<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997.
REGISTRATION NO. 333-21317
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THERAGENICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 58-1528626
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
5325 OAKBROOK PARKWAY
NORCROSS, GEORGIA 30093
(770) 381-8338
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
M. CHRISTINE JACOBS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THERAGENICS CORPORATION
5325 OAKBROOK PARKWAY
NORCROSS, GEORGIA 30093
(770) 381-8338
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
RICHARD H. MILLER, ESQ. FREDERICK W. KANNER, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP DEWEY BALLANTINE
SIXTEENTH FLOOR 1301 AVENUE OF THE AMERICAS
191 PEACHTREE STREET, N.E. NEW YORK, NEW YORK 10019-6092
ATLANTA, GEORGIA 30303 (212) 259-8000
(404) 572-6600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or
reinvestment plans, 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 the delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share..... 2,300,000 shares $22.875(2) $52,612,500(2) $15,943(3)
- ----------------------------------------------------------------------------------------------------------------------------
Rights to Purchase Common Stock, $.01 par
value(4)................................. 2,300,000 rights -- -- --
============================================================================================================================
</TABLE>
(1) Includes 300,000 shares of Common Stock that the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act and based upon the average
of the high and low reported prices of the Common Stock on the Nasdaq Stock
Market on February 4, 1997.
(3) Previously paid.
(4) The Rights, which are attached to the shares of Common Stock being
registered, will be issued for no additional consideration and, therefore,
no additional registration fee is required.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1997
PROSPECTUS
2,000,000 SHARES
THERAGENICS CORPORATION LOGO
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by
Theragenics Corporation ("Theragenics" or the "Company").
The Common Stock of the Company is listed on the Nasdaq National Market
tier of The Nasdaq Stock Market(SM) ("Nasdaq") under the symbol "THRX." On
February 26, 1997, the last sale price of the Common Stock as reported by Nasdaq
was $24.75 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------
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 DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
==============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock on the same terms as set
forth above to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them, and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC. DAIN BOSWORTH
Incorporated
, 1997
<PAGE> 3
[GRAPHICS]
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK 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.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference in
this Prospectus. See "Risk Factors" for a discussion of certain factors that
should be carefully considered by prospective investors.
THE COMPANY
Theragenics is a leader in the production and marketing of implantable
radiation devices used in the treatment of prostate cancer. The Company produces
and markets TheraSeed(R), an FDA-licensed device based on Palladium-103
("Pd-103"), a radioactive isotope. Management believes the Company is the only
producer of Pd-103 for use in medical devices. In the treatment of prostate
cancer, TheraSeeds(R) are implanted into the prostate in a one-time, minimally
invasive procedure. The radiation emitted by the seeds is contained within the
immediate prostate area, killing the tumor while sparing surrounding organs.
TheraSeed(R) has been shown in independent clinical studies to offer success
rates that are comparable to or better than other conventional therapies, while
being associated with a reduced incidence of side effects. In addition,
TheraSeed(R) offers significant quality of life and cost advantages. Since 1987,
TheraSeed(R) has been used by physicians in nearly 300 centers across the United
States in approximately 13,000 procedures for prostate cancer, including
approximately 4,000 procedures in 1996. Sales of TheraSeed(R) increased 65% in
1995 and 58% in 1996 due to reliable production from the Company's
cyclotron-based manufacturing process and increased demand for TheraSeed(R) as a
result of significantly increased marketing efforts and the release of favorable
clinical data. TheraSeed(R) has also been used on a limited basis to treat
cancers of the pancreas, lung, head, neck, oral cavity, brain and eye.
Prostate cancer is the most common form of cancer, and the second leading
cause of cancer deaths, in men. It is expected to account for approximately 43%
of all cancers to be diagnosed in men during 1997. Based on industry data, the
Company estimates that the cost of treating prostate cancer exceeded $3.0
billion in the United States in 1995. The American Cancer Society estimates new
cases of prostate cancer grew 30% in 1996 to 317,000 from 244,000 cases in 1995,
with deaths associated with the disease estimated to have grown to 41,400 in
1996 from 40,000 in 1995. Principal reasons for the significant increase in new
cases have been advances in diagnostic technology and increased media attention,
including publicity regarding several highly visible individuals who have made
public their battles with the disease. Estimates by the United States Bureau of
Census indicate that the number of men most prone to prostate cancer, those 40
to 80 years old, will grow to 55 million by 2006 from 45 million in 1996. The
Company estimates its market share in the treatment of localized, early-stage
prostate cancer to be approximately 2.5%.
TheraSeed(R) treatment is performed through a method called ultrasound
guided transperineal seeding ("seeding"). In addition to seeding, prostate
cancer can be treated with radical prostatectomy ("RP"), external beam radiation
therapy ("EBRT"), hormone therapy, chemotherapy and watchful waiting. Hormone
therapy and chemotherapy are generally not intended to be curative and are not
actively used to treat localized, early-stage prostate cancer.
Management believes TheraSeed(R) offers significant advantages over RP and
EBRT. Recent multi-year clinical studies indicate that seeding offers success
rates that are comparable to or better than those of RP or EBRT and reduced
complication rates. In addition, the TheraSeed(R) treatment is a one-time
outpatient procedure with a two to three day recovery period. By comparison, RP
is an inpatient procedure typically accompanied by a three to seven day hospital
stay and a four to six week recovery period, and EBRT involves six to eight
weeks of daily radiation treatments. Treatment with TheraSeed(R) costs $10,000
to $15,000 per procedure, which is substantially lower than the cost of RP and
comparable to the cost of EBRT. In addition, management believes TheraSeed(R)
offers significant competitive advantages over Iodine-125 ("I-125"), an
alternative radioisotope used in seeding, as a result of Pd-103's higher dose
rate and shorter half-life.
The Company's strategy is to enhance market penetration and maintain
technological leadership in the field of radiological treatment of diseases by:
(i) increasing physician awareness of seeding and TheraSeed(R); (ii) maintaining
a strong commitment to providing cancer information services to patients; (iii)
maintaining technological leadership; (iv) exploring and evaluating
opportunities for strategic alliances; (v) promoting seeding to health care
payors; and (vi) exploring new distribution channels and product applications.
See "Recent Developments -- Prospective Strategic Alliance" for a description of
the Company's prospective strategic alliance with Indigo Medical, Inc.
("Indigo"), a subsidiary of Johnson & Johnson.
Theragenics received an FDA license for TheraSeed(R) in 1986 and commenced
product sales in 1987. The Company has been profitable in every quarter since
1991. In 1992, management increased its control over the manufacture of
TheraSeed(R) by integrating into the Company the production of Pd-103. This
significantly increased capacity for the production of TheraSeed(R) while
maintaining quality and regulatory compliance.
3
<PAGE> 5
RECENT DEVELOPMENTS
Prospective Strategic Alliance
On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. The letter of intent is subject to the
completion of definitive documentation and approval by the respective Boards of
Directors of the Company and Indigo. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution of TheraSeed(R). The terms of international
collaboration would be negotiated in the future.
The letter of intent also contemplates that Indigo will have a first right
of negotiation with respect to additional uses of TheraSeed(R) and other
products that may be developed by the Company. In addition, the letter of intent
provides that upon the execution and delivery of a definitive marketing and
sales agreement between the Company and Indigo, Johnson & Johnson Development
Corporation will purchase $5.0 million of Common Stock from the Company at a
price based on the market price of the Common Stock.
Management believes the proposed alliance with Indigo would provide for
sales growth and international expansion while allowing the Company to focus its
resources on maintaining its leadership in the production of Pd-103 for prostate
cancer treatment and other potential applications. By leveraging the extensive
worldwide marketing capability of Indigo and Johnson & Johnson, the Company
would eliminate the need to develop an extensive, vertically integrated sales,
marketing and education and training network. No assurance can be given,
however, that the Company and Indigo will enter into a definitive agreement or
that it will have the anticipated effect on the Company.
Adoption of Stockholder Rights Plan
On February 14, 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan (the "Rights Plan"). The Rights Plan contains provisions
to protect the Company's stockholders in the event of an unsolicited offer to
acquire the Company, including offers that do not treat all stockholders
equally, the acquisition in the open market of shares constituting control
without offering fair value to all stockholders and other coercive, unfair or
inadequate takeover bids and practices that could impair the ability of the
Board of Directors to represent stockholders' interests fully. See "Recent
Developments -- Adoption of Stockholder Rights Plan."
4
<PAGE> 6
THE OFFERING
Common Stock being offered.................. 2,000,000 shares(1)
Common Stock outstanding after the
offering.................................... 13,841,778 shares(1)(2)
Use of proceeds............................. To finance the purchase of
additional cyclotrons and the
construction of manufacturing
and office facilities and for
general corporate purposes
Nasdaq National Market Symbol............... THRX
SUMMARY FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Product sales............................................... $ 4,723 $ 7,782 $ 12,257
Cost of product sales....................................... 1,791 2,645 3,736
Selling, general and administrative......................... 1,844 2,396 3,198
Research and development.................................... 15 18 7
Net earnings................................................ 730 1,772 3,385
Earnings per common share................................... $ 0.06 $ 0.15 $ 0.28
Weighted average shares..................................... 11,583 11,759 12,259
OTHER DATA:
Capital expenditures........................................ $ 3,377 $ 2,427 $ 8,556
Number of operational cyclotrons at year-end................ 1 2 3
Number of TheraSeeds(R) sold................................ 122,837 202,872 319,474
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................. $ 2,986 $49,111
Property, plant and equipment, net.......................... 17,586 17,586
Total assets................................................ 23,689 69,814
Long-term debt, including current installments.............. 3,458 3,458
Shareholders' equity........................................ 19,385 65,510
</TABLE>
- ---------------
(1) Does not include up to 300,000 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based upon the number of shares outstanding as of February 26, 1997.
Excludes 799,000 shares of Common Stock issuable upon exercise of options
granted pursuant to the Company's existing stock option plans and 60,000
shares of Common Stock issuable upon exercise of warrants. See
"Capitalization" and Note G of Notes to Financial Statements.
(3) Adjusted to give effect to the sale of the shares of Common Stock offered
hereby (at an assumed public offering price of $24.75 per share) and the
receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
---------------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to 300,000
additional shares of Common Stock to cover over-allotments, if any. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
5
<PAGE> 7
RISK FACTORS
In evaluating the Company and its business, prospective investors should
consider carefully the following factors and other information contained in this
Prospectus before purchasing the Common Stock offered hereby.
EARLY STAGE OF PRODUCT COMMERCIALIZATION
The Company's products are in an early stage of commercialization.
Substantially all of the Company's revenues to date have been generated by sales
of its principal product, TheraSeed(R), to physicians for the treatment of
prostate cancer. Although TheraSeed(R) has been commercially available since
1987, sales of TheraSeed(R) currently account for only an estimated 2.5% share
of the market for the treatment of early-stage, localized prostate cancer. The
Company's long-term success depends on its ability to manufacture, market and
distribute TheraSeed(R) to a larger portion of the medical community. The time
frame necessary to accomplish these objectives is long and uncertain. There can
be no assurance that the Company will be able to continue to manufacture
TheraSeed(R) at an acceptable cost and appropriate quality, that the Company
will be able to develop new products or attain regulatory approval for such
products or that the Company will be able to increase sales in its target
market. The likelihood of the Company's future success must be considered in
light of these and other difficulties, expenses and delays frequently
encountered in connection with the commercialization of medical device products.
See "Business -- Production" and "-- Marketing."
UNCERTAINTY OF MARKET ACCEPTANCE; RELIANCE ON A SINGLE PRODUCT
Ultrasound guided transperineal seeding, currently the most prevalent
seeding technique practiced by physicians, is a relatively new treatment method
for prostate cancer with a relatively early level of market penetration. There
can be no assurance that seeding will gain significant market acceptance among
physicians, patients and health care payors. The continued success of the
Company's products depends on maintaining and increasing favorable perceptions
by patients, doctors and medical researchers regarding the safety, efficacy and
cost-effectiveness of TheraSeed(R). Management believes that recommendations by
physicians and health care payors will be essential to increase market
acceptance of seeding, and there can be no assurance that any such
recommendations will be obtained. Physicians will not recommend seeding unless
they conclude, based on clinical data and other factors, that it is an
attractive alternative to other methods of prostate cancer treatment, including
RP and EBRT. In particular, RP has a long history as the treatment of choice for
early-stage, localized prostate cancer, and many physicians have been trained in
this procedure. Moreover, in comparison to seeding, RP has more extensive
long-term outcomes data due to its establishment in the medical community. The
current seeding procedure employs sophisticated ultrasound and computer
technology for the precise placement of seeds in the prostate. An older method
of seed placement used as a treatment for prostate cancer was first developed in
the early 1970s, but fell into disfavor because the surgical technique then
employed (the "free-hand" technique) led to suboptimal clinical results. Some
negative perceptions of seeding in general persist as a result of the failures
of the free-hand technique. In addition, negative results from other radiation
treatment methods, particularly EBRT, could create an unfavorable public
perception of radiation treatment for prostate cancer in general, which would
adversely affect public acceptance of seeding. Reimbursement levels for seeding
relative to other treatment options will also affect physician acceptance. See
"-- Effect of Reimbursement Policies."
Although the Company's strategy includes exploring opportunities for
marketing TheraSeed(R) in international markets, physicians in many countries,
including most European countries, do not aggressively treat prostate cancer. No
assurance can be given that TheraSeed(R) will be an accepted method of treatment
outside the United States even if physicians in international markets
aggressively treat prostate cancer.
The Company has concentrated its efforts primarily on the development of
TheraSeed(R) and is dependent on the continuing commercialization of this
product to generate revenues. Because substantially all of the Company's
revenues are derived from the sale of TheraSeed(R), slow market acceptance or a
reduction in demand for TheraSeed(R) could have a material adverse effect on the
Company's business, financial condition and results of operations. Although
management plans to use the Company's core technology to develop
6
<PAGE> 8
additional products, there can be no assurance that such products will be
successfully developed, achieve therapeutic efficacy, be approved by regulatory
authorities or be successfully marketed. See "Business -- Strategy,"
"-- Marketing," "-- Competition" and "-- Government Regulation."
PRODUCTION RISKS; MANUFACTURING EXPANSION
The Company's manufacturing process requires, among other things, the use
of cyclotrons, which are used to manufacture Pd-103 for TheraSeed(R). Cyclotron
capacity and performance directly affect the Company's ability to achieve and
increase sales levels. Due to the intricate nature of cyclotrons and the
Company's exacting specifications for their performance, planned downtime for
maintenance and repair is crucial and unexpected downtime may occur. Unexpected
mechanical breakdowns or other production delays could materially adversely
affect the Company's production capacity and its business, financial condition
and results of operations.
The Company currently operates three cyclotrons, with a fourth cyclotron
expected to be operational during the first quarter of 1997. In order to achieve
planned revenue growth, the Company must significantly expand its manufacturing
capacity. The Company has ordered an additional four cyclotrons, which are
scheduled to become operational during 1998. The Company experienced a lengthy
period of unexpected downtime on its first cyclotron in late 1993 and has
experienced difficulties with the installation of its third cyclotron. The
Company may encounter further unexpected delays or costs in its expansion of
production capacity. Manufacturing or quality control problems may arise as the
Company increases production or as additional manufacturing capacity is required
in the future. These factors, coupled with the long lead time (in excess of 18
months) associated with the purchase of cyclotrons and the construction of
specially designed facilities to house the equipment, may have an adverse impact
on the Company's business, financial condition and results of operations. See
"Business -- Production."
DEPENDENCE ON POTENTIAL MARKETING ALLIANCE
On February 24, 1997, the Company entered into a letter of intent with
Indigo stating the intent to grant to Indigo the exclusive worldwide right to
market and sell TheraSeed(R) for the treatment of prostate cancer. The
consummation of this marketing alliance is subject, among other things, to the
negotiation and execution of a definitive agreement specifying the terms of the
arrangement. No assurance can be given that the Company will enter into such an
agreement on the terms specified in the letter of intent or otherwise. Failure
to establish such an arrangement could have a material adverse effect on the
market price for the Common Stock.
Under the terms of the proposed alliance, Indigo will assume exclusive
responsibility for the sales and marketing of TheraSeed(R) for the treatment of
prostate cancer and the Company will receive a fixed price per seed sold by
Indigo in the United States and will participate in any unit price increases
above a fixed gross price. As a result, the Company's results of operations
would be dependent upon Indigo's marketing efforts. Although management believes
Indigo will have an economic motivation to market TheraSeed(R) vigorously, the
Company will be unable to control the amount and timing of resources to be
devoted to such efforts. Failure to successfully market TheraSeed(R) under the
terms of the proposed alliance or any other arrangement could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Recent Developments -- Prospective Strategic Alliance" and
"Business -- Strategy" and "-- Marketing."
MANAGEMENT OF GROWTH
The Company has experienced a period of rapid growth that has placed, and
will continue to place, significant demands on its management, manufacturing and
other resources. The Company's future performance will depend in part on its
ability to manage growth and adjust its operations accordingly. In addition, the
Company's ability to manage its growth effectively will require continued
enhancement of its manufacturing, research and development and other operations
and the attraction, training and retention of key employees. If management were
to become unable to manage growth effectively, the Company's business, financial
7
<PAGE> 9
condition and results of operations could be materially adversely affected. See
"-- Retention of and Dependence on Key Personnel."
RELIANCE ON INDEPENDENT EQUIPMENT MANUFACTURERS
Management believes that the Company's cyclotron-based manufacturing
process provides the most cost-effective and reliable means of manufacturing
Pd-103. Management is aware of only a limited number of manufacturers that can
produce cyclotrons conforming to the size and quality specifications required by
the Company. The Company acquired each of its cyclotrons from a single
independent contractor and has contracted with this manufacturer to provide and
install the four additional cyclotrons currently on order. As with any
independent contractor, such contractor is not employed or otherwise controlled
by the Company and is generally free to conduct its business at its own
discretion. Although this contractor has entered into contracts with the Company
to manufacture four additional cyclotrons, such contracts can be terminated at
any time under certain circumstances by either the Company or the contractor and
can be breached at any time. Furthermore, work stoppages, slowing of production
or other delays by such independent contractor could have a material adverse
effect on the Company's operations. The Company has not made arrangements for
the manufacture of cyclotrons from other suppliers, and no assurance can be
given that acceptable alternative arrangements could be made on a timely basis
or at all. Additionally, the long lead time associated with the purchase of a
cyclotron would add significantly to the delay that would result from the need
to change cyclotron manufacturers unexpectedly. Any delay in meeting the
Company's production schedule for TheraSeed(R) could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, because the Company's contracts with its independent cyclotron
manufacturer are denominated in Belgian francs, the Company is exposed to
currency fluctuation risks. See "Business -- Production."
TECHNOLOGICAL DEVELOPMENTS AND COMPETITION
The Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. New developments in
technology may have a material adverse effect on the development or sale of the
Company's products and may render such products noncompetitive or obsolete.
Other companies, many of which have substantially greater capital resources,
marketing experience, research and development staffs and facilities than the
Company, are currently engaged in the development of products and innovative
methods for treating cancer that are similar to, or compete with, the Company's
products and technologies. In addition, a start-up company based in Belgium
founded by former employees of the Company has recently indicated an intent to
produce Pd-103 in the future and market a device similar to TheraSeed(R) for use
in the treatment of prostate cancer and other applications. Significant
developments by any of these companies or advances by medical researchers at
universities, government research facilities or private research laboratories
could eliminate the market for the Company's principal product or otherwise
render the Company's principal product obsolete. Furthermore, if demand for
TheraSeed(R) increases as a result of wider acceptance of seeding in the
treatment of prostate cancer, companies with substantially greater financial
resources than the Company, as well as extensive experience in research and
development, the regulatory approval process and manufacturing and marketing,
may elect to develop seeding treatments and products that are similar to those
of the Company.
