-17345, filed by Micro Therapeutics, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission on December 5, 1996 (as
amended by Amendment Nos.1, 2 and 3 thereto filed on January 10, 1997, January
13, 1997 and February 6, 1997, respectively, as such may be amended or
supplemented, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 2,300,000 shares
of common stock, $.001 par value (the "Shares"). The Shares, which include up
to 300,000 shares of common stock issuable pursuant to an over-allotment option
granted to the underwriters, are to be sold to the underwriters as described in
such Registration Statement for the sale to the public or issued to the
Representatives of the underwriters.
As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be
taken by you in connection with the sale and issuance of the Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares and upon completion of the proceedings
taken in order to permit such transactions to be carried out in accordance with
the securities laws of various states where required, the Shares, when issued
and sold in the manner described in the Registration Statement will be legally
issued, fully paid and nonassessable.
<PAGE> 2
Micro Therapeutics, Inc.
February 6, 1997
Page 2
We consent to the use of the opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus which is a part of the Registration Statement, including the
Prospectus constituting a part thereof and any amendment thereto.
Very truly yours,
/s/ STRADLING, YOCCA, CARLSON & RAUTH
-----------------------------------------
Stradling, Yocca, Carlson & Rauth
<PAGE> 1
Exhibit 10.8
MICRO THERAPEUTICS, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
MICRO THERAPEUTICS, INC., a Delaware corporation (the "Company") effective as of
the Effective Date, as defined below.
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The Company has determined that it is in its best
interest to provide incentives to attract and retain employees and to increase
employee morale by providing a program through which employees of the Company,
and of such of the Company's subsidiaries as the Company's Board of Directors
(the "Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the common
stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
2.1 COMPENSATION. "Compensation" means the amount indicated on the
Form W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by
the Company or any of its Designated Subsidiaries, any portion of whose income
is subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 EFFECTIVE DATE. "Effective Date" means the effective date of
the Company's first Registration Statement filed with the Securities and
Exchange Commission registering Company Stock.
2.4 5% OWNER. "5% Owner" means an Employee who, immediately after
the grant of any rights under the Plan, would own Company Stock or hold
outstanding options to purchase Company Stock possessing 5% or more of the total
combined voting power of all classes of stock
<PAGE> 2
of the Company. For purposes of this Section, the ownership attribution rules of
Code Section 425(d) shall apply.
2.5 GRANT DATE. "Grant Date" means the first day of each Offering
Period (July 1 and January 1) under the Plan. However, for the first Offering
Period, the Grant Date shall be the Effective Date.
2.6 PARTICIPANT. "Participant" means an Employee who has satisfied
the eligibility requirements of Section 3.1 and has become a participant in the
Plan in accordance with Section 3.2.
2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month
period ending on the last day of December.
2.8 OFFERING PERIOD. "Offering Period" means the six-month periods
from July 1 through December 31 and January 1 through June 30 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
on June 30, 1997 regardless of whether such initial Offering Period is more or
less than six months.
2.9 PURCHASE DATE. "Purchase Date" means the last day of each
Offering Period (December 31 or June 30).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated
Subsidiary, who, on the Grant Date, is customarily engaged on a
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year and who has been employed for at least ninety
(90) days (or, for the initial Offering Period only, such Employees who are
employed on the Effective Date) in the rendition of personal services to the
Company, or any Designated Subsidiary, may become a Participant in the Plan on
the Grant Date coincident with or next following his satisfaction of such
requirements of employment with the Company or any Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
requirements of Section 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "Stock Purchase
Agreement") authorizing payroll deductions. Payroll deductions for a Participant
shall commence on the Grant Date coincident with or next following the filing of
the Participant's Stock Purchase Agreement and shall remain in effect until
revoked by the Participant by the filing of a notice of withdrawal from the Plan
under Article VIII or by the filing of a new Stock Purchase Agreement providing
for a change in the Participant's payroll deduction rate under Section 5.2.
2
<PAGE> 3
3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company
Stock under the Plan;
(b) A Participant be entitled to purchase Company Stock
under the Plan which, when aggregated with all other employee stock purchase
plans of the Company, exceed an amount equal to the Aggregate Maximum.
"Aggregate Maximum" means an amount equal to $25,000 worth of Company Stock
(determined using the fair market value of such Company Stock at each applicable
Grant Date) during each calendar year; or
(c) The number of shares of Company Stock purchasable by
a Participant on any Purchase Date exceed 2,500 shares, subject to periodic
adjustments under Section 10.4.
ARTICLE IV
OFFERING PERIODS
4.1 OFFERING PERIODS. The initial grant of the right to purchase
Company Stock under the Plan shall occur on the Effective Date and terminate on
June 30, 1997. Thereafter, the Plan shall provide for Offering Periods
commencing on each Grant Date and terminating on the next following Purchase
Date.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation or in whole dollar amounts, not to exceed 20% of Compensation.
