Filed pursuant to Rule 424(b)(3) for File No. 333-50557
PROSPECTUS
ANGEION CORPORATION
$22,150,000 7 1/2% SENIOR CONVERTIBLE NOTES DUE 2003
8,737,661 SHARES OF COMMON STOCK
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This Prospectus relates to (a) $22,150,000 principal amount of 7
1/2% Senior Convertible Notes due 2003 (the "Notes") (b) 7,258,487 shares of the
common stock, par value $0.01 per share (the "Common Stock"), of Angeion
Corporation (the "Company") issuable upon conversion of the Notes (collectively,
the "Conversion Shares"); (c) 362,924 shares of Common Stock issuable upon
exercise of the Placement Agent Warrants (as defined below) (the "Placement
Agent Shares"); (d) 25,000 currently outstanding shares of Common Stock
(collectively, the "Perpetual Growth Shares"); (e) up to 1,091,250 shares of
Common Stock issuable upon the exercise of the RGC Warrant (as defined below)
(collectively, the "RGC Warrant Shares"); and (f) such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Notes and exercise of the Placement Agent Warrants and the RGC Warrant as a
result of adjustment to the conversion price, number of shares (in the case of
the Placement Agent Warrants and the RGC Warrant) and exercise price,
respectively (collectively, the "Additional Shares"). The Perpetual Growth
Shares, RGC Warrant Shares and all related Additional Shares are hereafter
referred to collectively as the "RGC Shares". The Conversion Shares, the
Placement Agent Shares and the RGC Shares, when referenced collectively, are
hereafter referred to as the "Shares" and together with the Notes as the
"Securities."
The Notes and the Placement Agent Warrants were issued and sold in
connection with the Company's April 1998 private placement in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act
to persons each of which was reasonably believed by the Company to be an
institution that is an "accredited investor" (as such term is defined in Rule
501(a) under the Securities Act) and are thus "restricted securities" under the
Securities Act. This Prospectus has been prepared, in part, for the purpose of
registering the Notes, the Conversion Shares and the Placement Agent Shares
under the Securities Act to allow for future sales by the applicable selling
securityholders (the "Selling Convertible Securityholders", with the RGC Selling
Securityholders (as defined herein), collectively, the "Selling
Securityholders") to the public without restriction. The Selling Securityholders
have advised the Company that sales of the Shares offered hereunder by them or
by their respective pledgees, donees, transferees or other successors in
interest, may be made from time to time on the NASDAQ National Market, in the
over-the-counter market, in ordinary brokerage transactions, in negotiated
transactions, through the writing of options on the sales, short sales, or
otherwise, at market prices prevailing at the time of the sale or at negotiated
prices and sales of the Notes offered hereunder by them or by their respective
pledgees, donees, transferees or other successors in interest, will be sold in
one or more privately-negotiated transactions (which may involve block
transactions). See "Plan of Distribution - RGC," "-Notes" and "- Placement Agent
Shares."
The Notes are convertible into Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $3.0516 per
share, subject to adjustment in certain events (the "Conversion Price"). See
"Description of Securities To Be Registered - Notes - Conversion."
The Notes do not provide for a sinking fund. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after April 14, 2001 at 100% of the principal amount thereof, together with
accrued and unpaid interest. The Notes are redeemable at the option of the
holders upon a Designated Event (as defined herein) at a price equal to 101% of
the principal amount
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thereof, plus accrued and unpaid interest, subject to certain restrictions and
conditions. See "Description of Securities To Be Registered - Notes - Repurchase
at the Option of Holders."
The Notes are senior unsecured obligations of the Company and are
subordinated to all present and future Indebtedness (as defined herein) of the
Company and are effectively subordinated to all indebtedness and other
liabilities of the subsidiaries of the Company. As of December 31, 1997, the
Company and its Subsidiaries had approximately $3,132,606 of indebtedness. The
Indenture (as defined herein) prohibits the Company and its subsidiaries from
incurring Secured Funded Indebtedness (as defined herein). See "Description of
Securities To Be Registered - Notes."
The Outstanding Shares and the RGC Warrant were issued and sold in
connection with the Company's March 1998 bridge financing in transactions exempt
from the registration requirements of the Securities Act, pursuant to Section
4(2) of the Securities Act under the Securities Act, to persons each of which
was reasonably believed by the Company to be an "accredited investor" (as such
term is defined in Rule 501(a) under the Securities Act) and are thus
"restricted securities" under the Securities Act. This Prospectus has been
prepared, in part, for the purpose of registering the RGC Shares under the
Securities Act to allow for future sales by the applicable Selling
Securityholders (the "RGC Selling Securityholders") to the public without
restriction.