TheraSeed(R) competes with prostate cancer treatment methods that are well
established in the medical community, including RP and EBRT. RP has been
performed for 30 years and has long been considered to be the medical standard
for the treatment of early stage, localized prostate cancer, the stage of cancer
most appropriate for seeding treatment. Although favorable clinical results for
seeding have been released, more extensive outcomes data is available for RP.
Urologists continue to perform RP with considerable frequency, with the annual
number of RPs increasing significantly over the past five years.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to stringent
government regulation in the United States and other countries. Currently,
TheraSeed(R) has 510(k) clearance from the FDA for
8
<PAGE> 10
commercial distribution in the United States. FDA and other governmental
approvals and clearances are subject to continual review, and later discovery of
previously unknown problems may result in restrictions on a product's marketing
or withdrawal of the product from the market. The commercial distribution in the
United States of any new products developed by the Company will be dependent on
obtaining the prior approval or clearance of the FDA, which can take many years
and entail significant costs. No assurances can be made that any such approval
or clearance will be obtained on a timely basis or at all. In countries where
the Company's products are not currently approved, the use or sale of the
Company's products will require approval by government agencies comparable to
the FDA. The process of obtaining such approvals is lengthy, expensive and
uncertain. There can be no assurance that the necessary approvals for the
marketing of the Company's products in other markets will be obtained on a
timely basis or at all. The Company is also required to adhere to applicable FDA
regulations for Good Manufacturing Practices ("GMP"), including extensive record
keeping and reporting and periodic inspections of its manufacturing facilities.
Similar requirements are imposed by governmental agencies in other countries.
The Company's manufacturing operations involve the manufacturing and
possession of radioactive materials, which are subject to stringent regulation.
The users of the Company's TheraSeed(R) product are also required to possess
licenses issued by the states in which they reside or the U.S. Nuclear
Regulatory Commission (the "NRC"). Use licenses are also required by some of the
foreign jurisdictions in which the Company may seek to market its products.
There can be no assurance that current licenses held by the Company for its
manufacturing operations will remain in force or that additional licenses
required for the Company's operations will be issued. There also can be no
assurance that the Company's customers will receive or retain the radioactive
materials licenses required to possess and use TheraSeed(R) or that delays in
the granting of such licenses will not hinder the Company's ability to market
its products. Furthermore, regulation of the Company's radioactive materials
manufacturing processes involves the imposition of financial requirements
related to public safety and decommissioning, and there are high costs and
regulatory uncertainties associated with the disposal of radioactive waste
generated by the Company's manufacturing operations. There can be no assurance
that the imposition of such requirements and the costs and regulatory
restrictions associated with disposal of waste will not, in the future,
adversely affect the Company's business, financial condition and results of
operations.
Failure to obtain and maintain regulatory approvals, licenses and permits
could significantly delay the Company's marketing efforts. Furthermore, changes
in or interpretations of existing regulations or the adoption of new restrictive
regulations could adversely affect either the obtaining or timing of future
regulatory approvals. Failure to comply with applicable regulatory requirements
could result in, among other things, significant fines, suspension of approvals,
seizures or recalls of products, operating restrictions or criminal prosecution
and materially adversely affect the Company's business, financial condition and
results of operations.
INTELLECTUAL PROPERTY RIGHTS; DEPENDENCE ON TRADE SECRETS
The Company's success will depend, in part, on its ability to obtain,
assert and defend patent rights, protect trade secrets and operate without
infringing the proprietary rights of others. The Company holds rights to issued
United States and foreign patents. There can be no assurance that rights under
patents held by or licensed to the Company will provide it with competitive
advantages or that others will not independently develop similar products or
design around or infringe the patents or other proprietary rights owned by or
licensed to the Company. For example, certain former employees of the Company
have recently formed a company that intends to produce Pd-103 and market a
device similar to TheraSeed.(R) In addition, there can be no assurance that any
patent obtained or licensed by the Company will be held to be valid and
enforceable if challenged by another party.
There can be no assurance that patents have not been issued or will not be
issued in the future that conflict with the Company's patent rights or prevent
the Company from marketing its products. Such conflicts could result in a
rejection of the Company's or its licensors' patent applications or the
invalidation of patents, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
of such conflicts, or in the event the Company believes that competitive
products
9
<PAGE> 11
infringe patents to which the Company holds rights, the Company may pursue
patent infringement litigation or interference proceedings against, or may be
required to defend against litigation or proceedings involving, holders of such
conflicting patents or competing products. There can be no assurance that the
Company will be successful in any such litigation or proceeding, and the results
and cost of such litigation or proceeding may materially adversely affect the
Company's business, financial condition and results of operations. In addition,
if patents that contain dominating or conflicting claims have been or are
subsequently issued to others and such claims are ultimately determined to be
valid, the Company may be required to obtain licenses under patents or other
proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays or could find that the development,
manufacture or sale of products requiring such licenses is foreclosed.
The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or that the
Company chooses not to patent. The Company seeks to protect non-patented
proprietary information, in part, by confidentiality agreements with suppliers,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others. The disclosure to third
parties of proprietary non-patented information could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Licenses; Trade Secrets."
EFFECT OF REIMBURSEMENT POLICIES
A substantial percentage of the patients treated for prostate cancer in the
United States are covered by Medicare, and consequently, the costs for prostate
cancer treatment are subject to Medicare's prescribed rates of reimbursement.
Medicare reimbursement amounts for seeding are currently significantly less than
for RP. Although seeding requires less physician time than RP, reimbursement
amounts, when combined with physician familiarity with RP, provide disincentives
for urologists to perform seeding. There can be no assurance that (i) current or
future limitations or requirements for reimbursement by Medicare or other third
party payors for prostate cancer treatment will not materially adversely affect
the market for TheraSeed(R), (ii) health administration authorities outside of
the United States will provide reimbursement at acceptable levels or at all or
(iii) any such reimbursement will continue at rates that enable the Company to
maintain prices at levels sufficient to realize an appropriate return.
RISK OF PRODUCT LIABILITY CLAIMS
The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of medical devices. To date, no product
liability claims have been asserted against the Company. The Company maintains a
product liability and general liability insurance policy with coverage of an
annual aggregate maximum of $5 million. The Company's product liability and
general liability policy is provided on a claims made basis and is subject to
annual renewal. There can be no assurance that liability claims will not exceed
the scope of coverage or limits of such policies or that such insurance will
continue to be available on commercially reasonable terms or at all. If the
Company does not or cannot maintain sufficient liability insurance, its ability
to market its products may be significantly impaired. In addition, product
liability claims, as well as negative publicity arising out of such claims,
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
NEED FOR FUTURE CAPITAL
The Company's capital requirements have been and are expected to continue
to be significant. The Company plans to use a substantial portion of the net
proceeds of this offering to fund expansion of its production capacity. The
Company also has an available credit facility to help finance the Company's
growth and expansion. Although management believes the Company's existing
capital resources, together with the net proceeds from this offering, available
credit and future operating cash flows, will be sufficient to fund the Company's
planned expansion over the next 24 months, there can be no assurance that such
sources will be
10
<PAGE> 12
sufficient to fund its planned expansion. The Company's capital requirements
will depend on numerous factors, including the time and cost involved in
expanding production capacity, the cost involved in protecting the proprietary
rights of the Company and the time and expense involved in obtaining required
regulatory approval to market TheraSeed(R) in new markets or similar approval
for new products of the Company.
RETENTION OF AND DEPENDENCE ON KEY PERSONNEL
The Company's ability to develop marketable products, to market its
products and services and to establish and maintain its competitive position
will depend, to a significant extent, on its ability to attract and retain
highly skilled management and scientific personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to attract and retain such personnel. The Company carries a key person life
insurance policy on its Chief Executive Officer in the amount of $1.0 million.
The Company has entered into employment agreements with the Company's President
and Chief Executive Officer and its Chief Financial Officer.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAW AND DELAWARE LAW PROVISIONS;
STOCKHOLDER RIGHTS PLAN
Certain provisions of the Company's Certificate of Incorporation, Bylaws
and Delaware law could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that investors
might be willing to pay in the future for shares of the Common Stock. These
provisions include (i) a board divided into three classes, each of which serves
for a staggered three-year term, (ii) a requirement that special meetings of
shareholders be called only by the Board of Directors or by any officer
instructed by the directors to call a special meeting and (iii) advance notice
requirements for shareholder proposals and nominations to the Board of
Directors. The Company is also subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested shareholder" for a period of three years following the date that
such shareholder became an interested shareholder.
On February 14, 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan. The Rights Plan contains provisions to protect the
Company's stockholders in the event of an unsolicited offer to acquire the
Company or certain other occurrences. Pursuant to the Rights Plan, the Board of
Directors declared and paid a dividend of one share purchase right (a "Right")
for each outstanding share of Common Stock held of record as of February 28,
1997. The Rights initially will be represented by, and traded together with, the
Common Stock. The Rights are not currently exercisable and do not become
exercisable unless certain events occur, including the acquisition of, or
commencement of a tender offer for, 15% or more of the outstanding Common Stock.
Each Right represents the right to purchase from the Company one share of Common
Stock at a purchase price of $120.00, subject to adjustment. In the event
certain triggering events occur, including the acquisition of 20% or more of the
outstanding Common Stock, each Right that is not held by a holder of 20% or more
of the outstanding Common Stock will entitle its holder to purchase additional
shares having a market value of twice the purchase price. As a result, the
Rights Plan could add substantially to the cost of acquiring the Company, and
consequently could delay or prevent a change in control of the Company. These
effects could adversely affect the market price of the Common Stock. See "Recent
Developments -- Adoption of Stockholder Rights Plan."
VOLATILITY OF MARKET PRICE OF COMMON STOCK
From time to time after this offering, there may be significant volatility
in the market price of the Common Stock. Quarterly operating results of the
Company or other companies in the same line of business, publication of the
results of studies involving seeding or TheraSeed(R), developments involving the
Company's proprietary rights, changes in reimbursement levels, changes in
general conditions in the medical community or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock markets have from time to time
experienced significant price and volume fluctuations that have often been
unrelated to the operating performance of particular companies.
11
<PAGE> 13
THE COMPANY
The Company was incorporated under the laws of the State of Delaware in
November 1981. The Company's executive offices are located at 5325 Oakbrook
Parkway, Norcross, Georgia 30093, and its telephone number is (770) 381-8338.
RECENT DEVELOPMENTS
Prospective Strategic Alliance
On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. The letter of intent is subject to the
completion of definitive documentation and approval by the respective Boards of
Directors of the Company and Indigo. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution of TheraSeed(R). The terms of international
collaboration would be negotiated in the future.
The letter of intent also contemplates that Indigo will have a first right
of negotiation with respect to additional uses of TheraSeed(R) and other
products that may be developed by the Company. In addition, the letter of intent
provides that upon the execution and delivery of a definitive marketing and
sales agreement between the Company and Indigo, Johnson & Johnson Development
Corporation will purchase $5.0 million of Common Stock from the Company at a
price based on the market price of the Common Stock.
Management believes the proposed alliance with Indigo would provide for
sales growth and international expansion while allowing the Company to focus its
resources on maintaining its leadership in the production of Pd-103 for prostate
cancer treatment and other potential applications. By leveraging the extensive
worldwide marketing capability of Indigo and Johnson & Johnson, the Company
would eliminate the need to develop an extensive, vertically integrated sales,
marketing and education and training network. No assurance can be given,
however, that the Company and Indigo will enter into a definitive agreement or
that it will have the anticipated effect on the Company.
Adoption of Stockholder Rights Plan
On February 14, 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan (the "Rights Plan"). The Rights Plan contains provisions
to protect the Company's stockholders in the event of an unsolicited offer to
acquire the Company, including offers that do not treat all stockholders
equally, the acquisition in the open market of shares constituting control
without offering fair value to all stockholders and other coercive, unfair or
inadequate takeover bids and practices that could impair the ability of the
Board of Directors to represent stockholders' interests fully. Pursuant to the
Rights Plan, the Board of Directors declared and paid a dividend of one share
purchase right (a "Right") for each outstanding share of Common Stock held of
record as of February 28, 1997. The Rights, which will expire in February 2007,
initially will be represented by, and traded together with, the Common Stock.
The Rights are not currently exercisable and do not become exercisable unless
certain events occur, including the acquisition of, or commencement of a tender
offer for, 15% or more of the outstanding Common Stock. Each Right represents
the right to purchase from the Company one share of Common Stock at a purchase
price of $120.00, subject to adjustment. In the event certain triggering events
occur, including the acquisition of 20% or more of the outstanding Common Stock,
each Right that is not held by the 20% or more stockholder will entitle its
holder to purchase additional shares of Common Stock having a market value of
twice the purchase price. As a result, the Rights Plan could add substantially
to the cost of acquiring the Company, and consequently could delay or prevent a
change in control of the Company. These effects could adversely affect the
market price of the Common Stock. Prior to the time the Rights become
exercisable, the Board of Directors may redeem the Rights at a redemption price
12
<PAGE> 14
of $.01 per Right. The description and terms of the Rights are set forth in a
Rights Agreement dated as of February 17, 1997 by and between the Company and
SunTrust Bank, Atlanta, as Rights Agent.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock being offered hereby are
estimated to be $46.1 million ($53.1 million if the Underwriters' over-allotment
option is exercised in full), assuming an offering price of $24.75 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to utilize approximately $20.0 million of the net
proceeds for the purchase of four additional cyclotrons during the next two
fiscal years and to construct facilities to house the cyclotrons, assembly
facilities and additional executive and administrative office space. The
remaining proceeds will be used for working capital and for general corporate
purposes, including but not limited to expenses or capital expenditures incurred
in the purchase of additional cyclotrons, marketing, research and development
and automation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Pending such
uses, the Company intends to invest the net proceeds in short-term, investment
grade instruments, certificates of deposit or direct or guaranteed obligations
of the United States or its agencies.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the sale by the Company of the
shares of Common Stock offered hereby at an assumed public offering price of
$24.75 per share and the receipt of the estimated net proceeds therefrom. See
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current installments.............. $ 3,458 $ 3,458
------- -------
Shareholders' equity:
Common Stock, $.01 par value, 50,000,000 shares
authorized; 11,814,278 shares issued and outstanding,
actual; 13,814,278 issued and outstanding, as
adjusted(1)............................................ 118 138
Additional paid-in capital................................ 17,617 63,722
Retained earnings......................................... 1,650 1,650
------- -------
Total shareholders' equity........................ 19,385 65,510
------- -------
Total capitalization.............................. $22,843 $68,968
======= =======
</TABLE>
- ---------------
(1) Excludes 826,500 shares of Common Stock issuable upon exercise of options
granted pursuant to the Company's existing stock option plans at a weighted
average exercise price of $7.22 per share and 60,000 shares of Common Stock
issuable upon exercise of warrants at an exercise price of $7.50 per share.
See Note G of Notes to Financial Statements.
13
<PAGE> 15
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
It is the present policy of the Board of Directors to retain all earnings to
support operations and to finance expansion. Consequently, the Board of
Directors does not anticipate declaring or paying cash dividends on the Common
Stock in the foreseeable future. The Company's current credit facility limits
the amount of dividends payable on the Common Stock to a maximum of 25% of the
Company's annual net income after tax. Decisions on the payment and amount of
future dividends on the Common Stock will depend on the Company's results of
operations, capital requirements and financial condition and other relevant
factors as determined by the Board of Directors.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on Nasdaq under the symbol "THRX." The following
table sets forth, for the calendar quarters indicated, the high and low sale
prices of the Common Stock as reported on Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter............................................. $ 3.75 $ 2.25
Second Quarter............................................ 6.50 3.13
Third Quarter............................................. 6.38 4.88
Fourth Quarter............................................ 12.50 4.88
1996
First Quarter............................................. 12.25 7.00
Second Quarter............................................ 18.63 8.63
Third Quarter............................................. 19.25 11.75
Fourth Quarter............................................ 25.63 16.00
1997
First Quarter (through February 26, 1997)................. 27.63 17.88
</TABLE>
On February 26, 1997, the last reported sale price of the Common Stock on
Nasdaq was $24.75 per share. As of February 26, 1997, there were 752 holders of
record of the Common Stock.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
have been derived from the financial statements of the Company included
elsewhere herein, which have been audited by Grant Thornton LLP, independent
certified public accountants. The selected financial data as of December 31,
1992, 1993 and 1994 and for each of the years in the two-year period ended
December 31, 1993 have been derived from the financial statements of the
Company, which have been audited by Grant Thornton LLP but are not included
herein. The selected financial data set forth below should be read in
conjunction with the financial statements of the Company and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Product sales............................ $ 4,379 $ 4,091 $ 4,723 $ 7,782 $12,257
Licensing fees........................... -- -- -- 85 100
------- ------- ------- ------- -------
4,379 4,091 4,723 7,867 12,357
Cost of product sales.................... 1,227 1,678 1,791 2,645 3,736
Selling, general and administrative...... 1,639 1,607 1,844 2,396 3,198
Research and development................. 63 36 15 18 7
------- ------- ------- ------- -------
2,929 3,321 3,650 5,059 6,941
Other income (expense)................... 68 (86) 110 64 36
------- ------- ------- ------- -------
Net earnings before income taxes,
extraordinary credit and cumulative
effect of change in accounting
principle.............................. 1,518 684 1,183 2,872 5,452
Income tax expense....................... 582 254 453 1,100 2,067
------- ------- ------- ------- -------
Net earnings before extraordinary credit
and change in accounting method........ 936 430 730 1,772 3,385
Extraordinary credit..................... 556 -- -- -- --
Change in accounting method.............. -- 2,860 -- -- --
------- ------- ------- ------- -------
Net earnings............................. $ 1,492 $ 3,290 $ 730 $ 1,772 $ 3,385
======= ======= ======= ======= =======
Earnings per common share before
extraordinary credit and change in
accounting method...................... $ 0.08 $ 0.04 $ 0.06 $ 0.15 $ 0.28
Earnings per common share................ $ 0.13 $ 0.28 $ 0.06 $ 0.15 $ 0.28
Weighted average shares.................. 11,431 11,709 11,583 11,759 12,259
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments.......... $ 2,928 $ 3,083 $ 2,317 $ 3,266 $ 2,986
Property, plant and equipment, net....... 3,404 5,647 8,458 10,073 17,586
Total assets............................. 7,851 12,619 14,169 16,878 23,689
Long-term debt, including current
installments........................... -- 1,330 1,989 1,519 3,458
Shareholders' equity..................... 7,445 11,034 11,810 14,769 19,385
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Theragenics was founded in 1981 and is engaged in the manufacture and sale
of TheraSeed(R), a rice-sized device used for the treatment of localized
prostate cancer in a one-time, minimally invasive procedure. In 1986, the
Company received FDA clearance for its principal product, TheraSeed(R), for use
in any solid localized tumor. Sales increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotrons and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data relating to the use of TheraSeed(R).
TheraSeed(R) has been used in an estimated 13,000 procedures for prostate cancer
since 1987, including approximately 4,000 procedures in 1996.
Production of Pd-103, the radioisotope supplying the therapeutic radiation
of TheraSeed(R), has always been a controlling factor in the Company's efforts
to generate sales. Until 1993, the Company used a manufacturing process that
required it to contract with third parties for enrichment services that were
necessary to produce a useable feed material for production of Pd-103 in a
nuclear reactor. Additionally, the Company was dependent on a university and a
United States government reactor for the irradiation of this feed material to
yield Pd-103. These factors combined to limit the availability of Pd-103 on a
timely and consistent basis.