The amount so designated upon the Stock Purchase Agreement shall be effective
as of the next Grant Date and shall continue until terminated or altered in
accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation
in the Plan at any time prior to the close of an Offering Period as provided in
Article VIII. A Participant may decrease or increase the rate of payroll
deductions at any time during any Offering Period by completing and delivering
to the Human Resources Department of the Company a new Stock Purchase Agreement
setting forth the desired change. A Participant may also terminate payroll
deductions and have accumulated deductions for the Offering Period applied to
the purchase of Company Stock as of the next Purchase Date by completing and
delivering to the Human Resources Department a new Stock Purchase Agreement
setting forth the desired change. Any change under this Section shall become
effective on the next payroll period (to the extent practical under the
Company's payroll practices) following the delivery of the new Stock Purchase
Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain
a separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
3
<PAGE> 4
assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
ARTICLE VI
GRANT OF PURCHASE RIGHTS
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant
shall be granted a right to purchase at the price determined under Section 6.2
that number of shares and partial shares of Company Stock that can be purchased
or issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that there
are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 PURCHASE PRICE. The purchase price for any Offering Period
shall be the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the
Grant Date; or
(b) 85% of the Fair Market Value of Company Stock on the
Purchase Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial
Grant Date (which is the Effective Date), the price per share at which the
Common Stock is to be sold to the public in the initial public offering of the
Common Stock. For any subsequent date thereafter, "Fair Market Value" shall mean
the value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to
trading on the Nasdaq National Market System or a stock exchange which reports
closing sale prices, the Fair Market Value shall be the closing sale price on
the date of valuation on the Nasdaq National Market System or principal stock
exchange on which the Company Stock is then listed or admitted to trading, or,
if no closing sale price is quoted or no sale takes place on such day, then the
Fair Market Value shall be the closing sale price of the Company Stock on the
Nasdaq National Market System or such exchange on the next preceding day on
which a sale occurred.
(b) If the Company Stock is not then listed or admitted
to trading on the Nasdaq National Market System or a stock exchange which
reports closing sale prices, the Fair Market Value shall be the average of the
closing bid and asked prices of the Company Stock in the over-the-counter market
on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date
of valuation, then the Fair Market Value shall be determined by the
Administrator in good faith using any reasonable method of valuation, which
determination shall be conclusive and binding on all interested parties.
4
<PAGE> 5
ARTICLE VII
PURCHASE OF STOCK
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the
Participant to terminate and have his or her Account returned, on each Purchase
Date, the Plan shall purchase on behalf of each Participant the maximum number
of whole shares of Company Stock at the purchase price determined under Section
6.2 above as can be purchased with the amounts held in each Participant's
Account. In the event that there are amounts held in a Participant's Account
that are not used to purchase Company Stock, all such amounts shall be held in
the Participant's Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan may either be
issued directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under Article
IX. If the Company Stock is issued in the name of the Administrator, all Company
Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number of whole and partial shares of Company Stock that are being held by the
Administrator for the benefit of each Participant.
(b) Any Participant may elect to have the Company Stock
purchased under the Plan from his or her Account be issued directly to the
Participant. Any election under this paragraph shall be on the forms provided by
the Company and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is
issued directly to a Participant, the Company will deliver to each Participant a
stock certificate or certificates issued in his name for the number of shares of
Company Stock purchased as soon as practicable after the Purchase Date. Where
Company Stock is issued under this paragraph, only full shares of stock will be
issued to a Participant. The time of issuance and delivery of shares may be
postponed for such period as may be necessary to comply with the registration
requirements under the Securities Act of 1933, as amended, the listing
requirements of any securities exchange on which the Company Stock may then be
listed, or the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date
of an Offering Period, any Participant may withdraw the amounts held in his
Account by executing and delivering to the Human Resources Department for the
Company written notice of withdrawal on the form provided by the Company. In
such a case, the entire balance of the Participant's Account shall be paid to
the Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from
5
<PAGE> 6
participation in the Plan for the remainder of the Offering Period and for the
immediately following Offering Period, but may then be reinstated as a
participant for a subsequent Offering Period by executing and delivering a new
Stock Purchase Agreement to the Human Resources Department of the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the
Company terminates for any reason, the Participant shall cease to participate in
the Plan on the date of termination. As soon as is practical following the date
of termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a
beneficiary who is to receive any shares of Company Stock purchased under the
Plan or any cash from the Participant's Account in the event of his or her death
subsequent to a Purchase Date, but prior to delivery of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's Account under the Plan in the event
of his death prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above
may be changed by the Participant at any time by written notice. In the event of
the death of a Participant, the Committee may rely upon the most recent
beneficiary designation it has on file as being the appropriate beneficiary. In
the event of the death of a Participant where no valid beneficiary designation
exists or the beneficiary has predeceased the Participant, the Committee shall
deliver any cash or shares of Company Stock to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has been
appointed to the knowledge of the Committee, the Committee, in its sole
discretion, may deliver such shares of Company Stock or cash to the spouse or
any one or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Committee, then to such other person as
the Committee may designate.
ARTICLE IX
PLAN ADMINISTRATION
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors (the
"Board") for the Company, or a committee ("Committee") thereof. The Board or
Committee shall have all powers necessary to supervise the administration of the
Plan and control its operations.