To increase its control over the timely and consistent availability,
quality and cost of Pd-103, the Company converted to an alternative means of
producing Pd-103 using a cyclotron. In 1992, the Company contracted for the
purchase of a cyclotron for in-house production of Pd-103. After the cyclotron
was delivered and reliable production of Pd-103 was demonstrated, the Company
discontinued its reliance on outside vendors for enrichment and irradiation
services.
In view of the scale of the investment necessary to add cyclotrons and the
Company's limited access to debt and equity capital, the Company undertook a
slow and measured roll-out of its TheraSeed(R) product. Management focused
primarily on the careful development of relationships with the physician
community and on ensuring that the Company's production capabilities could meet
demand for its product. The Company added additional cyclotrons in 1995 and
1996, and a fourth cyclotron is scheduled to become operational in early 1997.
Because a cyclotron does not become available for production until approximately
18 months after it is ordered, the accuracy of the Company's long-term plans can
significantly affect its results of operations. The delivery of cyclotrons prior
to a commensurate increase in demand could adversely impact margins, while
inadequate cyclotron capacity could limit the Company's ability to meet demand
and achieve maximum sales growth.
The Company has recently commenced a $20.0 million capital expansion
project that includes the purchase of four additional cyclotrons and the
construction of new production and administrative facilities. Although no
assurances can be given, management expects that one new cyclotron will become
operational during each quarter of fiscal 1998. Management intends to apply a
substantial portion of the net proceeds of this offering toward the purchase of
the cyclotrons to be installed in fiscal 1998 and use the remainder for working
capital and other corporate purposes as appropriate. See "Use of Proceeds" and
"-- Liquidity and Capital Resources."
On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution for TheraSeed(R). The terms of international
collaboration would be negotiated in the future.
Should a definitive agreement be reached, management expects that the
proposed alliance would result in higher sales volume that would offset the
reduced price received by the Company for its product and would
16
<PAGE> 18
provide avenues for international expansion. Based on the Company's ability to
utilize Indigo's sales, marketing and education and training network, management
also anticipates that an alliance with Indigo would significantly reduce the
increases in selling, general and administrative expense that would be necessary
to generate and respond to any future sales increases. In addition, management
expects that increased volume would require the Company to purchase additional
cyclotrons and plans to order additional cyclotrons at a rate commensurate with
demand in the event a definitive agreement with Indigo is reached. No assurance
can be given, however, that the Company and Indigo will successfully negotiate
or execute a definitive agreement or that it will have the anticipated effect on
the Company's results of operations.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Product sales were $12.3 million in 1996 compared to $7.8 million in 1995,
an increase of $4.5 million, or 57.7%. This increase was due to increased
shipments of TheraSeed(R) as a result of reliable production from the Company's
cyclotron-based manufacturing process and increased demand for TheraSeed(R) as a
result of significantly increased marketing efforts and the release of favorable
clinical data. During the periods presented, the Company engaged in significant
marketing efforts to educate both physicians and patients as to the availability
of this treatment option. Sales also reflect that the Company had two cyclotrons
available to meet sales demand throughout 1996 as compared to only one cyclotron
until April 1995.
Licensing fees represent royalty payments with respect to the Company's
licensed TheraSphere(R) technology. Management does not expect licensing fees to
become material in the foreseeable future. See Note F of Notes to Financial
Statements.
Cost of product sales was $3.7 million in 1996 compared to $2.6 million in
1995, an increase of $1.1 million, or 42.3%. This increase was due primarily to
incremental staffing and cyclotron related costs. Staffing increases were
necessary to respond to and anticipate sales growth. Cyclotron operating costs
and depreciation increased as the Company's second cyclotron ran for the entire
year and the third cyclotron was placed in service. The third cyclotron came
on-line behind schedule in the fourth quarter of 1996 and is experiencing
start-up difficulties. As cyclotrons come on-line, margins decline because each
machine represents excess capacity for a period while carrying its full
component of fixed costs, including depreciation. As a percentage of product
sales, cost of product sales decreased from 34.0% in 1995 to 30.5% in 1996. This
decrease resulted from economies of scale, offset in part by margin pressures
related to bringing the third cyclotron into production.
Selling, general and administrative expense was $3.2 million in 1996
compared to $2.4 million in 1995, an increase of $803,000, or 33.5%. This
increase reflects higher expenditures in a number of areas to support increased
sales. Marketing expenditures increased, as did staffing costs in response to
increasing workloads and responsibilities brought on by growth. Some salaries
were increased to maintain competitiveness in the marketplace and thereby retain
and attract key employees. Additionally, as head count grew, space became
limited in the Company's two facilities. The Company rented and outfitted
off-site administrative space at additional expense. Also, an increase in
overall asset size resulted in higher insurance and property tax costs. Other
support expenses grew in direct response to sales and asset size. Despite these
increases, selling, general and administrative expense as a percentage of net
sales decreased from 30.8% in 1995 to 26.1% in 1996 due to economies of scale.
During the periods presented, the Company had no ongoing pure research
function. Development of processes incorporated in the Company's production
operations is incorporated in the manufacturing area and therefore is included
in the cost of goods sold category. Management may choose to develop a research
and development program if and when appropriate opportunities are identified and
resources are in place.
Other income (expense) during the periods presented consist principally of
interest income, interest expense and write off of unamortized loan costs as a
result of loan refinancing.
The Company's effective income tax rate in both 1996 and 1995 was
approximately 38%.
17
<PAGE> 19
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Product sales were $7.8 million in 1995 compared to $4.7 million in 1994,
an increase of $3.1 million, or 64.8%. This increase was due to reliable
production from the Company's cyclotron-based manufacturing process and
increased demand for TheraSeed(R) as a result of significantly increased
marketing efforts and the release of favorable clinical data. During 1994, sales
efforts remained conservative while the Company addressed the lingering impact
of the 1993 change-over from reactor-produced to cyclotron-produced Pd-103 and a
lengthy period of unexpected downtime on the Company's first cyclotron during
the third quarter of 1993. In 1993 and the first half of 1994, management
delayed increasing marketing efforts until reliable cyclotron production of
Pd-103 was demonstrated. Once demonstrated, the Company instituted a more
aggressive marketing program in mid-1994. Product sales for 1995 reflected the
favorable impact of this increased marketing effort.
Cost of product sales was $2.6 million in 1995 compared to $1.8 million in
1994, an increase of $855,000, or 47.8%. This increase resulted from the
increase in TheraSeed(R) sales. As a percentage of product sales, cost of
product sales decreased from 37.9% in 1994 to 34.0% in 1995, primarily as a
result of increased utilization of production capacity and economies of scale,
partially offset by increased depreciation.
Selling, general and administrative expense was $2.4 million in 1995
compared to $1.8 million in 1994, an increase of $552,000, or 29.9%. This
increase was due primarily to increased advertising and public relations expense
to support activities associated with increased sales. Headcount expenses also
increased in response to the additional workload created by the higher sales. As
a percentage of net sales, selling, general and administrative expense decreased
from 39.0% in 1994 to 30.8% in 1995 due to economies of scale.
Income Taxes. The Company's effective income tax rate in both 1995 and
1994 was approximately 38%.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, 1995 and 1996, the Company's principal cash needs related to
capital spending to increase manufacturing capacity. To manufacture
TheraSeed(R), the Company purchases, installs and operates cyclotrons, which
involves significant capital investment. The Company has funded its operations
over this period principally from cash flows from operations and bank
borrowings.
The Company had cash and short-term investments of $2.3 million, $3.3
million and $3.0 million at December 31, 1994, 1995 and 1996, respectively.
Working capital was $1.3 million at December 31, 1996, including $3.5 million
representing borrowings against the Company's credit facility. This compares to
$3.7 million at year end 1995, which included $511,000 representing the current
portion of long-term obligations. The Company's credit facility allows for the
conversion of, at the Company's option, the entire outstanding balance borrowed
against the credit facility to be converted to a five-year term loan on or
before June 30, 1997, provided the Company equals or exceeds certain financial
ratios. See Note E of Notes to Financial Statements. The Company currently
satisfies these conditions. If the Company were to meet these ratios on June 30,
1997, and choose to convert the December 31, 1996 balance of $3.5 million to a
five-year term loan, the pro forma restated working capital at December 31, 1996
would equal approximately $4.4 million.
Cash provided by operating activities was $1.6 million, $3.4 million and
$5.7 million during 1994, 1995 and 1996, respectively. These amounts represent
primarily net income and adjustments for deferred income tax expense and
depreciation and amortization expense, offset in part by adjustments for
increases in accounts receivable related to sales growth.
Cash used in investing activities was $3.1 million, $2.4 million and $8.6
million in 1994, 1995 and 1996, respectively, consisting in each of these years
primarily of purchases of property and equipment. Spending in 1994 primarily
represented progress payments on a project to add a second cyclotron to the
Company's manufacturing facility. This project began in 1993 and was completed
in 1995. Spending in 1995 represents the beginning of a project to add
cyclotrons three and four to the facility, while spending in 1996 represents the
continuation of the project to add cyclotrons three and four to the facility,
the purchase of 30 acres of land for the Company's expansion project and
spending on an assembly automation project. The expansion project for
18
<PAGE> 20
the addition of cyclotrons three and four that began in 1995 is estimated to
cost approximately $9.0 million and be completed in early 1997. As of January
23, 1997, approximately $8.5 million had been spent on this expansion project.
On December 27, 1996, the Company entered into agreements for the purchase
of four additional cyclotrons. These four cyclotrons are part of a larger
expansion project that will also include new cyclotron, product assembly and
administrative facilities. Upon completion of the project, the Company plans to
consolidate its entire workforce at this one site. As of January 23, 1997, the
Company had already spent approximately $2.5 million on this project. Management
estimates the total cost of the project to be approximately $20.0 million.
Cash provided (used) by financing activities was $659,000, ($21,000) and
$2.6 million in 1994, 1995 and 1996, respectively. Cash flows from financing
activities relates principally to bank borrowings and repayments thereof and, in
1995 and 1996, proceeds from the exercise of stock options and warrants. In the
third quarter of 1994, Theragenics received funding on a $2.1 million loan
secured by the Company's cyclotron facility including a second cyclotron (the
"1994 Term Loan"). The 1994 Term Loan was to mature in 1998 and bore an interest
rate of 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay
off an outstanding balance under an existing long-term financing while the
remainder was used to provide partial financing for the purchase of the second
cyclotron and the facility expansion to house it. As of December 8, 1996,
approximately $1.0 million remained outstanding on the 1994 Term Loan.
In December 1995, the Company amended and restated its existing bank credit
facility. The amended and restated bank credit facility (the "Bank Credit
Facility") initially consisted of a $1.0 million receivables credit facility and
an additional $2.0 million revolving credit facility. The Bank Credit Facility
was subsequently increased to $5.0 million. On December 9, 1996, the Company
amended and restated the Bank Credit Facility. The amended and restated Bank
Credit Facility (the "Second Credit Facility") consisted of an $11.0 million
revolving credit facility. Partial proceeds from the Second Credit Facility were
used to pay off the $1.0 million balance on the 1994 Term Loan, while borrowings
under the Bank Credit Facility were rolled over to the Second Credit Facility.
Borrowings under the Second Credit Facility are secured by substantially all of
the Company's assets. The Second Credit Facility contains certain covenants
limiting the payment of dividends, the amount of annual capital expenditures and
the incurrence of additional debt and requires the maintenance of certain
minimum financial ratios. As of December 31, 1996, the Company was in compliance
with all of such covenants. Borrowings under the Second Credit Facility may be
made, at the Company's option, at an interest rate equal to the London Interbank
Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At
year-end, $3.5 million was outstanding against the Second Credit Facility. The
Second Credit Facility terminates on June 30, 1997. At that time, the entire
amount outstanding against the credit facility may, at the Company's option, be
converted to a five-year term loan provided certain financial ratios are
attained. No assurances can be made that the Company will attain these ratios or
if it does that it will choose to convert said balance to the term loan. See
Note E of Notes to Financial Statements.
Management believes that the net proceeds of this offering, together with
current cash balances, cash from future operations and the Second Credit
Facility, will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 24 months. See "Use of Proceeds."
19
<PAGE> 21
QUARTERLY RESULTS
The following table sets forth certain consolidated statements of
operations data for each of the Company's last eight quarters. This unaudited
quarterly information has been prepared on the same basis as the annual audited
information presented elsewhere in this Prospectus, reflects all adjustments
(consisting only of normal, recurring adjustments) necessary in management's
opinion for a fair presentation of the information for the periods covered and
should be read in conjunction with the financial statements and notes thereto.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
1995 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $ 1,834 $ 1,912 $ 1,926 $ 2,195 $ 2,798 $ 2,727 $ 3,144 $ 3,688
------- ------- ------- ------- ------- ------- ------- -------
Cost of product sales....... 635 639 665 706 753 888 958 1,137
Selling, general and
administrative............ 604 674 607 511 693 771 722 1,012
Research and development.... 7 7 3 0 1 1 1 4
Other income (expense)...... 28 29 28 (21) 27 26 17 (34)
------- ------- ------- ------- ------- ------- ------- -------
Net earnings before income
taxes..................... 616 621 679 956 1,378 1,093 1,480 1,501
Income tax expense.......... 234 236 258 372 524 415 562 566
------- ------- ------- ------- ------- ------- ------- -------
Net earnings................ $ 382 $ 385 $ 421 $ 584 $ 854 $ 678 $ 918 $ 935
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share... $ 0.03 $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.06 $ 0.07 $ 0.08
Weighted average shares..... 11,539 11,784 11,937 12,134 12,106 12,204 12,298 12,372
</TABLE>
INFLATION
Management does not believe that the relatively moderate levels of
inflation which have been experienced in the United States in recent years have
had a significant effect on the Company's net sales or profitability.
20
<PAGE> 22
BUSINESS
GENERAL
Theragenics is a leader in the production and marketing of implantable
radiation devices used in the treatment of prostate cancer. The Company produces
and markets TheraSeed(R), an FDA-licensed device based on Pd-103, a radioactive
isotope. Management believes the Company is the only producer of Pd-103 for use
in medical devices. In the treatment of prostate cancer, TheraSeeds(R) are
implanted into the prostate in a one-time, minimally invasive procedure. The
radiation emitted by the seeds is contained within the immediate prostate area,
killing the tumor while sparing surrounding organs. TheraSeed(R) has been shown
in independent clinical studies to offer success rates that are comparable to or
better than other conventional therapies, while being associated with a reduced
incidence of side effects. In addition, TheraSeed(R) offers significant quality
of life and cost advantages. Since 1987, TheraSeed(R) has been used by
physicians in nearly 300 centers across the United States in approximately
13,000 procedures for prostate cancer, including approximately 4,000 procedures
in 1996. Sales of TheraSeed(R) increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotron-based manufacturing process and
increased demand for TheraSeed(R) as a result of significantly increased
marketing efforts and the release of favorable clinical data. TheraSeed(R) has
also been used on a limited basis to treat cancers of the pancreas, lung, head,
neck, oral cavity, brain and eye.
On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. The letter of intent is subject to the
completion of definitive documentation and approval by the respective Boards of
Directors of the Company and Indigo. Management believes the proposed alliance
with Indigo would provide for sales growth and international expansion while
allowing the Company to focus its resources on maintaining its leadership in the
production of Pd-103 for prostate cancer treatment and other potential
applications. By leveraging the extensive worldwide marketing capability of
Indigo and Johnson & Johnson, the Company would eliminate the need to develop an
extensive, vertically integrated sales, marketing and education and training
network.
Theragenics received an FDA license for TheraSeed(R) in 1986 and commenced
product sales in 1987. The Company has been profitable in every quarter since
1991. In 1992, management increased its control over the manufacture of
TheraSeed(R) by integrating into the Company the production of Pd-103. This
significantly increased capacity for the production of TheraSeed(R) while
maintaining quality and regulatory compliance.
INDUSTRY OVERVIEW
Prostate Cancer
Prostate cancer is the most common form of cancer, and the second leading
cause of cancer deaths, in men. It is expected to account for approximately 43%
of all cancers to be diagnosed in men during 1997. Based on industry data, the
Company estimates that the cost of treating prostate cancer exceeded $3.0
billion in the United States in 1995. The American Cancer Society estimates new
cases of prostate cancer grew 30% in 1996 to 317,000 from 244,000 cases in 1995,
with deaths associated with the disease estimated to have grown to 41,400 in
1996 from 40,000 in 1995. Principal reasons for the significant increase in new
cases have been advances in diagnostic technology and increased media attention,
including publicity regarding several highly visible individuals who have made
public their battles with the disease. Estimates by the United States Bureau of
Census indicate that the number of men most prone to prostate cancer, those 40
to 80 years old, will grow to 55 million by 2006 from 45 million in 1996. The
Company estimates its market share in the treatment of localized, early-stage
prostate cancer to be approximately 2.5%.
The prostate is a walnut-sized gland surrounding the male urethra, located
below the bladder and adjacent to the rectum. The two most prevalent prostate
diseases are benign prostatic hyperplasia ("BPH") and prostate cancer. BPH is a
non-cancerous enlargement of the innermost part of the prostate. Prostate cancer
is a malignant tumor that begins most often in the periphery of the gland and,
like other forms of cancer, may spread beyond the prostate to other parts of the
body. If left untreated, prostate cancer can
21
<PAGE> 23
metastasize to the lung or bone, resulting in death. The following table
summarizes the various stages of prostate cancer.
<TABLE>
<S> <C>
--------------------------- ------------------------------------------------------------
CLASSIFICATION STAGE OF PROGRESSION
------------------------------------------------------------------------------------------
A Clinically unsuspected
------------------------------------------------------------------------------------------
B Tumor confined to the prostate gland (localized)
------------------------------------------------------------------------------------------
C Tumor outside prostate capsule
------------------------------------------------------------------------------------------
D Metastasized into pelvic lymph nodes
------------------------------------------------------------------------------------------
D2 Metastasized into distant lymph nodes,
organs, soft tissues or bone
------------------------------------------------------------------------------------------
</TABLE>
Source: American Urological Association Today
Prostate cancer can grow slowly or quickly and virulently, and its cause
and potential methods of prevention are currently unknown. The risk of
developing prostate cancer increases with age. By way of comparison, studies
indicate that one in five men in the United States can expect to develop the
disease, whereas one in eight women in the United States may expect to contract
breast cancer. With prompt treatment, the long-term outlook for men with
localized, early-stage prostate cancer is considered favorable.
Approximately 58% of new prostate cancer diagnoses are defined to be at the
localized stage of the disease. Prostate cancer is typically curable when
detected early, but the lack of early-stage symptoms makes diagnosis difficult.
Until 1988, the best method of routine examination had been the digital rectal
exam, which requires the existence of solid tumors for detection. In 1988, a
diagnostic test was developed that determines the amount of prostate specific
antigen ("PSA") present in the blood. PSA is found in a protein secreted by the
prostate, and elevated levels of PSA are associated with either prostatitis (a
noncancerous inflammatory condition) or a proliferation of cancer cells in the
prostate. The widespread acceptance of the PSA test greatly improved physicians'
ability to diagnose prostate cancer at an early stage and significantly
increased the number of new cases diagnosed annually. Industry studies have
shown that the PSA test can detect prostate cancer as many as five years earlier
than the digital rectal exam. The PSA test is currently part of the routine
medical check-up for prostate assessment. Transrectal ultrasound tests and
biopsies are typically performed on patients with elevated PSA readings to
confirm the existence of cancer.
Treatment Options
In addition to seeding, prostate cancer can be treated with RP, EBRT,
hormone therapy, chemotherapy and watchful waiting. Some of these therapies may
be combined. The treatments that have been most successful are those that remove
or kill all of the cancerous tissue while avoiding excessive damage to the
surrounding healthy tissue. When the cancerous tissue is not completely
eliminated, the cancer typically returns to the primary site, often with
metastases to other areas. The following is a summary of treatment options for
prostate cancer other than seeding.
Radical Prostatectomy is a major surgical procedure that involves the
complete removal of the prostate gland. This procedure has been used for 30
years and is considered to be the standard medical treatment for early-stage,
localized tumors. RP typically requires a three to seven day hospital stay and a
lengthy recovery period (generally four to six weeks). Side effects include
impotence and incontinence. The cost of RP ranges from $20,000 to $30,000 per
procedure, excluding treatment for side effects and postoperative complications.
Approximately 120,000 men underwent RP in 1995.
External Beam Radiation Therapy involves directing a beam of radiation at
the prostate gland to destroy tumorous tissue and has been a common technique
for treating many kinds of cancer since the 1950s. EBRT has typically been
reserved for early-stage prostate cancer in locally advanced cases where the
patient presents an inappropriate surgical risk. The therapy consists of a
series of daily treatments usually lasting from six to eight weeks. Rectal
complications resulting from damage to the rectal wall caused by the radiation
beam as it travels to the prostate are the most common side effects. Principal
side effects also include incontinence and
22
<PAGE> 24
impotence, but these side effects generally occur with less frequency than they
do following RP. EBRT is estimated to cost between $12,000 to $15,000 per
patient. Approximately 35,000 men underwent EBRT in 1995.
Ancillary Therapies, primarily consisting of hormone therapy and
chemotherapy, are used to slow the growth of cancer and reduce tumor size, but
are generally not intended to be curative. Ancillary therapies are often used
during advanced stages of the disease to extend life and relieve symptoms. Side
effects of hormonal drug therapy include increased development of breasts,
impotence and decreased libido. In addition, many hormone pharmaceuticals
artificially lower PSA levels in patients, which can interfere with staging the
disease and monitoring its progress. Side effects of chemotherapy include
nausea, hair loss and fatigue. Drug therapy and chemotherapy require long-term,
repeated administration of medication on an outpatient basis.
Watchful Waiting is recommended by some physicians in certain circumstances
based on the severity and growth rate of the disease, as well as on the age and
life expectancy of the patient. The aim of watchful waiting is to monitor the
patient, treat some of the attendant symptoms and determine when more active
intervention is required. Watchful waiting requires periodic physician visits
and PSA monitoring.
In addition to the treatment options described above, other forms of
treatment are being developed and tested in clinical trials. Cryosurgery, which
freezes and destroys diseased tissue, has been used to treat prostate cancer,
but to the Company's knowledge has not demonstrated a long-term curative effect.
Photon radiosurgery, a developmental stage form of treatment that emits
low-energy x-rays from a probe and irradiates the tumor from the inside out, is
undergoing clinical studies for the treatment of metastatic brain tumors.
Clinical trials for prostate cancer are not anticipated to begin until late 1997
or early 1998.
THE THERAGENICS SOLUTION
Theragenics produces and markets TheraSeed(R), an FDA-licensed device
currently used principally in seeding for the treatment of prostate cancer. In
this application, TheraSeeds(R) are implanted throughout the prostate gland in a
minimally invasive surgical technique under ultrasound guidance. The radiation
emitted by the seeds is contained within the immediate prostate area, killing
the tumor while sparing surrounding organs. The seeds, whose capsules are
biocompatible, are not removed after delivering their radiation dose to the
prostate. TheraSeed(R) is best suited for solid localized tumors and is usually
classified as a treatment for early-stage disease.
Management believes TheraSeed(R) offers significant advantages over RP and
EBRT. Recent multi-year clinical studies indicate that seeding offers success
rates that are comparable to or better than those of RP or EBRT and reduced
complication rates. In addition, the TheraSeed(R) treatment is a one-time
outpatient procedure with a two to three day recovery period. By comparison, RP
is an inpatient procedure typically accompanied by a three to seven day hospital
stay and a four to six week recovery period, and EBRT involves six to eight
weeks of daily radiation treatments. Treatment with TheraSeed(R) costs $10,000
to $15,000 per procedure, which is substantially lower than the cost of RP and
comparable to the cost of EBRT. In addition, management believes TheraSeed(R)
offers significant competitive advantages over I-125, an alternative
radioisotope used in seeding, as a result of Pd-103's higher dose rate and
shorter half-life.
TheraSeed(R) is a radioactive "seed" approximately 4.5 millimeters long and
0.81 millimeters wide, or approximately the size of a grain of rice. Each seed
consists of a biocompatible titanium capsule containing the radioactive
substance Pd-103. The half-life of Pd-103, or the time required to reduce the
emitted radiation to one-half of its initial level, is 17 days, resulting in the
loss of almost all radioactivity in less than four months.
Treatment Protocol
Prostate cancer patients electing seed therapy first undergo a transrectal
ultrasound test or CT scan, which generates a two-dimensional image of the
prostate that is transformed into a three-dimensional image. With the assistance
of a computer program, a treatment plan is designed that calculates the number
and placement of the seeds required for the best possible distribution of
radiation to the prostate.
23
<PAGE> 25
Once the implant model has been constructed, the procedure is scheduled and
the seeds are ordered. The number of seeds implanted ranges from 40 to 100, with
the number of seeds varying with the size of the prostate. The procedure is
usually performed under local anesthesia in an outpatient setting. An ultrasound
probe is first positioned in the rectum to guide needle placement and seed
location. Correct needle placement is facilitated by a template, or grid, that
covers the perineum (the area between the scrotum and rectum through which the
needles are inserted) and is attached to the ultrasound probe. Implant needles
loaded with seeds are assigned to the appropriate template holes as indicated in
the treatment plan. Each needle is guided through the template and then through
the perineum to its predetermined position within the prostate under direct
ultrasound visualization. The seeds are implanted as the needle is withdrawn
from the prostate. When all seeds have been inserted, the ultrasound image is
again reviewed to verify seed placement.
An experienced practitioner typically performs the procedure in
approximately 60 to 90 minutes, with the patient often returning home at day's
end. Recovery time is typically two to three days. In contrast, RP generally
requires up to three hours to perform, with a three to seven-day hospital stay
and a typical recovery period of four to six weeks. EBRT requires daily
outpatient radiation treatments for a period of six to eight weeks.
Seeding has been used as a treatment for prostate cancer since the early
1970s, when I-125 seeds were implanted in prostate tumors under open surgery.
However, this "free hand" technique fell into disfavor because the seeds were
often haphazardly arranged leading to inhomogeneous dosimetry, with suboptimal
antitumor effect in underdosed areas and significant damage to collateral
tissues, particularly in the urethra and rectum, in overdosed areas. Clinical
results indicate that the computer modeling and advanced imaging and other
techniques used in seeding today have virtually eliminated these drawbacks.
Clinical Results
Strong Efficacy Results. Clinical data indicates that seeding offers
success rates that are comparable to or better than those of RP or EBRT. In a
study published in Urology Times in September 1994, Drs. John Blasko and Haakon
Ragde of the Northwest Tumor Institute in Seattle, Washington, found that in a
study of 291 men with early-stage prostate cancer, 93% exhibited a normal PSA an
average of 38 months after treatment with either Pd-103 or I-125 seed
implantation. A study published in 1995 by Drs. Blasko and Ragde found 100% of
the 111 patients treated with TheraSeed(R) for localized early-stage prostate
cancer showed no localized prostate cancer after treatment follow-up ranging
from 12-73 months, with a median follow-up of 32 months. The actuarial
disease-free rate at 54 months was 89%. Updating their previous study on
patients treated with Pd-103 or I-125 for a paper prepared for the First
International Consultation on Prostate Cancer organized by the World Health
Organization in June 1996, Drs. Blasko and Ragde found a seven-year actuarial
local disease-free rate of 97% for 320 patients treated for localized
early-stage prostate cancer. They also presented therein a seven-year actuarial
distant disease-free rate of 87% for 188 patients who were considered to
represent higher risks of locally advanced prostate cancer and were treated with
a combination of Pd-103 or I-125 seeding and a modified dose of EBRT. A study by
Dr. Michael Dattoli of University Community Hospital, Tampa, Florida and Dr.
Kent Wallner of Memorial Sloan-Kettering Cancer Center, New York, New York,
published in the International Journal of Radiation Oncology, Biology and
Physics in July 1996 found a three-year actuarial freedom from biochemical
failure (based on PSA scores) of 79% among 73 patients with clinically
localized, high risk prostate cancer who were treated with EBRT in combination
with Pd-103. This compares favorably to results reported for patients treated
with conventional dose EBRT alone. These locally advanced cases are significant
because RP guidelines would not classify them as suitable for surgical
treatment.
Reduced Incidence of Side Effects. Because TheraSeed(R) delivers a highly
concentrated and confined dose of radiation directly to the prostate, healthy
surrounding tissues and organs are spared excessive radiation exposure. This
results in significantly fewer and less severe side effects and complications
than are incurred with other conventional therapies. RP generally results in a
50-90% impotence rate and a 2-65% incontinence rate, and EBRT generally results
in impotence and incontinence rates of 40-60% and 10-25%, respectively. In
contrast, according to the 1995 study by the Northwest Tumor Institute described
above, it was reported that 85% of seed therapy patients under 70 years of age
who were potent before the procedure remained so. In
24
<PAGE> 26
addition, patients who had not had a previous transurethral prostate resection
("TURP") suffered no incontinence. Patients having a previous TURP have
compromised urinary tracts and can experience higher rates of incontinence.
Patients receiving seeding can expect some urinary urgency post-implantation as
the Pd-103 delivers its radiation dose.
Lower Treatment Cost. The total cost of seeding is approximately $10,000
to $15,000 per procedure. This is approximately one-half the cost of RP, which
ranges from $20,000 to $30,000, excluding treatment for side effects and
post-operative complications, and is comparable to the cost of EBRT, which
ranges from $12,000 to $15,000 for a six-to-eight week course of treatment.
The following table compares the methods of treatment discussed above with
a minimum of five-year outcomes data:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
EXTERNAL BEAM
RADICAL PROSTATECTOMY RADIATION THERAPY SEEDING
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outpatient procedure One-time outpatient
Inpatient procedure with with daily treatments for procedure lasting
Nature of Treatment 3-7 day hospital stay 6-8 weeks 60-90 minutes
- ------------------------------------------------------------------------------------------------------------
Targeted Cancer Stage A and B A, B and C A and B
- ------------------------------------------------------------------------------------------------------------
Five Year Success Rate(a) 78-83% 50% 80-100%
- ------------------------------------------------------------------------------------------------------------
Recovery Period Generally 4-6 weeks None after 6-8 weeks 2-3 days
- ------------------------------------------------------------------------------------------------------------
Impotence Rate(b) 50-90% 40-60% 5-15%
- ------------------------------------------------------------------------------------------------------------
Incontinence Rate(b) 2-65% 10-25% 0-2%
- ------------------------------------------------------------------------------------------------------------
Cost Per Procedure $20,000-$30,000 $12,000-$15,000 $10,000-$15,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated as the percent of patients disease-free after five years. Rates
may be actuarially computed.
(b) The percent of patients with normal continence and potency prior to
treatment not preserving such attributes. Excludes patients with previous
TURPs.
Management believes TheraSeed(R) represents the best available form of
seeding. Another radioactive isotope, Iodine-125 ("I-125"), is also commercially
available as a permanent implant. TheraSeed(R) is the first commercially
available alternative isotope to I-125 since I-125's introduction in the 1970s.
Management believes I-125 and Pd-103 are used with relatively equal frequency in
substantially all prostate cancer seeding procedures. Another technique known as
"temporary seeding," which involves the temporary placement of an Iridium-based
source in or near a tumor, is used in a very small percentage of cases.
Management believes Pd-103 has the following advantages over I-125: (i) Pd-103
delivers three times the dose rate of I-125, which can yield advantages in
treating aggressive cancers, (ii) Pd-103 has approximately one-third the
half-life of I-125, which shortens radiation induced side effects and exposure
to medical personnel in treatment follow-up; and (iii) unlike I-125, Pd-103 is
nontoxic and non-volatile as it decays. Management is not aware of any clinical
studies directly comparing the efficacy of Pd-103 and I-125.
STRATEGY
In an effort to enhance market penetration and maintain technological
leadership in the field of radiological treatment of diseases, the Company is
implementing the following strategies. In the event the Company enters into a
definitive agreement with Indigo, management anticipates that Indigo will assume
and expand upon certain of the strategic initiatives described below.
- Increase Physician Awareness of Seeding and TheraSeed(R). Physician
acceptance is critical to the increased use of seeding as a form of
treatment for prostate cancer. The primary physician for the treatment of
prostate cancer is the urologist. RP has a long history as the treatment
of choice for early-stage, localized prostate cancer and urologists are
accustomed to performing this procedure. Compelling long-term outcomes
data is therefore key to the development of physician interest in seeding
as an
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<PAGE> 27
alternative form of prostate cancer treatment. To promote such interest,
the Company is publishing the results of recent clinical studies
illustrating TheraSeed(R)'s effectiveness in treating prostate cancer and
is supporting related research and publication efforts by physicians using
TheraSeed(R). Management recognizes the importance of well-trained
physicians and the need for quality training in advancing the growth of
this product and is exploring opportunities toward this end. Management
has historically lent financial support to training centers and expects to
continue this practice. By increasing physician awareness of TheraSeed(R)
and its effectiveness in treating prostate cancer, the Company plans to
increase demand for TheraSeed(R) within the medical community.
- Maintain A Strong Commitment to Providing Cancer Information Services to
Patients. Management believes that patients are taking an active role in
choosing their medical treatment. In response to this, Theragenics intends
to maintain its efforts to increase patient awareness of alternative
treatments and the importance of second opinions through its Cancer
Information Center as well as other avenues of increasing awareness.
- Maintain Technological Leadership. Management believes the Company is
the only producer of Pd-103-based radioactive seeds. The Company's
strategy is to be a technological leader in the cancer treatment industry
and believes its proprietary technology possesses performance advantages
over competitive seed technology. The Company will also continue to focus
on production technology to maintain leadership in this area.
- Explore and Evaluate Opportunities for Strategic Alliances. The Company
is negotiating the terms of a strategic alliance with Indigo Medical,
Inc., a subsidiary of Johnson & Johnson, and has stated an intent to grant
to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Management believes this alliance
will enable the Company to focus its resources on maintaining its
leadership in the production of Pd-103 for prostate cancer treatment and
other potential applications without being required to develop an
extensive, vertically integrated sales, marketing, education and training
network. Synergies with other large healthcare-related companies may be
identified in the future and Theragenics may pursue strategic
relationships with such companies on its own or through its relationship
with Indigo. Such relationships could relate to marketing, product
development, supply, distribution, research or other aspects of the
Company's operations. Potential strategic allies include large
pharmaceutical or medical device companies, health maintenance
organizations, outpatient treatment centers and companies, hospitals,
research centers, universities, start-up companies or other entities.
Management believes the Company's long-term growth and strong competitive
position could be enhanced through such alliances or affiliations and
intends to actively seek suitable opportunities for such relationships.
- Promote Seeding to Health Care Payors. A substantial portion of the cost
of prostate cancer treatment in the United States is currently reimbursed
by the Medicare program and other third party payors. The amount of
reimbursement for prostate cancer treatment is likely to have a
significant impact on the decisions of urologists, oncologists and other
health care providers regarding treatment options. The Company has been
actively engaged in efforts to ensure that adequate and fair reimbursement
for seeding is available for the doctors performing the procedure. The
Company has long-standing relationships with patient advocacy groups that
share with the Company a desire to ensure unrestricted access to the
TheraSeed(R) treatment alternative. The Company plans to continue these
activities as they relate to the Company's business.
- Explore New Distribution Channels and Product Applications. Management
believes significant long-term international marketing opportunities exist
for TheraSeed(R). Although no meaningful overseas market currently exists
for the product, management believes a variety of factors, including
international introduction of the PSA test, may create an international
market for TheraSeed(R) in the future. In addition, although the Company
has focused primarily on prostate cancer to date, management believes
TheraSeed(R) could be used increasingly to treat other forms of cancer,
including cancers of the pancreas, lung, head, neck, oral cavity, brain
and eye. Management plans to support programs to identify additional
oncological and non-oncological uses for TheraSeed(R) and Pd-103.
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<PAGE> 28
PRODUCTION
The production of TheraSeed(R) is dependent upon the availability of
Pd-103, as well as Rhodium-103 ("Rh-103"), titanium, graphite and lead. With the
exception of Pd-103, all of these raw materials are relatively inexpensive and
readily available from third party suppliers.
Pd-103 is a radioactive isotope that can be produced by neutron bombardment
of Pd-102 in a nuclear reactor, or by proton bombardment of Rh-103 in a
cyclotron. Following the production of Pd-103 from Rh-103 in the cyclotron, the
Pd-103 is harvested from the cyclotron and moved through a number of proprietary
production processes until it reaches its final seed form used by doctors.
Until 1993, the Company used the neutron bombardment method of producing
Pd-103. Under this method, the Company was required to contract with third
parties for the enrichment services necessary to produce a useable feed material
for production of Pd-103 in a nuclear reactor. Additionally, the Company was
dependent upon a university and a United States government reactor for the
irradiation of this feed material to yield Pd-103. The government facility was
subject to increasing political uncertainty regarding its control and funding,
and neither the university nor the government facility operated on a commercial
timetable. These factors combined to limit the Company's ability to obtain
Pd-103 on a timely and consistent basis.
To increase its control over timely and consistent availability, quality
and cost of Pd-103, the Company turned to the proton bombardment method of
producing Pd-103. To accomplish this alternative method of production, the
Company contracted in 1992 for the purchase of a cyclotron for in-house
production of Pd-103. After the cyclotron was delivered and reliable production
of Pd-103 was proven, the Company discontinued its reliance on outside vendors
for enrichment and irradiation services.
The Company has three cyclotrons in production and is currently installing
a fourth, which is scheduled to become operational during the first quarter of
1997. The Company has ordered four additional cyclotrons for installation in
fiscal 1998. The Company's cyclotrons are designed, built, installed and tested
by a Belgian company specializing in the construction of such equipment. A
number of proprietary design modifications are incorporated in the cyclotrons.
These modifications are subject to confidentiality agreements with the cyclotron
manufacturer and the Company's own personnel.
Due to the highly sophisticated and technical nature of the equipment, the
Company has encountered delays and difficulties in the construction,
installation and testing of its cyclotrons. Management cannot be certain that
such problems will not occur in connection with the construction, installation
and testing of the cyclotrons to be installed in 1998. See "Risk
Factors -- Production Risks; Manufacturing Expansion."
Cyclotron operations constitute only one component of the TheraSeed(R)
manufacturing process. Because the production of TheraSeed(R) is highly
sensitive and labor intensive, management is focusing significant attention and
effort on automating and otherwise improving all aspects of the Company's
manufacturing process. Although the automation process is difficult and time
consuming, management believes it will improve efficiency, further reduce
radiation exposure to personnel and provide additional production capacity for
TheraSeed(R).
MARKETING
The Company's marketing program is aimed at increasing awareness of
TheraSeed(R) within the medical community and the potential patient population,
as well as adding value to its customers' medical practices.
Strategic Alliance. The Company recently entered into a letter of intent
with Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent
to grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Indigo would also assume responsibility
for the education and training of urologists, radiation oncologists and other
personnel involved in the use of TheraSeed(R). The letter of intent also
contemplates that Indigo will have a first right of negotiation with respect to
additional uses of TheraSeed(R) and other products that may be developed by the
Company.