(b) In addition to any powers and authority conferred on
the Board or Committee elsewhere in the Plan or by law, the Board or the
Committee shall have the following powers and authority:
(i) To designate agents to carry out
responsibilities relating to the Plan;
6
<PAGE> 7
(ii) To administer, interpret, construe and apply
this Plan and to answer all questions which may arise or which may be raised
under this Plan by a Participant, his beneficiary or any other person
whatsoever;
(iii) To establish rules and procedures from time
to time for the conduct of its business and for the administration and
effectuation of its responsibilities under the Plan; and
(iv) To perform or cause to be performed such
further acts as it may deem to be necessary, appropriate, or convenient for the
operation of the Plan.
(c) Any action taken in good faith by the Board or
Committee in the exercise of authority conferred upon it by this Plan shall be
conclusive and binding upon a Participant and his beneficiaries. All
discretionary powers conferred upon the Board shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member
of the Board or Committee shall be subject to any liability with respect to his
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any other Employee of the Company with duties under the
Plan who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative, or investigative, by reason of the person's conduct in the
performance of his duties under the Plan.
ARTICLE X
COMPANY STOCK
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of
shares of Company Stock that shall be made available for sale under the Plan
shall be 153,846 shares, subject to adjustment under Section 10.4 below. The
shares of Company Stock to be sold to Participants under the Plan will be issued
by the Company. If the total number of shares of Company Stock that would
otherwise be issuable pursuant to rights granted pursuant to Section 6.1 of the
Plan at the Purchase Date exceeds the number of shares then available under the
Plan, the Company shall make a pro rata allocation of the shares remaining
available in as uniform and equitable manner as is practicable. In such event,
the Company shall give written notice of such reduction of the number of shares
to each participant affected thereby and any unused payroll deductions shall be
returned to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or
voting right in shares to be purchased under Section 6.1 of the Plan until such
shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any
required action by the stockholders of the Company, the number of shares of
Company Stock covered by each right under the Plan which has not yet been
exercised and the number of shares of Company Stock which have been authorized
for issuance under the Plan but have not yet been placed under rights or which
have
7
<PAGE> 8
been returned to the Plan upon the cancellation of a right, as well as the
Purchase Price per share of Company Stock covered by each right under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Company Stock resulting
from a stock split, stock dividend, spin-off, reorganization, recapitalization,
merger, consolidation, exchange of shares or the like. Such adjustment shall be
made by the Board of Directors for the Company, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Company Stock subject to any right granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall continue in the manner and under the terms so provided. If such
provision is not made in such transaction for the continuance of the Plan and
the assumption of rights theretofore granted or the substitution for such rights
of new rights covering the shares of a successor corporation, then the Board of
Directors or its committee shall cause written notice of the proposed
transaction to be given to the persons holding rights not less than 10 days
prior to the anticipated effective date of the proposed transaction, and,
concurrent with the effective date of the proposed transaction, such rights
shall be exercised automatically in accordance with Section 7.1 as if such
effective date were a Purchase Date of the applicable Offering Period unless a
Participant withdraws from the Plan as provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate ten (10)
years after the Effective Date. Since future conditions affecting the Company
cannot be anticipated or foreseen, the Company reserves the right to amend,
modify, or terminate the Plan at any time. Upon termination of the Plan, all
benefits shall become payable immediately. Notwithstanding the foregoing, no
such amendment or termination shall affect rights previously granted, nor may an
amendment make any change in any right previously granted which adversely
affects the rights of any Participant. In addition, no amendment may be made
without prior approval of the stockholders of the Company if such amendment
would:
(a) Increase the number of shares of Company Stock that
may be issued under the Plan;
(b) Materially modify the requirements as to eligibility
for participation in the Plan; or
8
<PAGE> 9
(c) Materially increase the benefits which accrue to
Participants under the Plan.
11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the
effectiveness of any right granted hereunder shall be subject to approval by the
stockholders of the Company, within twelve months before or after the date the
Plan is adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be
assigned or alienated, whether voluntarily or involuntarily. Any attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Article VIII.
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee or to be
consideration for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall be deemed to give the right to any
Employee to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Employee at any time.
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the State of Delaware.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to
be performed on a day that falls on a Saturday, Sunday or legal holiday, that
act shall be performed on the next succeeding day which is not a Saturday,
Sunday or legal holiday. Notwithstanding the above, Fair Market Value shall be
determined in accordance with Section 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision
of the Plan, the Committee shall administer the Plan in such a way to ensure
that the Plan at all times complies with any requirements of Federal Securities
Laws. For example, affiliates may be required to make irrevocable elections in
accordance with the rules set forth under Section 16b-3 of the Securities
Exchange Act of 1934.
9
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 2, 1996 on our audits of the financial statements
of Micro Therapeutics, Inc. We also consent to the references to our firm under
the captions "Selected Financial Data" and "Experts".
COOPERS & LYBRAND L.L.P.
Newport Beach, California
February 6, 1997