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<PAGE> 29
Management believes the proposed alliance with Indigo would provide for
sales growth and international expansion while allowing the Company to focus its
resources on maintaining its leadership in the production of Pd-103 for prostate
cancer treatment and other potential applications. By leveraging the extensive
worldwide marketing capability of Indigo and Johnson & Johnson, the Company
would eliminate the need to develop an extensive, vertically integrated sales,
marketing and education and training network. No assurance can be given,
however, that the Company and Indigo will enter into a definitive agreement or
that it will have the anticipated effect on the Company's operations.
Education/Awareness. Bringing attention to prostate cancer and its
treatment alternatives is a primary focus of the Company's marketing program. As
part of its pull marketing strategy, the Company works to disseminate prostate
cancer information through general interest stories in the print and broadcast
media. To accomplish this strategy, the Company uses its own in-house network of
media contacts as well as public relation firms. Theragenics also has an
advertising program aimed at men over 50 that promotes options for the treatment
of prostate cancer and stresses the importance of alternative treatments and
obtaining second opinions. The Company also staffs its own Cancer Information
Center to answer questions about the TheraSeed(R) treatment and assist cancer
patients in locating physicians trained in seeding. Representatives of the
Company regularly attend trade shows and conventions where the Company is
visible to large numbers of urologists, radiation oncologists and patients.
Advocacy. The Company has supported the writing and publication of a book
by a TheraSeed(R) patient, aided patient support groups, sponsored speakers on
prostate cancer, and has been active with cancer information hotlines such as
the American Cancer Society. Theragenics has fought and continues to fight for
adequate reimbursement for seed implantation from Medicare and other third party
payors. Theragenics has also advocated treatment opportunities for military
veterans.
Scholarship. The Company actively supports the writing of scholarly
articles by doctors using TheraSeed(R) and the publication of these articles in
medical journals. The Company also supports and encourages doctors using
TheraSeed(R) to present papers to and speak at seminars and symposiums on
prostate disease.
Customer Service. The Company performs a value-added service to the
physician customer by directing patients seeking additional information from
Theragenics' Cancer Information Center to one of the nearly 300 centers across
the United States performing the TheraSeed(R) treatment. Theragenics also
provides assistance to physicians newly trained in the TheraSeed(R) treatment by
providing the doctor or the medical center with consultative advice on
increasing the visibility of the practice and the new treatment being performed
there. Theragenics retains a company specializing in medical reimbursement to
assist its customers in obtaining adequate reimbursement from third party
payors.
Physician Training. Management recognizes the marketing benefits that can
be generated by a well-trained seeding physician population and the need for
quality training to achieve that end. Physicians are currently trained at three
seeding education centers across the United States.
THERASPHERE(R)
Theragenics has also participated in the development of TheraSphere(R), a
microscopic radioactive glass sphere designed for the treatment of liver cancer.
The Company holds a worldwide exclusive license from the University of Missouri
for the use of the technology required to produce TheraSphere(R). The Company
has granted to Nordion International, Inc. ("Nordion") an exclusive worldwide
sublicense to manufacture, distribute and sell TheraSphere(R) for any
application. TheraSphere(R) has been approved for distribution in Canada, but
has not been approved by the FDA for distribution in the United States. Under
the terms of the sublicense, Nordion has agreed to obtain the necessary
regulatory approvals for distribution of TheraSphere(R) in the United States and
other countries. The commercial development and regulatory approval of
TheraSphere(R) is still in its early stages, and management does not anticipate
significant revenues from TheraSphere(R) within the foreseeable future.
A TheraSphere(R) treatment dose contains approximately five million
yttrium-90 glass spheres that are each approximately half the diameter of a
human hair. The radiation dose is delivered to the tumor by
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<PAGE> 30
introducing the TheraSphere(R) by catheter into the hepatic artery, which
carries arterial blood to the liver. Because of greater blood flow to tumors
compared to healthy liver tissue, the microspheres concentrate in the
capillaries feeding the tumor. The concentration of microspheres in healthy
tissue is much lower. Because of the ability to place the radiation source in
such close proximity to the tumor, TheraSphere(R) can deliver a radiation dose
to the tumor cells five times as strong as that which can be delivered via
external beam radiation.
PATENTS AND LICENSES; TRADE SECRETS
The Company's success is dependent upon protecting its proprietary
technology for the production of Pd-103. The Company relies in part on
combinations of patent, trademark and trade secrecy laws, along with contractual
provisions, to protect its intellectual property rights and its technology. The
effectiveness of these various types of protection can be limited, however, by
variations in laws and enforcement procedures from country to country. It is
possible that competitors may independently develop similar technology or
otherwise obtain access to the Company's intellectual property assets.
The Company holds United States patents directed to Pd-103 based on its
production using both cyclotrons and nuclear reactors. The Company also has
corresponding patents in Canada, South Africa, Japan and the 10 countries of the
European patent convention, and a PCT patent application on file for Japan,
Australia, New Zealand, Canada, and Europe (representing 16 European countries)
as well as a direct filing in Mexico. The Company may file additional patent
applications from time to time and considers the ownership of patents important,
but not necessarily essential, to its operations. The Company also uses a
strategy of confidentiality agreements and trade secret treatment to provide
primary protection to a number of proprietary design modifications in the
cyclotrons, as well as various production processes.
The Company also holds a worldwide exclusive license from the University of
Missouri for the use of technology required for producing TheraSphere(R).
Theragenics holds the rights to all improvements developed by the University of
Missouri on this technology. The Company, in turn, sublicenses exclusive
worldwide rights to this technology and all improvements to Nordion. Pursuant to
its license agreement with the University of Missouri, the Company is obligated
to pay the University the greater of a fixed annual amount or a percentage of
the gross sales amount derived from the sale of TheraSphere(R).
Theragenics holds patents for technology concerning methods for delivery of
TheraSphere(R) in several countries, including the United States, Canada,
Australia, Argentina, South Africa and the 10 countries of the European patent
convention, and has patent applications on file in other countries, including
Japan. The Company exclusively licenses this technology to Nordion for worldwide
use.
The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or which the
Company chooses not to patent. In particular, the Company has designed certain
modifications to its cyclotrons as well as various production processes that it
deems to be proprietary. The Company seeks to protect non-patented proprietary
information, in part, by confidentiality agreements with suppliers, employees
and consultants. See "Risk Factors -- Intellectual Property Rights; Dependence
on Trade Secrets."
COMPETITION
The Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. In general, TheraSeed(R)
competes with conventional methods of treating localized cancer such as RP and
EBRT. RP currently represents the standard medical treatment for early-stage,
localized prostate cancer. RP has a long history of favorable clinical results
and physicians have developed a high degree of familiarity and comfort with this
procedure. EBRT is also a well-established method of treatment and is widely
accepted for patients who do not represent a good surgical risk or whose
prostate cancer has advanced beyond the stage for which surgical treatment is
indicated. RP and EBRT are therefore well entrenched in the medical community
and in the universities and schools providing medical education. Management
believes that if general conversion from these established procedures to
TheraSeed(R) treatment
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<PAGE> 31
does occur, such conversion will be the result of a combination of equivalent or
better efficacy, reduced incidence of side effects and complications, lower
cost, other quality of life issues and pressure by health care providers and
patients.
In addition, I-125 is commercially available as a permanent implant and
competes with TheraSeed(R). Management believes I-125 and Pd-103 are used with
relatively equal frequency in prostate cancer seeding procedures. I-125's dose
rate is approximately one-third that of Pd-103, however, and its half-life is
three times longer. Management believes Pd-103 enjoys a competitive advantage
over I-125 based on: (i) a higher dose rate, which can yield advantages in
treating aggressive cancers, (ii) a shorter half-life, which shortens radiation
induced side effects and exposure to medical personnel in treatment follow-up;
and (iii) Pd-103 is nontoxic and non-volatile as it decays. Management is aware
of no other similar radioactive products competing directly with TheraSeed(R).
To management's knowledge, Theragenics is the only company in the world that
commercially produces Pd-103 for medical devices.
Many companies, both public and private, are researching new and innovative
methods of treating cancer. In addition, many companies, including many large,
well-known pharmaceutical, medical device and chemical companies, are engaged in
radiological pharmaceutical and device research. Significant developments by any
of these companies could lessen or eliminate the demand for the Company's
products. See "Risk Factors -- Technological Developments and Competition."
GOVERNMENT REGULATION
The Company's present and intended future activities in the development,
manufacture and sale of cancer therapy products are subject to various laws,
regulations, regulatory approvals and guidelines. Within the United States, the
Company's therapeutic radiological devices must comply with the U.S. Federal
Food, Drug and Cosmetic Act, which is enforced by the FDA.
Before a new device can be marketed in the United States, the manufacturer
generally must obtain either (i) FDA clearance of a pre-market notification
under Section 510(k) of the Federal Food, Drug & Cosmetic Act or (ii) FDA
approval of a pre-market approval application (a "PMA"). Following submission of
the 510(k), the manufacturer may not market the new device until an order is
issued by the FDA finding the device to be "substantially equivalent" to a
legally marketed medical device (a "predicate device"). The 510(k) process can
be lengthy and expensive and the issuance of such clearance is often uncertain.
If a new device is not eligible for clearance under the 510(k) process, a PMA
application must be filed with and approved by the FDA before the product may be
marketed. The PMA process requires the performance of extensive clinical trials
to determine safety and efficacy, is significantly more complex, expensive and
time consuming than the 510(k) process and typically requires five to seven
years. In countries in which the Company's products are not currently approved,
the use or sale of the Company's commercial products will require approvals by
government agencies comparable to the FDA. The Company is also required to
adhere to applicable FDA regulations for Good Manufacturing Practices, including
extensive record keeping and reporting and periodic inspections of manufacturing
facilities. Similar requirements are imposed in other countries.
The Company obtained FDA 510(k) clearance in 1986 to market TheraSeed(R)
for, in general, the treatment of localized solid tumors. A new 510(k) clearance
is required for any modifications in the device or its labeling that could
significantly affect the safety or effectiveness of the original product. Under
the FDA's regulatory scheme, the decision whether to seek 510(k) clearance for a
modified device is left to the manufacturer in the first instance, and
management has thus far determined that no such clearance has been required. The
FDA has the right to review and revoke 510(k) clearance at any time. A PMA may
be required for future products or for future modifications to TheraSeed(R).
The Company's handling of radioactive materials is governed by the State of
Georgia in agreement with the NRC. The users of TheraSeed(R) are also required
to possess licenses issued either by the states in which they reside or the NRC
(depending upon which state is involved and which of two possible processes are
used by the Company to produce TheraSeed(R)). Use licenses also will be required
by some of the foreign
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jurisdictions in which the Company may attempt to market its products. Although
the regulatory standards applicable to products containing radioactive materials
produced as a by-product of nuclear fission reactions are uniform nationally,
uniform regulatory standards do not exist at the present time with respect to
TheraSeed(R) as produced by the Company's current manufacturing process. To
date, these standards have imposed no impediment to marketing and management
anticipates they will not pose an impediment unless the regulatory environment
changes or new rulings are adopted. Furthermore, the Company's expansion plans
require the Company to secure additional permits and licenses from a number of
environmental, health and safety regulatory agencies. The Company believes, but
cannot assure, that it will be able to acquire the permits and licenses
necessary for its planned expansion of its manufacturing capacity in accordance
with the Company's timetable for its expansion. The Company to date has not
experienced delays in licensing any of its facilities or cyclotrons.
The Company is required under its radioactive materials license to maintain
radiation control and radiation safety personnel, procedures, equipment and
processes, and to monitor its facilities and its employees and contractors. The
Company is also required to provide financial assurance that end-of-life
radiological decommissioning of its cyclotrons and other radioactive areas of
its property that contain radioactive materials will be adequately funded by the
Company. The Company has so far been successful in explaining to the Georgia
Department of Natural Resources that it will not have to dispose of its
cyclotrons, but instead will be able to sell them for re-use if its ceases to
operate them. Thus, the Company is only required to estimate and provide
financial assurance for the end-of-life remediation and disposal costs
associated with ancillary structures, such as plumbing, laboratory equipment and
chemical processing facilities. The Company's decommissioning obligations will
increase as its production capacity is expanded. Moreover, if the Georgia
Department of Natural Resources were to require that the Company include the
cost of decommissioning its cyclotrons in its financial assurance demonstration,
the amount of money required to be set aside by the Company to cover
decommissioning costs could dramatically increase.
The Company disposes of low level radioactive waste to licensed commercial
radioactive waste treatment or disposal facilities for incineration or land
disposal. The amount of radioactive waste generated by the Company's operations
will increase following implementation of the Company's planned expansion of its
production capacity. There is a high degree of regulatory uncertainty associated
with commercial radioactive waste disposal facilities, and the cost of disposing
of radioactive waste has increased dramatically in recent years. To mitigate the
impact of a potential moratorium on radioactive waste disposal at the Company's
current disposal site, the Company sought and received a license from the
Georgia Department of Natural Resources for temporary on-site storage capacity.
The Company believes that it would be able to obtain additional licensure
necessary to enable it to continue production for a substantial period of time
in the event its current waste disposal contractor ceases to be able to receive
the Company's waste and an alternative disposal site is not readily available.
The Company also handles nonradioactive chemical substances in the normal course
of its manufacturing operations that are subject to a broad range of state and
federal environmental regulations, and which could cause harm to humans or to
the environment if improperly handled or released to the environment. Management
believes the Company is in compliance with all state and federal regulations.
The Company provides training and monitoring of its personnel with two full time
regulatory and safety officers to facilitate the proper handling of all
materials.
See "Risk Factors -- Government Regulation."
EMPLOYEES
As of December 31, 1996, the Company had 59 full-time employees (including
executive personnel). Of this total, 37 were engaged in development and
production of the Company's products. The remainder were engaged in marketing
and general corporate activities. The Company's employees are not represented by
a union or a collective bargaining unit, and management considers employee
relations to be good.
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PROPERTIES
The Company owns a 15,245 square-foot, single-story building in Buford,
Georgia, leases a 10,752 square-foot, single-story building in Norcross,
Georgia, and leases a 2,692 square-foot suite of offices in a four-story office
building in Norcross, Georgia. The larger Norcross facility houses the Company's
assembly, shipping, marketing and administrative operations, the smaller
Norcross facility provides executive office space and the Buford facility houses
the Company's cyclotrons and its raw material processing operations. In 1996,
the Company purchased 30 acres of land adjacent to its Buford facility.
Management plans to use this land for long-term expansion of the Company's
production facilities as manufacturing expands to meet increasing sales demand
and eventually plans to relocate all functions currently housed in the leased
Norcross facilities to the facilities planned for construction on the 30 acres
of land adjacent to its current Buford facility.
LEGAL PROCEEDINGS
There are currently no material legal proceedings pending or, to the
knowledge of management, threatened against the Company.
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MANAGEMENT
DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
M. Christine Jacobs(1)..................... 46 President, Chief Executive Officer and Director
Bruce W. Smith............................. 43 Treasurer and Chief Financial Officer
Dean Fitzgerald............................ 50 Vice President, Business Development
John V. Herndon(1)......................... 56 Director
Peter A. A. Saunders(2)(3)................. 55 Director
Charles R. Klimkowski(3)(4)................ 61 Director
Orwin L. Carter, Ph.D.(2)(3)............... 54 Director
Otis Brawley, M.D.(3)(4)................... 37 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Committee.
(4) Member of the Compensation Committee.
M. Christine Jacobs joined the Company as National Sales Manager in 1987
and was subsequently promoted to Vice President of General Sales and Marketing.
Since 1992, Ms. Jacobs has been President and Chief Operating Officer of the
Company, and in August 1993 Ms. Jacobs was promoted to the position of Chief
Executive Officer while retaining the position of President. Ms. Jacobs also
serves as a director of the Georgia Biomedical Partnership, a nonprofit
organization which promotes economic and environmental development beneficial to
the growth of biomedical business within Georgia.
Bruce W. Smith has served as Treasurer and Chief Financial Officer of the
Company and Secretary of the Board of Directors since 1989. Mr. Smith has served
in financial capacities with the Company since joining it in January 1987. Prior
to joining Theragenics, Mr. Smith served Duracell, Inc. in various financial
capacities.
Dean Fitzgerald has served as Vice President of Business Development since
January 1996. Mr. Fitzgerald joined the Company in 1993 as Manager of Client and
Public Relations and was subsequently promoted to Director of Marketing and
Sales before assuming his current duties. Prior to joining Theragenics, Mr.
Fitzgerald was President of American Export Trading Company, Inc., a
manufacturer's representative and marketing consulting firm.
John V. Herndon joined the Company in April 1987 as Executive Vice
President and in July 1989 was appointed President, Chief Executive Officer and
Chairman of the Board of Directors of the Company. In August 1993, Mr. Herndon
relinquished his role as Chief Executive Officer while retaining his position as
Chairman of the Board of Directors of the Company. Mr. Herndon stepped down as
Chairman of the Board in December 1994 and currently serves as a director and
Advisor-to-the President.
Peter A.A. Saunders has served as a director of the Company since 1989. He
is manager/owner of PASS Consultants, a Great Britain-based management
consulting firm established in 1988. From April 1991 to April 1993, Mr. Saunders
was also Managing Director of United Artists Communications in London, a cable
television and telephone service provider. Mr. Saunders presently serves as a
non-executive director for several other British companies, including Mayday
Healthcare Trust (hospital), Coughlan's Patisserie (bakery shops) and Eurobell
(Sussex) Ltd. (cable TV and telecommunications).
Charles R. Klimkowski has served as a director of the Company since 1993
and was elected Chairman of the Board of Directors in December 1994. He has been
employed by The Chicago Corporation, most recently
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as a Senior Vice President and Director, a Portfolio Manager and a member of the
Investment Policy Committee since 1980.
Orwin L. Carter, Ph.D. has served as a director of the Company since 1991.
He is Vice President of Finance and Administration for Hamline University in St.
Paul, Minnesota. Since March 1995, Dr. Carter has served as a consultant to
INCSTAR Corporation, a manufacturer of in vitro diagnostic test kits and an
affiliate of Sorin Biomedica. From 1989 to September 1994, Dr. Carter was
employed by INCSTAR in various capacities, including Chairman, Chief Executive
Officer and President. Dr. Carter is also a member of the Board of Directors of
Lifecore Biomedical, Inc.
Otis Brawley, M.D. has served as a director of the Company since 1995. He
has been Program Director of the Community Oncology and Rehabilitation Branch,
Early Detection and Community Oncology Program, a Division of Cancer Prevention
and Control of the National Cancer Institute, since 1990. Dr. Brawley has also
been a Commissioned Officer of the U.S. Public Health Service since 1989 and
tenured with the Research Officer Group since February 1994. Dr. Brawley's
professional activities have included: National Cancer Institution (NCI)
Coordinator and Project Officer of the Prostate Cancer Prevention Trial; NCI
Coordinator of the Minority-Based Community Clinical Oncology Program; and
coauthor and associate investigator in several protocols approved by the
National Institutes of Health Clinical Center Investigational Review Committee.
Dr. Brawley has received such distinguished honors as the Public Health Service
Commendation in 1993 and the National Cancer Institute and the Equal Employment
Opportunity Officer's Commendation in 1991 and 1993. Additionally, he has
coauthored more than 21 publications. Dr. Brawley also reviews for several
prestigious publications.
---------------------
The Board of Directors is divided into three classes with two directors in
each class. One class of directors is elected each year for a three-year term
and until their successors have been elected and qualified or until their
earlier resignation or removal. Class I directors Herndon and Saunders will
serve until the Company's 1999 Annual Meeting of Stockholders; Class II
directors Klimkowski and Brawley will serve until the 1997 Annual Meeting of
Stockholders; and Class III directors Carter and Jacobs will serve until the
1998 Annual Meeting of Stockholders.
The Board of Directors has established Nominating, Audit, Stock Option and
Compensation Committees. The Nominating Committee recommends director nominees,
and the Audit Committee reviews the scope and results of the audit and other
services performed by the Company's independent accountants. The Stock Option
Committee is charged with the administration of the Company's stock option
plans, and the Compensation Committee sets compensation to be paid to the Chief
Executive Officer.
Officers are elected by, and serve at the discretion of, the Board of
Directors.
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UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc............................................
Dain Bosworth Incorporated..................................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Dain Bosworth Incorporated
are acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other Underwriters or to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 300,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Company and its officers and directors, who beneficially own in the
aggregate approximately 583,847 shares of Common Stock, have agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into, or exercisable or exchangeable for, Common
Stock without the prior written consent of Smith Barney Inc. for a period of 90
days after the date of this Prospectus except, in the case of the Company, in
certain limited circumstances.
In February 1997, the Company engaged Smith Barney Inc. to provide
investment advisory services in connection with the Company's consideration of
the Rights Plan. For its services, Smith Barney Inc. is entitled to receive
customary compensation, to be reimbursed for certain expenses and to be
indemnified against specified liabilities. See "Risk Factors -- Anti-takeover
Effects of Certain Charter, Bylaw and
35
<PAGE> 37
Delaware Law Provisions; Stockholder Rights Plan" and "Recent
Developments -- Adoption of Stockholder Rights Plan."
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 10b-6A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also market makers in the security
being distributed to engage in limited market making transactions during the
period when Rule 10b-6 under the Exchange Act would otherwise prohibit such
activity. In general, under Rule 10b-6A, any Underwriter or selling group member
engaged in passive market making in the Common Stock (i) may not effect
transactions in, or display bids for, the Common Stock at a price that exceeds
the highest bid for the Common Stock displayed by a market maker that is not
participating in the distribution of the Common Stock, (ii) may not have net
daily purchases of the Common Stock that exceed 30% of its average daily trading
volume in such stock for the two full consecutive calendar months immediately
preceding the filing date of the registration statement of which this Prospectus
forms a part and (iii) must identify its bids as bids made by a passive market
maker.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia. Certain legal matters with respect to the shares of Common
Stock offered hereby will be passed upon for the Underwriters by Dewey
Ballantine, New York, New York.
EXPERTS
The Balance Sheets as of December 31, 1996 and December 31, 1995 and the
Statements of Earnings, Shareholders' Equity and Cash Flows for each of the
three years in the period ended December 31, 1996 included in this Prospectus
and incorporated by reference in this Prospectus from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been incorporated
herein in reliance on the report of Grant Thornton LLP, independent certified
public accountants, given on the authority of that firm as experts in accounting
and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Intellectual Property Rights; Dependence on Trade Secrets" and
"Business -- Patents and Licenses; Trade Secrets" and other references herein to
United States patent and licensing matters have been reviewed and approved by T.
Tydings Robin, Jr., patent counsel for the Company, as an expert on such matters
and are included herein in reliance upon that review and approval. Mr. Robin is
an employee of the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions thereof, filed with the Securities and
Exchange Commission (the "Commission") under the Exchange Act are incorporated
hereto by reference:
(a) The Company's Annual Report on Form 10-K (File No. 0-15443) for
the year ended December 31, 1995;
(b) The Company's Quarterly Reports on Form 10-Q (File No. 0-15443)
for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996;
(c) The Company's Current Reports on Form 8-K (File No. 0-15443) filed
on March 12, 1996 and January 13, 1997; and
(d) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, as filed with the Commission on March
2, 1987.
36
<PAGE> 38
(e) The description of the Rights contained in the Company's
Registration Statement on Form 8-A, as filed with the Commission on
February 26, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request, a copy of any or all information
incorporated by reference in this Prospectus (not including exhibits to the
information that has been incorporated by reference, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to Theragenics Corporation,
Attention: Ron Warren, Director of Investor Relations, at 5325 Oakbrook Parkway,
Norcross, Georgia 30093, telephone number (800) 998-8479 or (770) 381-8338.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected without charge at, and copies thereof may be
obtained at prescribed costs from, the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549. The Commission maintains a Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov. The Common Stock is listed for trading on the Nasdaq Stock
Market and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
This Prospectus, which constitutes part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto.
Reference is hereby made to the Registration Statement and to the exhibits and
schedules relating thereto for further information with respect to the Company
and the securities offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
37
<PAGE> 39
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2
FINANCIAL STATEMENTS........................................ F-3
BALANCE SHEETS............................................ F-3
STATEMENTS OF EARNINGS.................................... F-4
STATEMENT OF SHAREHOLDERS' EQUITY......................... F-5
STATEMENTS OF CASH FLOWS.................................. F-6
NOTES TO FINANCIAL STATEMENTS............................. F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Theragenics Corporation
We have audited the balance sheets of Theragenics Corporation (a Delaware
corporation) as of December 31, 1995 and 1996, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 Theragenics Corporation as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Atlanta, Georgia
January 16, 1997
F-2
<PAGE> 41
THERAGENICS CORPORATION
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments........................... $ 3,266,338 $ 2,986,123
Trade accounts receivable................................. 1,335,645 2,258,936
Inventories............................................... 166,955 229,298
Prepaid expenses and other current assets................. 67,521 133,625
----------- -----------
Total current assets.............................. 4,836,459 5,607,982
PROPERTY, PLANT AND EQUIPMENT -- AT COST
Building and improvements................................. 1,690,045 3,333,728
Leasehold improvements.................................... 138,978 138,978
Machinery and equipment................................... 8,203,256 11,522,064
Office furniture and equipment............................ 44,721 65,057
----------- -----------
10,077,000 15,059,827
Less accumulated depreciation............................. 2,194,164 3,237,684
----------- -----------
7,882,836 11,822,143
Land...................................................... 49,485 525,372
Construction in progress.................................. 2,140,894 5,238,056
----------- -----------
10,073,215 17,585,571
OTHER ASSETS
Deferred income tax asset................................. 1,810,000 360,000
Patent costs.............................................. 90,704 80,685
Other..................................................... 67,804 55,183
----------- -----------
1,968,508 495,868
----------- -----------
$16,878,182 $23,689,421
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 511,362 $ 3,458,436
Trade accounts payable.................................... 348,191 330,375
Accrued salaries, wages and payroll taxes................. 225,138 459,421
Other current liabilities................................. 15,935 56,677
----------- -----------
Total current liabilities......................... 1,100,626 4,304,909
LONG-TERM DEBT.............................................. 1,008,135 --
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' EQUITY
Common stock -- authorized 50,000,000 shares of $.01 par
value; issued and outstanding, 11,394,785 in 1995 and
11,814,278 in 1996..................................... 113,948 118,143
Additional paid-in capital................................ 16,390,170 17,616,560
Retained earnings (accumulated deficit)................... (1,734,697) 1,649,809
----------- -----------
14,769,421 19,384,512
----------- -----------
$16,878,182 $23,689,421
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 42
THERAGENICS CORPORATION
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
Product sales....................................... $4,723,107 $7,781,962 $12,257,165
Licensing fees...................................... -- 85,431 100,000
---------- ---------- -----------
4,723,107 7,867,393 12,357,165
---------- ---------- -----------
Costs and expenses
Cost of product sales............................... 1,790,450 2,645,730 3,735,669
Selling, general and administrative................. 1,844,239 2,395,846 3,198,663
Research and development............................ 15,268 17,954 6,952
---------- ---------- -----------
3,649,957 5,059,530 6,941,284
---------- ---------- -----------
Other income (expense)
Interest income..................................... 135,888 143,424 126,953
Interest expense.................................... -- (51,967) (84,517)
Other............................................... (25,673) (26,995) (6,311)
---------- ---------- -----------
110,215 64,462 36,125
---------- ---------- -----------
Net earnings before income taxes............ 1,183,365 2,872,325 5,452,006
Income tax expense.................................... 453,000 1,100,000 2,067,500
---------- ---------- -----------
Net earnings................................ $ 730,365 $1,772,325 $ 3,384,506
========== ========== ===========
Earnings per common share............................. $ .06 $ .15 $ .28
---------- ---------- -----------
Weighted average shares............................... 11,582,793 11,759,178 12,259,214
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 43
THERAGENICS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
PAR ADDITIONAL EARNINGS
NUMBER OF VALUE PAID-IN (ACCUMULATED
SHARES $.01 CAPITAL DEFICIT) TOTAL
---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993................... 10,912,937 $109,129 $15,161,942 $(4,237,387) $11,033,684
Exercise of stock options.................. 49,900 499 49,401 -- 49,900
Common stock redeemed...................... (950) (10) (3,890) -- (3,900)
Net earnings for the year.................. -- -- -- 730,365 730,365
---------- -------- ----------- ----------- -----------
Balance, December 31, 1994................... 10,961,887 109,618 15,207,453 (3,507,022) 11,810,049
Exercise of stock options.................. 450,000 4,500 576,370 -- 580,870
Common stock redeemed...................... (17,102) (170) (106,653) -- (106,823)
Income tax benefit from stock options
exercised................................ -- -- 713,000 -- 713,000
Net earnings for the year.................. -- -- -- 1,772,325 1,772,325
---------- -------- ----------- ----------- -----------
Balance, December 31, 1995................... 11,394,785 113,948 16,390,170 (1,734,697) 14,769,421
Exercise of stock options.................. 391,216 3,912 648,242 -- 652,154
Exercise of warrants....................... 40,000 400 299,600 -- 300,000
Common stock redeemed...................... (11,723) (117) (250,079) -- (250,196)
Income tax benefit from stock options
exercised................................ -- -- 528,627 -- 528,627
Net earnings for the year.................. -- -- -- 3,384,506 3,384,506
---------- -------- ----------- ----------- -----------
Balance, December 31, 1996................... 11,814,278 $118,143 $17,616,560 $ 1,649,809 $19,384,512
========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 44
THERAGENICS CORPORATION
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 730,365 $ 1,772,325 $ 3,384,506
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income tax expense.................... 433,000 1,082,000 1,972,000
Depreciation and amortization.................. 571,615 828,072 1,114,919
Loss on disposal of property and equipment..... 1,571 1,677 --
Change in assets and liabilities:
Accounts receivable.......................... (197,133) (603,221) (923,291)
Inventories.................................. (32,834) 25,206 (62,343)
Prepaid expenses and other current assets.... 22,448 24,280 (66,104)
Other assets................................. (200) -- --
Trade accounts payable....................... 78,402 121,982 (17,816)
Accrued salaries, wages and payroll taxes.... 21,400 115,006 234,283
Other current liabilities.................... 14,942 (17,214) 47,369
----------- ----------- -----------
Net cash provided by operating
activities.............................. 1,643,576 3,350,113 5,683,523
----------- ----------- -----------
Cash flows from investing activities:
Purchase and construction of property and
equipment...................................... (3,376,967) (2,426,961) (8,555,876)
Maturities of marketable securities............... 309,765 50,000 --
Patent costs...................................... (587) (3,632) --
----------- ----------- -----------
Net cash used by investing activities........ (3,067,789) (2,380,593) (8,555,876)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt...................... 2,100,000 -- 2,450,225
Repayment of long-term debt....................... (1,441,320) (469,622) (511,286)
Proceeds from exercise of stock options and
warrants....................................... 49,900 580,870 952,154
Payment for redemption of common stock............ (3,900) (106,823) (250,196)
Debt issue costs.................................. (46,025) (25,070) (48,759)
----------- ----------- -----------
Net cash (used) provided by financing
activities.............................. 658,655 (20,645) 2,592,138
----------- ----------- -----------
Net increase (decrease) in cash and short-term
investments....................................... (765,558) 948,875 (280,215)
Cash and short-term investments at beginning of
year.............................................. 3,083,021 2,317,463 3,266,338
----------- ----------- -----------
Cash and short-term investments at end of year...... $ 2,317,463 $ 3,266,338 $ 2,986,123
=========== =========== ===========
</TABLE>
Supplemental Schedule of Non Cash Financing Activities
During 1995 and 1996, the Company realized an income tax benefit from the
exercise and early disposition of certain stock options, resulting in an
increase in the deferred tax asset and additional paid in capital of $713,000
and $528,627, respectively.
Supplementary Cash Flow Disclosure
<TABLE>
<S> <C> <C> <C>
Interest paid, net of amounts capitalized........... $ -- $ 53,843 $ 82,324
Income taxes paid................................. 21,500 14,858 98,755
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 45
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE A -- ORGANIZATION AND DESCRIPTION OF BUSINESS
Theragenics Corporation (the "Company") was organized in November 1981 to
develop, manufacture, and market radiological pharmaceuticals and devices used
in the treatment of cancer. The Company manufactures and markets primarily one
product, which is used in the treatment of cancer. Use of the Company's product
is regulated by the U.S. Food and Drug Administration (FDA). The Company sells
its product primarily to hospitals, physicians and other health service
providers in the United States. The Company therefore is directly affected by
changes in technology, as it may apply to cancer treatment, and by FDA
regulations and the well being of the health care industry.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
1. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the specific identification method which approximates the first-in,
first-out (FIFO) method. Inventories consist primarily of work in process.
4. PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated services lives on a straight-line basis.
Depreciation and amortization expense related to property and equipment charged
to operations was approximately $564,000, $810,000 and $1,044,000 for 1994, 1995
and 1996, respectively. Estimated services lives are as follows:
<TABLE>
<S> <C>
Building and improvements................................... 30 years
Machinery, leasehold improvements, furniture and
equipment................................................. 5-10 years
</TABLE>
A significant portion of the Company's depreciable assets are utilized in
the production of its product. Management periodically evaluates the
realizability of its depreciable assets in light of its current industry
environment. Management believes that no impairment of depreciable assets exists
at December 31, 1996. It is possible, however, that management's estimates
concerning the realizability of the Company's depreciable assets could change in
the near term due to changes in the technological and regulatory environment.
F-7
<PAGE> 46
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PATENT COSTS
The Company capitalizes the costs of patent applications for its products.
Amortization is computed on a straight line basis over the estimated economic
lives of the patents, commencing at the date of grant of the related patent.
Patent costs are net of accumulated amortization of $37,276 and $47,295 at
December 31, 1995 and 1996, respectively. Amortization related to patent costs
charged to operations was approximately $7,800, $8,000 and $10,000 for 1994,
1995 and 1996, respectively.
6. INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
7. RESEARCH AND DEVELOPMENT COSTS
The costs of research and development and consumable supplies and materials
to be used for the development of the Company's intended products are expensed
when incurred.
8. ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense for the years ended December 31, 1994, 1995 and 1996 was approximately
$16,000, $139,000, and $229,000, respectively.
9. NET EARNINGS PER COMMON SHARE
Net earnings per common share is based on the weighted average number of
common shares and common equivalent shares outstanding during each period.
Fully diluted information is not presented, as fully diluted earnings per
share is not materially different from the primary earnings per share presented.
10. STOCK BASED COMPENSATION
The Company's stock option plans are accounted for under the intrinsic
value method in which compensation expense is recognized for the amount, if any,
that the fair value of the underlying common stock exceeds the exercise price at
the date of grant.
11. STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and short-term investments
include cash on hand, cash in banks and commercial paper with original
maturities of less than 90 days.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value due to the relatively short period to maturity of the instruments.
The carrying value of the Company's long-term obligations approximates fair
value based upon borrowing rates currently available to the Company for
borrowings with comparable maturities.
F-8
<PAGE> 47
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- CONSTRUCTION IN PROGRESS
Construction in progress represents payments made for construction of
manufacturing equipment and facilities expansion. Total cost of this project is
expected to be approximately $20,000,000 and is expected to be completed in
various stages through 1998.
Construction of equipment and facilities totaling approximately $3,800,000
and $4,900,000 were completed and placed in service during 1995 and 1996,
respectively.
NOTE D -- INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Current tax expense................................. $ 20,000 $ 18,000 $ 95,500
Deferred tax expense................................ 433,000 1,082,000 1,972,000
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>
The Company's temporary differences result in a deferred income tax asset,
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $2,240,000 $ 870,000
Tax credit carryforwards.................................. 90,000 174,000
Nondeductible accruals and allowances..................... 38,000 50,000
Other..................................................... 7,000 14,000
---------- ----------
Gross deferred tax asset.......................... 2,375,000 1,108,000
Deferred tax liabilities:
Depreciation.............................................. 565,000 748,000
---------- ----------
Net deferred tax asset............................ $1,810,000 $ 360,000
========== ==========
</TABLE>
The significant portion of the net operating loss carryforwards were
incurred while the Company was in the development stage. Upon receiving
clearance to market its "Theraseed" product from the U.S. Food and Drug
Administration (FDA) in 1986, the Company commenced manufacturing and
distribution of its product in 1987. Since emerging from the development stage
in 1989, the Company has utilized approximately $7,500,000 of these net
operating loss carryforwards through December 31, 1996 by generating taxable
income. In order to realize the income tax benefit from the remaining net
operating loss carryforwards at December 31, 1996, it will be necessary for the
Company to generate future taxable income of approximately $2,300,000, prior to
the expiration of the net operating loss carryforward periods. Based on the
Company's results of operations subsequent to receiving FDA clearance to market
its product, and on expected future results of operations, management believes
that currently it is more likely than not that the income tax benefits of the
net operating loss carryforwards will be realized within the carryforward
period. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
F-9
<PAGE> 48
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable federal rates due to the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Tax at applicable federal rate of 34%............... $402,000 $ 977,000 $1,854,000
State tax, net...................................... 47,000 115,000 208,000
Other............................................... 4,000 8,000 5,500
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>
The Tax Reform Act of 1986 enacted an alternative minimum tax system for
corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT
income which is determined by making statutory adjustments to regular taxable
income. A company pays the greater of the taxes computed under the "regular" tax
system or the AMT system. Because AMT net operating loss carryforwards may only
be utilized to offset 90% of the AMT income, the Company was subject to the AMT
in 1994, 1995 and 1996, resulting in an alternative minimum tax of $20,000,
$18,000 and $95,500, respectively. These amounts will be allowed as a credit
carryover to reduce the regular tax liability in future years, but not below the
AMT of such years.
At December 31, 1996, the Company had approximate net federal operating
loss carryforwards for regular tax and AMT purposes as follows:
<TABLE>
<CAPTION>
NET OPERATING NET OPERATING
YEAR OF EXPIRATION LOSS (REGULAR) LOSS (AMT)
------------------ -------------- -------------
<S> <C> <C>
2004.................................................... $1,698,000 $234,000
2005.................................................... 591,000 554,000
---------- --------
$2,289,000 $788,000
========== ========
</TABLE>
NOTE E -- NOTES PAYABLE
In December 1996, the Company entered into an amended and restated loan and
security agreement (the "loan agreement") with a financial institution. This
loan agreement incorporated the Company's existing term loan and line of credit
(the "1995 loan agreement") with the same financial institution, which had an
outstanding balance of approximately $1,050,000. The 1995 loan agreement
required monthly payments of $51,862, including interest at 8.47%.
The loan agreement provides for a revolving credit facility of up to
$11,000,000. Interest on outstanding borrowings is payable monthly at the prime
rate or at the LIBOR rate plus 2% (effective rate of 8.25% at December 31,
1996). At December 31, 1996, $3,458,436 was outstanding under the revolving
credit facility.
All outstanding borrowings under the loan agreement are due on June 30,
1997. However, the outstanding principal can be repaid over sixty equal
consecutive monthly installments, commencing July 31, 1997, provided that the
Company meets the term-out requirements as specified in the agreement. The
term-out requirements include, among other things, the attainment of a certain
minimum net worth and other financial ratios for the quarter ending March 31,
1997. Commencing on June 30, 1997 the interest rate on outstanding borrowings
will be the prime rate or, at the Company's option, the LIBOR rate plus
1.75%-2.25% or a rate based on U.S. Treasury bills plus 2%-2.5%. The rate margin
on the LIBOR and Treasury rates are based upon the Company's debt service
coverage ratio, as defined in the loan agreement.
Outstanding borrowings under the loan agreement are collateralized by
substantially all of the Company's assets. Provisions of the loan agreement
limit the amount of annual capital expenditures, the incurrence of additional
debt and, among other things, require the maintenance of certain minimum
financial ratios. The loan agreement also limits the number of manufacturing
systems the Company can order and purchase, based
F-10
<PAGE> 49
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
upon quarterly revenues. As of December 31, 1996, the Company was in compliance
with the provisions of the loan agreement.
NOTE F -- COMMITMENTS AND CONTINGENCIES
LICENSING AGREEMENT
The Company holds a worldwide exclusive license from the University of
Missouri for the use of technology, patented by the University, used in the
Company's "TheraSphere(R)" product. The licensing agreement provides for the
payment of royalties based on the level of sales and on lump sum payments
received pursuant to a licensing agreement with Nordion International, Inc. (see
below).
The Company has granted certain of its worldwide rights under the licensing
agreement with the University of Missouri to Nordion International, Inc.
("Nordion"), a Canadian company which is a producer, marketer and supplier of
radioisotope products and related equipment. Under the Nordion agreement,
entered into on March 23, 1995, the Company has received certain lump sum
payments and will receive a licensing fee for each geographic area in which
Nordion receives new drug approval. The Company will also be entitled to a
percentage of future revenues earned by Nordion as royalties under the
agreement. Royalties from this agreement for each of the three years in the
period ended December 31, 1996 were not significant.
In 1995 and 1996, the Company received approximately $85,000 and $100,000,
respectively, from Nordion for the right to use certain patents and to
manufacture, distribute, and sell "TheraSphere(R)" for all applications
worldwide.
LETTER OF CREDIT
The Company has a letter of credit outstanding for approximately $315,000
relating to regulatory requirements.
LEASE COMMITMENT
The Company leases space under two noncancelable leases which expire in
December 1998 and February 1999. Approximate minimum lease payments under the
leases are as follows: 1997, $112,000; 1998, $114,000; 1999, $7,500.
Rent expense was approximately $61,000, $61,500 and $76,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
NOTE G -- STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company's board of directors has approved three stock option plans
which in aggregate cover up to 2,200,000 shares of common stock. The plans
provide for the expiration of options ten years from the date of grant and
requires the exercise price of the options granted to be at least equal to 100%
of market value on the
F-11
<PAGE> 50
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
date granted. Stock option transaction for each of the three years in the period
ended December 31, 1996 are summarized below:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 1,258,116 $2.05 1,226,716 $2.09 997,716 $ 3.11
Granted.................... 40,000 2.50 221,000 5.38 220,000 15.92
Exercised.................. (49,900) 1.00 (450,000) 1.29 (391,216) 2.21
Forfeited.................. (21,500) 2.74 -- -- -- --
--------- ----- --------- ----- -------- ------
Outstanding, end of year..... 1,226,716 $2.09 997,716 $3.11 826,500 $ 7.22
========= ===== ========= ===== ======== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING AT WEIGHTED AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING WEIGHTED AVERAGE DECEMBER 31, WEIGHTED AVERAGE
PRICE 1996 CONTRACTUAL LIFE EXERCISE PRICE 1996 EXERCISE PRICE
-------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - 3.50............. 245,000 3.9 $ 1.83 232,600 $ 1.75
$5.38 - 6.38............. 361,500 8.7 5.54 189,500 5.56
$15.25 - 16.88........... 220,000 10.0 15.99 12,000 16.88
------- ----- ------- ------- -------
826,500 7.6 $ 7.22 434,100 $ 3.83
======= ===== ======= ======= =======
</TABLE>
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional capital. No charges
are reflected in the statements of operations as a result of the grant or
exercise of options. The Company realizes an income tax benefit from the
exercise or early disposition of certain stock options. This benefit results in
an increase to the deferred tax asset and an increase in additional paid-in
capital.
The Company uses the intrinsic value method in accounting for its stock
option plans. In applying this method, no compensation cost has been recognized.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under those plans, the Company's
net earnings and earnings per share would have resulted in the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net earnings
As reported............................................... $1,772,325 $3,384,506
Pro forma................................................. 1,750,736 3,015,123
Primary earnings per share
As reported............................................... $ .15 $ .28
Pro forma................................................. .15 .25
</TABLE>
Fully diluted information is not presented, as reported and pro forma fully
diluted earnings per share is not materially different from the primary earnings
per share presented.
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in 1995
and 1996, respectively; expected volatility of 70% for each year, risk-free
interest rates of 5.86%, and 6.15%-6.46%; and expected lives of 5-7 years and 7
years.
F-12
<PAGE> 51
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS
During 1996, 40,000 warrants were exercised, resulting in proceeds to the
Company of $225,000. The Company also has warrants outstanding at December 31,
1996 covering 60,000 shares of common stock. The warrants are exercisable at a
price of $7.50 per share and expire in May 1999.
NOTE H -- MAJOR CUSTOMERS
During 1994, there were sales to one major customer that equaled
approximately ten percent of sales. During 1995 and 1996, there were no
customers which individually comprised ten percent of sales.
NOTE I -- EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) Plan covering all
employees with at least six months of service and at least 21 years of age. The
Plan permits participants to defer a portion of their compensation through
payroll deductions. The Company may, at its discretion, contribute to the Plan
on behalf of participating employees. Company discretionary contributions were
approximately $27,700, $39,700 and $14,100 for 1994, 1995 and 1996,
respectively.
F-13
<PAGE> 52
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE 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
The Company........................... 12
Recent Developments................... 12
Use of Proceeds....................... 13
Capitalization........................ 13
Dividend Policy....................... 14
Price Range of Common Stock........... 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 33
Underwriting.......................... 35
Legal Matters......................... 36
Experts............................... 36
Incorporation of Certain Documents by
Reference........................... 36
Available Information................. 37
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,000,000 SHARES
THERAGENICS CORPORATION LOGO
COMMON STOCK
------------------
PROSPECTUS
, 1997
------------------
SMITH BARNEY INC.
DAIN BOSWORTH
INCORPORATED
======================================================
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the Registrant will incur the following expenses in
connection with the offering of the securities being registered:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,943
Nasdaq Stock Market additional listing fee.................. 17,500
NASD filing fee............................................. 5,761
Accounting fees and expenses................................ 25,000
Legal fees and expenses..................................... 150,000
Printing and engraving expenses............................. 100,000
Miscellaneous expenses...................................... 85,796
--------
Total............................................. $400,000
========
</TABLE>
The foregoing items, except for the SEC registration fee, the Nasdaq Stock
Market additional listing fee and the NASD filing fee, are estimated. The
Registrant has agreed to bear all expenses (other than underwriting discounts
and commissions) in connection with the registration and sale of the shares of
Common Stock.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh, Section II(a) of the Registrant's Certificate of
Incorporation provides for the indemnification by the Registrant of each
director, officer and employee of the Registrant to the fullest extent permitted
by the Delaware General Corporation Law, as the same exists or may hereafter be
amended. Section 145 of the Delaware General Corporation Law provides in
relevant part that a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may otherwise
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
II-1
<PAGE> 54
Article Seventh, Section I of the Company's Certificate of Incorporation
provides that a director of the Registrant shall not be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Section 102(b)(7) of the Delaware General Corporation Law provides
that a provision so limiting the personal liability of a director shall not
eliminate or limit the liability of a director for, among other things: breach
of the duty of loyalty; acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; unlawful payment of
dividends; and transactions from which the director derived an improper personal
benefit.
The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company and its
controlling persons.
ITEM 16. EXHIBITS.
The following items are filed as exhibits to this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
4.1 -- Form of Common Stock Certificate(1)
5.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP
23.1 -- Consent of Grant Thornton LLP
23.2 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (contained
in its opinion filed as Exhibit 5.1)
23.3 -- Consent of Patent Counsel
24.1 -- Power of Attorney (contained on the signature page to this
Registration Statement)*
27.1 -- Financial Data Schedule (For SEC use only)*
</TABLE>
- ---------------
* Previously filed.
(1) Incorporated by reference to Exhibit 4.1 filed with the Company's
registration statement on Form S-1, File No. 33-7097, and post-effective
amendments thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 55
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 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 of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized in the City of Atlanta, State of Georgia, on this 26th day of
February, 1997.
THERAGENICS CORPORATION
By: *
------------------------------------
M. Christine Jacobs
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board February 26, 1997
- ---------------------------------------------------
Charles Klimkowski
* President, Chief Executive February 26, 1997
- --------------------------------------------------- Officer and Director
M. Christine Jacobs (Principal Executive Officer)
* Director February 26, 1997
- ---------------------------------------------------
John V. Herndon
* Director February 26, 1997
- ---------------------------------------------------
Orwin L. Carter, Ph.D
* Director February 26, 1997
- ---------------------------------------------------
Peter A. A. Saunders
* Director February 26, 1997
- ---------------------------------------------------
Otis W. Brawley, M.D.
/s/ BRUCE W. SMITH Treasurer and Chief Financial February 26, 1997
- --------------------------------------------------- Officer (Principal Financing
Bruce W. Smith and Accounting Officer)
</TABLE>
- ---------------------------------------------------------
*By: /s/ BRUCE W. SMITH
---------------------------------
Bruce W. Smith
Attorney-in-fact
II-4
<PAGE> 1
2,000,000 SHARES
THERAGENICS CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
February , 1997
SMITH BARNEY INC.
DAIN BOSWORTH INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Theragenics Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 2,000,000 shares (the
"Firm Shares") of its common stock, par value $0.01 per share (the "Common
Stock"), to the several Underwriters named in Schedule I hereto (the
"Underwriters"). In addition, solely for the purpose of covering
over-allotments, the Company proposes to sell to the Underwriters, upon the
terms and conditions set forth in Section 2 hereof, up to an additional 300,000
shares (the "Additional Shares") of Common Stock. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreement with
you (the "Representatives") and the other several Underwriters on whose behalf
you are acting, in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 under the Act
(the "registration statement"), including a prospectus subject to completion,
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits) as amended at the time it becomes effective or, if the
registration statement became effective
<PAGE> 2
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If an abbreviated registration statement relating to the offering
of the Shares is prepared and filed with the Commission in accordance with Rule
462(b) under the Act (an "Abbreviated Registration Statement"), the term
"Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the addition of the
Rule 430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this
Agreement means the prospectus subject to completion in the form included in
the registration statement at the time of the initial filing of the
registration statement with the Commission and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus. Any
reference herein to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Form S-3 under the
Act, as of the date of the registration statement, the Registration Statement,
such Prepricing Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the registration statement, the
Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Exchange Act") and deemed
incorporated by reference pursuant to Form S-3 under the Act. As used herein,
the term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectus or any amendment or
supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
dagreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $ per
share (the "purchase price per share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and
conditions set forth herein, to issue and sell to the Underwriters, and, upon
the basis of the representations, warranties and agreements of the Company
herein contained and subject to all the terms and conditions set forth herein,
the Underwriters shall have the right to purchase from the Company, at the
purchase price per share, pursuant to an option (the "over-allotment option")
which may be exercised at any time and from time to time prior to 9:00 p.m.,
New York City time, on the 30th day after the date of the Prospectus (or, if
such 30th day shall be a Saturday or Sunday or a holiday, on the next business
day thereafter when the New York Stock Exchange is open for trading), up to an
aggregate of 300,000 Additional Shares from the Company. Additional Shares may
be purchased solely to cover over-allotments made in connection with the
offering of the Firm Shares. Upon any exercise of the over-allotment option,
each Underwriter, severally and not jointly, agrees to purchase from the
Company the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
2
<PAGE> 3
to the number of Additional Shares to be purchased by the Underwriters as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 10 hereof) bears to the aggregate number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on , 1997 (the "Closing Date"). The
place of closing for the Firm Shares and the Closing Date may be varied by
agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
office of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice, it being understood that
a facsimile transmission shall be deemed written notice, prior to 9:30 A.M.,
New York City time, on the second business day preceding the Closing Date or
any Option Closing Date, as the case may be. Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Option Closing Date, as
the case may be, against payment of the purchase price therefor in immediately
available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or any Abbreviated Registration Statement to be declared or,
in the case of an Abbreviated Registration Statement, to become effective
before the offering of the Shares may commence, the Company will endeavor to
cause the registration statement or such post-effective amendment or
Abbreviated Registration Statement to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice in
writing, when the registration statement or such post-effective amendment or
Abbreviated Registration Statement has become effective.
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(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by
the Commission for amendment of or a supplement to the registration statement,
any Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations or of the happening of any event which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading in any
material respect, or of the necessity to amend or supplement the Prospectus (as
then amended or supplemented) to comply with the Act or any other law. If at
any time the Commission shall issue any stop order suspending the effectiveness
of the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge,
three signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits and Incorporated Documents, and will also furnish to you, without
charge, such number of conformed copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits and
Incorporated Documents thereto, as you may request.
(d) The Company will not (i) file any amendment to the
registration statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Exchange Act without delivering a copy of such information,
documents or reports to you, as Representatives of the Underwriters, prior to
or concurrently with such filing.
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered or will deliver to you, without charge, in
such quantities as you have requested or may hereafter request, copies of each
form of the Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer, the
Company will expeditiously deliver to each Underwriter and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as you may request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If during such period of time any event shall occur that in the judgment of the
Company or in
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<PAGE> 5
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus, or to file under the Exchange Act any document which upon
filing becomes an Incorporated Document, to comply with the Act or any other
law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto or Incorporated Document and will expeditiously furnish
copies thereof to the Underwriters and dealers in such quantities as you shall
request. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, or that a document should be filed under the Exchange Act which
upon filing becomes an Incorporated Document, the Company, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided, however, that in no event shall the Company be obligated to qualify
to do business in any jurisdiction where it is not now so qualified or to take
any action that would subject it to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any jurisdiction
where it is not now so subject.
(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may
reasonably request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof), or if
this Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Company to comply with the terms or fulfill any
of the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale
of the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
(m) The Company will not (and will not announce or
otherwise disclose any intention to) offer to sell, contract to sell, sell or
otherwise transfer or dispose of, or grant any option or warrant
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<PAGE> 6
to purchase, any shares of Common Stock (or any securities convertible into or
exercisable or exchangeable for Common Stock) for a period of 90 days after the
date of the Prospectus (the "Lock-up Period") without the prior written consent
of Smith Barney Inc. except for (i) the sale of the Shares to the Underwriters
pursuant to this Agreement, (ii) the issuance of shares of Common Stock upon
exercise of options or warrants disclosed to be outstanding in the Prospectus
and (iii) the grant pursuant to stock option plans described in the Prospectus
of stock options not exercisable during the Lock-up Period.
(n) The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by each of
its current officers and directors and each of its stockholders designated by
you.
(o) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has not taken, nor will it
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will timely file with The Nasdaq Stock
Market a notification form for listing of additional shares on The Nasdaq
National Market with respect to the Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Company meets the requirements for use of Form
S-3 under the Act. The registration statement in the form in which it became
or becomes effective, and also in such form as it may be when any
post-effective amendment thereto or any Abbreviated Registration Statement
shall become effective, and the Prospectus and any supplement or amendment
thereto when filed with the Commission under Rule 424(b) under the Act,
complied or will comply in all material respects with the provisions of the Act
and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the registration statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of such Underwriter through you expressly
for use therein.
(c) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, are free of any preemptive or similar rights (other than such
rights as shall terminate upon completion of, and be inapplicable to, the
offering contemplated hereby) and have been issued and sold in compliance with
all Federal and state securities laws. The Shares have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights. The capital stock
of the Company conforms in all material respects to the description thereof in
the Registration Statement and the Prospectus.
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(d) The Company is a corporation duly organized, validly
existing and 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 to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not
have a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries (as defined in the
Act).
(e) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the Company, or to
which the Company or any of its properties is subject, that are required to be
described in the Registration Statement or the Prospectus but are not described
as required. There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement or
any Incorporated Document that are not described or filed as required by the
Act. The Company is not involved in any strike, job action or labor dispute,
and to the Company's best knowledge no such action or dispute is threatened.
(f) The Company is not (i) in violation of its certificate of
incorporation or by-laws or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or of any decree of any court or governmental agency or body having
jurisdiction over the Company, or (ii) in default in any material respect in
the performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company is a party
or by which it or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act which has been or will be
effected in accordance with this Agreement, and compliance with the securities
or Blue Sky laws of various jurisdictions) or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or (ii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any indenture, bond, note, lease or
other agreement or instrument to which the Company is a party or by which the
Company or any of its properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of its properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to the terms of any agreement or instrument to
which it is a party or by which it may be bound or to which any of the property
or assets of it is subject.
(h) The accountants, Grant Thornton LLP, who have certified
or shall certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto), or incorporated by reference therein are independent public
accountants as required by the Act and the Exchange Act.
(i) The financial statements, together with the related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), comply in
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<PAGE> 8
all material respects with the requirements of the Act and present fairly the
financial position, results of operations and changes in stockholders' equity
and cash flows of the Company on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) are accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company.
(j) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement. The
execution and delivery of, and the performance by the Company of its
obligations under, this Agreement have been duly and validly authorized by the
Company. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws or principles of public policy and subject to the qualification
that the enforceability of the Company's obligations hereunder may be limited
by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and by
general equitable principles.
(k) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
Company has not incurred any liability or obligation, direct or contingent, or
entered into any transaction that is material to the Company, and there has not
been any material change in the capital stock, or material increase in the
short-term or long-term debt, of the Company, or any material adverse change,
or any development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company.
(l) The Company has good and marketable title to all property
(real and personal) described in the Prospectus as being owned by it, free and
clear of all liens, claims, security interests or other encumbrances except
such as are described in the Registration Statement and the Prospectus. All
the property described in the Prospectus as being held under lease by the
Company is held by it under valid, subsisting and enforceable leases.
(m) The Company has not distributed and, prior to the later
to occur of the Closing Date and completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act and
state securities or Blue Sky laws; provided, however, that nothing contained
herein is intended to prohibit the Company from making required or permitted
filings with the Commission pursuant to the Exchange Act.
(n) The Company has such permits, licenses, franchises,
authorizations and clearances ("Permits") of governmental or regulatory
authorities, including, without limitation, the Food and Drug Administration
(the "FDA") of the U.S. Department of Health and Human Services and/or any
committee thereof, as are necessary to own, lease and operate its properties
and to conduct its business in the manner described in the Prospectus, subject
to such qualifications as may be set forth in the Prospectus; subject to such
qualifications as may be set forth in the Prospectus, the Company has fulfilled
and
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<PAGE> 9
performed all its material obligations with respect to the Permits, and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment
of the rights of the holder of any Permit, subject in each case to such
qualification as may be set forth in the Prospectus. Except as described in
the Prospectus, none of the Permits contains any restriction that is materially
burdensome to the Company.
(o) Except to the extent disclosed in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
clinical studies and tests in which the Company's products participated that
are described in the Prospectus or the results of which are referred to in the
Prospectus were conducted in accordance with standard medical and scientific
research procedures. The descriptions of the results of such studies and tests
are accurate and complete in all material respects and fairly present the data
derived from such studies and tests, and the Company has no knowledge of any
other studies or tests the results of which are inconsistent with or otherwise
call into question the results described or referred to in the Prospectus.
Except to the extent disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), the Company has operated and
currently is in compliance in all material respects with all applicable FDA
rules, regulations and policies. Except to the extent disclosed in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), the Company has not received any notices or other correspondence from
the FDA or any other governmental agency requiring the termination, suspension
or modification of any clinical or pre-clinical studies or tests that are
described in the Prospectus or the results of which are referred to in the
Prospectus.
(p) The property, assets and operations of the Company comply
in all material respects with all applicable federal, state and local laws, and
public and worker health and safety rules, orders, decrees, judgments,
injunctions, licenses, permits or regulations relating to environmental matters
(the "Environmental Laws"). To the Company's best knowledge, none of the
Company's property, assets or operations is the subject of any federal, state
or local investigation evaluating whether any remedial action is needed to
respond to a release to the natural environment of or exposure of any living
organism to any substance regulated by or form the basis of liability under any
Environmental Laws (a "Hazardous Material") or is in contravention of any
Environmental Laws. The Company has not received any notice or claim, nor are
there any pending or, to the Company's best knowledge, threatened or reasonably
anticipated lawsuits or other proceedings against it with respect to violations
of an Environmental Law or in connection with the release to the natural
environment of or exposure of any living organism to any Hazardous Material.
The Company has no material contingent liability in connection with any release
to the natural environment of or exposure of any living organism to any
Hazardous Material.
(q) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amount as
are customary in the business in which it is engaged. All policies of
insurance insuring the Company or its business, assets, employees, officers and
directors are in full force and effect, and the Company is in compliance with
the terms of such policies in all material respects. There are no claims by
the Company under any such policy or instrument as to which any insurance
company is denying liability or defending under a reservation of rights clause.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
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authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) Neither the Company nor, to the Company's best knowledge,
any employee or agent of the Company has made any payment of funds of the
Company or received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(t) The Company has filed all federal, state, local and
foreign tax returns and tax forms required to be filed. Such returns and forms
are complete and correct in all material respects, and all taxes shown by such
returns or otherwise assessed that are due or payable have been paid, except
such taxes as are being contested in good faith and as to which adequate
reserves have been provided. All payroll withholdings required to be made by
the Company with respect to employees have been made. The charges, accruals
and reserves on the books of the Company in respect of any tax liability for
any year not finally determined are adequate to meet any assessments or
reassessments for additional taxes. There have been no tax deficiencies
asserted and, to the best knowledge of the Company, no tax deficiency might be
reasonably asserted or threatened against the Company that could, individually
or in the aggregate, have a Material Adverse Effect.
(u) No holder of any security of the Company has any right
(other than rights that have been validly waived) to require registration of
shares of Common Stock or any other security of the Company because of the
filing of the registration statement or the consummation of the transactions
contemplated by this Agreement and, except as disclosed in the Prospectus, no
person has the right to require registration under the Act of any shares of
Common Stock or other securities of the Company. No person has the right,
contractual or otherwise, to cause the Company to permit such person to
underwrite the sale of any of the Shares. Except as described in or
contemplated by the Prospectus, there are no outstanding options, warrants or
other rights calling for the issuance of, and there are no commitments, plans
or arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable or exercisable for capital stock of
the Company.
(v) The Company owns or has obtained valid and enforceable
licenses for the patents, patent applications, inventions, technology,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, trade secrets and rights described in the prospectus
as being owned or used by or licensed to it or necessary for the conduct of its
business (collectively, the "Intellectual Property"). Except as set forth in
the Prospectus (i) there are no rights of third parties to any such
Intellectual Property; (ii) to the Company's best knowledge there is no
infringement by third parties of any such Intellectual Property; (iii) there is
no pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the Company's rights in or to any
such Intellectual Property, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (iv) there is no pending or, to the
Company's best knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any such Intellectual Property, and
the Company is unaware of any facts which would form a reasonable basis for any
such claim; (v) there is no pending or, to the Company's best knowledge,
threatened action, suit, proceeding or claim by others that the Company
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary rights of others, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (vi) to the Company's
best knowledge there is no patent or patent application which contains claims
that dominate or may dominate any Intellectual Property described in the
Prospectus as being owned by or licensed to the Company or that is necessary
for the conduct of its business or that interferes with the issued or pending
claims of any such Intellectual Property; and (vii)
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there is no prior act of which the Company is aware that may render any patent
held by the Company invalid or any patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent and Trademark
office.
(w) The Company is not, and, upon the sale of the Shares to
be issued and sold by it hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds,"
will not be an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(x) The Incorporated Documents heretofore filed were filed in
a timely manner and, when they were filed (or, if any amendment with respect to
any such document was filed, when such document was filed), conformed in all
material respects with the requirements of the Exchange Act and did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or omission
which has been made therein or omitted therefrom in reliance upon and in
conformity with the information relating to such Underwriter furnished in
writing to the Company by or on behalf of such Underwriter through you
expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to any Prepricing
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of Shares by such
Underwriter to any person if (i) a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
untrue statement or alleged untrue statement or omission or alleged omission of
a material fact contained in such Prepricing Prospectus was corrected in the
Prospectus and (ii) the Company delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. The foregoing indemnity agreement shall be in addition to any
liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel
or (iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling person
and the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such
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indemnified party and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Company shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such Underwriter or such controlling person). It is understood,
however, that the Company shall, in connection with any one such action, suit
or proceeding or separate but substantially similar or related actions, suits
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Underwriters and controlling persons not having actual or
potential differing interests with you or among themselves, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
shall be reimbursed as they are incurred. The Company shall not be liable for
any settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Company agrees to indemnify and hold harmless any Underwriter and any such
controlling person, to the extent provided in the preceding paragraph, from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Company to each Underwriter,
but only with respect to information relating to such Underwriter furnished in
writing to the Company by or on behalf of such Underwriter through you
expressly for use in the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto. If any action,
suit or proceeding shall be brought against the Company, any of its directors,
any such officer or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to the Company by paragraph (b) above (except that if
the Company shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
such Underwriter's expense), and the Company, its directors, any such officer,
and any such controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall
be in addition to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7
is unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other hand 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 the Company on the one hand and the Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, 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 hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters,
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in each case as set forth in the table on the cover page of the Prospectus;
provided that, in the event that the Underwriters shall have purchased any
Additional Shares hereunder, any determination of the relative benefits
received by the Company and the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company, and the underwriting discounts and commissions received by the
Underwriters, from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the Prospectus. The relative fault of the Company on the one
hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
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<PAGE> 14
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or an Abbreviated Registration Statement to be declared
effective before the offering of the Shares may commence, the registration
statement or such post-effective amendment or Abbreviated Registration
Statement shall have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company, or any officer or director of the Company, which makes
any statement made in the Prospectus untrue or which, in the opinion of the
Company and its counsel or the Underwriters and their counsel, requires the
making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
your opinion, as Representatives of the several Underwriters, materially,
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel for the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, that:
(i) The Company is a corporation duly
incorporated and validly existing 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 to conduct its business as
described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the
failure so to register or qualify would not have a Material Adverse
Effect;
(ii) The authorized capital stock of the Company
is as set forth under the caption "Capitalization" in the Prospectus,
and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description contained in
the Company's Registration Statement on Form 8-A, as filed with the
Commission on March 2, 1987;
(iii) All the shares of capital stock of the
Company outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, are fully paid and nonassessable and
were issued and sold in compliance with all applicable federal and
state securities laws;
(iv) The Shares have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor
in accordance with the terms hereof, will be validly
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<PAGE> 15
issued, fully paid and nonassessable and free of (A) any preemptive
rights arising under the Company's certificate of incorporation or the
Delaware General Corporation Law or (B) to the knowledge of such
counsel, similar rights that entitle or will entitle any person to
acquire any shares of capital stock of the Company upon the issuance
and sale of the Shares by the Company;
(v) The form of certificate for the Shares
conforms to the requirements of the Delaware General Corporation Law;
(vi) Such counsel has received oral confirmation
from the staff of the Commission that the Registration Statement and
all post-effective amendments, if any, have become effective under the
Act and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule
424(b) has been made in accordance with Rule 424(b);
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
the Shares to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company and is
a valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or principles of public
policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by
general equitable principles;
(viii) To the knowledge of such counsel, the Company
is not in violation of its certificate of incorporation or bylaws, or
other organizational documents, or in default in the performance of
any material obligation, agreement or condition contained in any bond,
debenture, note or other evidence of indebtedness, or in any
agreement, indenture, lease or other instrument to which the Company
is a party or by which it or any of its properties may be bound, in
each case that is made an exhibit to the Registration Statement or any
Incorporated Document;
(ix) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement,
compliance by the Company with the provisions hereof nor consummation
by the Company of the transactions contemplated hereby conflicts or
will conflict with or constitutes or will constitute a breach of, or a
default under, the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any, indenture, bond,
note, lease or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties is bound that
is made an exhibit to the Registration Statement, or to the knowledge
of such counsel will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company, nor
will any such action result in any violation of any existing law,
regulation, ruling (assuming compliance with all applicable state
securities or Blue Sky laws), judgment, injunction, order or decree
known to such counsel and applicable to the Company or any of its
properties;
(x) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official
is required on the part of the Company (except as have been obtained
under the Act and the Exchange Act or such as may be required under
state securities or Blue Sky laws
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<PAGE> 16
governing the purchase and distribution of the Shares) for the valid
issuance and sale of the Shares to the Underwriters as contemplated by
this Agreement;
(xi) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial
and statistical data included therein, as to which such counsel need
not express any opinion) comply as to form in all material respects
with the requirements of the Act;
(xii) All documents incorporated by reference in
the Prospectus (excluding any financial statements and footnotes
thereto and other financial or other statistical data included or
incorporated by reference therein, as to which such counsel need
express no opinion), at the time they were filed with the Commission,
complied as to form in all material respects with the requirements of
the Exchange Act;
(xiii) To the knowledge of such counsel, (A) there
are no legal or governmental proceedings pending or threatened against
the Company, or to which the Company or any of its properties is
subject, which are required to be described in the Registration
Statement or Prospectus (or any amendment or supplement thereto) that
are not described as required and (B) there are no agreements,
contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) or to be filed as an exhibit to
the Registration Statement or any Incorporated Document that are not
described or filed as required, as the case may be;
(xiv) To the knowledge of such counsel, the Company
is not in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company the
violation of which would have a Material Adverse Effect, or of any
decree of any court or governmental agency or body having jurisdiction
over the Company;
(xv) To the knowledge of such counsel, the Company
has all necessary Permits (except where the failure to so have any
such Permits, individually or in the aggregate, would not have a
Material Adverse Effect) to own its properties and to conduct its
business as now being conducted as described in the Prospectus;
(xvi) The statements in the Registration Statement
and Prospectus, and any Incorporated Document, insofar as they are
descriptions of contracts, agreements or other legal documents, or
refer to statements of law or legal conclusions, are accurate in all
material respects and present fairly the information required to be
shown;
(xvii) Except as described in the Prospectus, such
counsel does not know of any holder of any securities of the Company
or any other person who has the right, contractual or otherwise, to
cause the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, any of the Shares or the right to have
any Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require the Company to register under the
Act any shares of Common Stock or other securities of the Company, and
any registration rights in connection with the offering contemplated
hereby have been validly waived; and
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<PAGE> 17
(xviii) The Company is not an "investment company" or
a person "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that although such
counsel has not undertaken, except as otherwise indicated in its opinion, to
determine independently, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement, such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including review and discussion of the contents
thereof, and nothing has come to the attention of such counsel that has caused
it to believe that the Registration Statement, at the time the Registration
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and as of the Closing Date or the Option Closing Date, as the case may be,
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or that any amendment or supplement to the Prospectus, as of its
date, and as of the Closing Date or the Option Closing Date, as the case may
be, contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus).
In rendering their opinion as aforesaid, counsel may rely as
to matters of fact upon certificates of officers of the Company and public
officials and as to legal matters upon an opinion or opinions, each dated the
Closing Date, of other counsel retained by them or the Company as to laws of
any jurisdiction other than the federal laws of the United States or the States
of Georgia and New York or the corporation law of the State of Delaware,
provided, however that (1) each such local counsel is acceptable to the
Representatives, (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion is delivered to the Representatives
and is, in form and substance, satisfactory to them and counsel for the
Underwriters and (3) counsel shall state in their opinion that they believe
that they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of T.
Tydings Robin, patent counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, that:
(i) to the knowledge of such counsel after
reasonable inquiry, the Company owns or has obtained licenses for all
patents and patent applications relating to the Intellectual Property
described in the Prospectus as being owned or used by or licensed to the
Company;
(ii) to the knowledge of such counsel after
reasonable inquiry (A) except as described in the Prospectus, there are no
rights of third parties to any Intellectual Property described in the
Prospectus as being owned by or licensed to the Company or that is
necessary for the conduct of its business; (B) there is no infringement by
third parties of any such Intellectual Property; (C) there is no pending
or threatened action, suit, proceeding or claim by others challenging the
rights of the Company in or to such Intellectual Property, and such
counsel is unaware of any facts which would form a reasonable basis for
any such claim; (D) there is no pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of such
Intellectual Property, and such counsel is unaware of any facts which
would form a reasonable basis for any such claim; (E)
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<PAGE> 18
there is no pending or threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary right of others,
and such counsel is unaware of any facts which would form a reasonable
basis for any such claim; (F) there is no patent or patent application
which contains claims that dominate or may dominate any Intellectual
Property described in the Prospectus as being owned or used by or licensed
to the Company or that is necessary for the conduct of its business or
that interferes with the issued or pending claims of any such Intellectual
Property; and (G) there is no prior art that may render any patent held by
the Company invalid or any patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent and Trademark
Office; and
(iii) the statements in the Prospectus under the
captions "Risk Factors--Intellectual Property Rights; Dependence on Trade
Secrets" and "Business--Patents and Licenses; Trade Secrets" and other
references therein to patent and licensing matters, insofar as such
statements constitute a summary of legal matters, documents or
proceedings, are accurate and present fairly the information purported to
be shown.
(e) You shall have received on the Closing Date an opinion of
Dewey Ballantine, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (iv) (other than subclause (B) thereof),
(vi), (vii), (xi) and the penultimate paragraph of Section 8(c) hereof and such
other related matters as you may request.
(f) You shall have received letters addressed to you and dated
the date hereof and the Closing Date from Grant Thornton LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.
(g)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date 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; (ii) there shall not have been any material change in the capital stock
of the Company nor any material increase in the short-term or long-term debt of
the Company from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company; (iv) the Company shall not
have any liabilities or obligations, direct or contingent (whether or not in
the ordinary course of business), that are material to the Company, other than
those reflected in or contemplated by the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and
on and as of the Closing Date as if made on and as of the Closing Date, and you
shall have received a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you), as to the matters set forth in this
Section 8(g) and in Section 8(h) hereof.
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(h) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to
the Closing Date.
(i) You shall have received a certificate dated the Closing Date
signed by the chief financial officer of the Company substantially in the form
heretofore approved by you respecting the Company's compliance with the
financial covenants contained in credit agreements to which the Company is a
party.
(j) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have reasonably
requested.
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you, as Representatives of the several Underwriters, and
counsel for the Underwriters.
Any certificate or document signed by any officer of the Company
and delivered to you, as Representatives of the several Underwriters, or to
counsel for the Underwriters, shall be deemed a representation or warranty by
the Company to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 8, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (g) and paragraphs
(i) and (j) shall be dated the Option Closing Date in question and the opinions
called for by paragraphs (c), (d) and (e) shall be revised to reflect the sale
of Additional Shares.
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, the Incorporated Documents and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the offering of the Shares; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Shares; (v) the additional listing of the Shares on the Nasdaq National Market;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. in connection with the offering; (viii) the
transportation and other expenses incurred by or on behalf of representatives
of the Company in connection with presentations to prospective purchasers of
the Shares; (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company; and (x) the performance by the Company of its other obligations under
this Agreement.
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<PAGE> 20
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to be declared or become effective
before the offering of the Shares may commence, when notification of the
effectiveness of the registration statement or such post-effective amendment
has been released by the Commission or such Abbreviated Registration Statement
has, pursuant to the provisions of Rule 462 under the Act, become effective.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date, each non-defaulting Underwriter shall be obligated,
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
(predecessor of Smith Barney Inc.), to purchase the Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused, to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase on the Closing Date and the
aggregate number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date and arrangements satisfactory to you
and the Company for the purchase of such Shares by one or more non-defaulting
Underwriters or other party or parties approved by you and the Company are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term "Underwriter"
as used in this Agreement includes, for all purposes of this Agreement, any
party not listed in Schedule I hereto who, with your approval and the approval
of the Company, purchases Shares which a defaulting Underwriter agreed, but
failed or refused, to purchase.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or The Nasdaq National Market shall have been suspended or materially
limited, (ii) a general moratorium on commercial banking activities in New York
shall have been declared by either federal or state authorities, or (iii) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the
20
<PAGE> 21
Shares at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization and passive
market making legends on the inside front cover page and the statements in the
first, third and seventh paragraphs under the caption "Underwriting" in any
Prepricing Prospectus and in the Prospectus constitute the only information
furnished by or on behalf of the Underwriters through you as such information
is referred to in Sections 6(b) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at 5325 Oakbrook Parkway, Norcross, Georgia 30093, Attention: M.
Christine Jacobs, President and Chief Executive Officer, with a copy to Powell,
Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., Atlanta, Georgia
30303, Attention: Richard H. Miller, Esq.; or (ii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the Americas,
New York, New York 10019-6092, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 7
hereof and, to the extent provided herein, their respective successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof shall have been executed and delivered on behalf of each party hereto.
21
<PAGE> 22
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
THERAGENICS CORPORATION
By:
-------------------------------------
M. Christine Jacobs
President and Chief Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
DAIN BOSWORTH INCORPORATED
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
---------------------------------------------
Managing Director
22
<PAGE> 23
SCHEDULE I
THERAGENICS CORPORATION
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Dain Bosworth Incorporated . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . ---------
2,000,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 5.1
OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 572-6600
February 27, 1997
Theragenics Corporation
5325 Oakbrook Parkway
Norcross, Georgia 30090
RE: REGISTRATION OF 2,300,000 SHARES OF COMMON STOCK;
REGISTRATION STATEMENT ON FORM S-3 (REG. NO. 333-21317)
Ladies and Gentlemen:
We have acted as counsel to Theragenics Corporation, a Delaware corporation
(the "Company") in connection with the registration under the Securities Act of
1933, as amended, pursuant to the Company's Registration Statement on Form S-3
(the "Registration Statement"), of a public offering of 2,300,000 shares of
common stock, $.01 par value ("Common Stock"), of the Company (together with the
Rights attached thereto as described in the Registration Statement, the
"Shares").
In this capacity, we have examined the Registration Statement in the form
filed by the Company with the Securities and Exchange Commission (the
"Commission") on February 7, 1997, Amendment No. 1 to the Registration Statement
in the form filed with the Commission on the date hereof, the proposed form of
Underwriting Agreement, and originals or copies, certified or otherwise
identified to our satisfaction, of such corporate records, agreements, documents
and other instruments of the Company relating to the authorization and issuance
of the Shares and such other matters as we have deemed relevant and necessary as
a basis for the opinion hereinafter set forth.
In conducting our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents.
Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that the
Shares, when issued and delivered against payment therefor in accordance with
the terms of the Underwriting Agreement, will be legally and validly issued,
fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP
We have issued our report dated January 16, 1997, accompanying the
financial statements of Theragenics Corporation for each of the three years in
the period ended December 31, 1996 contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
GRANT THORNTON LLP
Atlanta, Georgia
February 26, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF PATENT COUNSEL
The undersigned hereby consents to the reference to him under the heading
"Experts" in the Prospectus contained in the Amendment to the Registration
Statement on Form S-3 of Theragenics Corporation to which this exhibit is
appended. The undersigned is an employee of Theragenics Corporation.
T. Tydings Robin, Jr.
Patent Attorney
February 26, 1997