The Securities are being registered to permit public secondary
trading by the holders thereof from time to time after the date of the
Prospectus of (a) the Notes, (b) the Conversion Shares, (c) the Placement Agent
Shares, (d) the RGC Shares, (e) the Perpetual Growth Shares and (f) any related
Additional Shares.
Any of the Selling Securityholders and any broker-dealers or other
persons acting on their behalf in connection with the sale of Common Stock or
Notes hereunder may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any commissions received by the Selling Securityholders and
any profit realized by them on the resale of the Securities as principals may be
deemed to be underwriting commissions under the Securities Act. As of the date
hereof, there are no special selling arrangements between any broker-dealer or
other person and any of the Selling Securityholders.
The Company will not receive any part of the proceeds of any sales
of the Securities pursuant to this Prospectus. Pursuant to the terms of written
agreements between the Company and the Selling Securityholders, the Company will
pay all the expenses of registering the Securities, except for selling expenses
incurred by the Selling Securityholders in connection with this offering,
including any fees and commissions payable to broker-dealers or other persons,
which will be borne by the Selling Securityholders. In addition, these
agreements provide for certain other usual and customary terms, including
indemnification by the Company of the Selling Securityholders against certain
liabilities arising under the Securities Act.
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
The Company's Common Stock is traded on the NASDAQ National Market
under the symbol "ANGN". On July 27, 1998, the last sale price of the Common
Stock on the NASDAQ National Market was $2.81 per share; the average of the high
and low prices on July 27, 1998 was $2.75 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 31, 1998.
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PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION
OF THE SECURITIES, INCLUDING THE CONVERSION OF THE NOTES, IF APPLICABLE, AND THE
EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or the Selling Securityholders. Neither the delivery
of this Prospectus nor any sale made under this Prospectus shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information 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 Prospectus constitutes part of a Registration Statement on Form
S-3 (herein, together with all amendments, schedules and exhibits, referred to
as the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all of the information,
exhibits and undertakings set forth in the Registration Statement, certain
portions of which are omitted as permitted by the Rules and Regulations of the
Commission. Copies of the Registration Statement and the exhibits are on file
with the Commission and may be obtained, upon payment of the fee prescribed by
the Commission, or may be examined, without charge, at the offices of the
Commission set forth above. For further information, reference is made to the
Registration Statement and its exhibits.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company
(File No. 0-17019) are incorporated by reference in this Prospectus: (1) the
Company's Annual Report on Form 10-K for the year ended July 31, 1997; (2) the
Company's Quarterly Reports on Form 10-Q for the quarters ended October 31, 1997
and March 31, 1998; (3) the Company's Transition Report for the five-month
transition period ended December 31, 1997; (4) the Company's Current Reports on
Form 8-K, dated April 20, 1998 and July 28, 1998; (5) all other reports filed by
the Company pursuant to Sections 13(a) or 15(d) of the Exchange Act since July
31,
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1997; (6) the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A and any amendments or reports filed for the
purpose of updating such description; and (7) the description of the Company's
Series B Junior Preferred Stock and rights to purchase Series B Junior Preferred
Stock contained in its Registration Statement on Form 8-A and any amendments or
reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering hereunder shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document all or any portion of which is 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
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference 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 a part of this Prospectus.
The Company will provide, without charge, to each person to whom a
copy of this Prospectus is delivered, upon written or oral request of such
person, a copy of any or all of the documents referred to above which are
incorporated by reference in this Prospectus (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Requests should be directed
to Angeion Corporation, 7601 Northland Drive, Minneapolis, Minnesota 55428-1088,
Attention: Peg O. Norris, Corporate Controller and Principal Accounting Officer;
telephone number (612) 315-2000.
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THE COMPANY
GENERAL
The Company designs, develops, manufactures and markets products
that treat irregular heartbeats (arrhythmias). The Company has developed what it
believes are among the smallest and most technologically advanced implantable
cardioverter defibrillators ("ICDs") in clinical studies or approved for market
sales today. ICDs are designed to treat arrhythmias of the heart which are
characterized by abnormally rapid heartbeats in the ventricular (or lower)
chambers of the heart, a condition known as ventricular tachycardia ("VT"), and
a severe form of VT known as ventricular fibrillation ("VF"), which if not
terminated will lead to sudden cardiac death ("SCD"). ICDs are electronic
devices that are implanted within the body and are connected to the heart with
defibrillator leads. These devices monitor the patient's heartbeat and, in the
event of VT or VF, deliver an electrical shock to restore the heartbeat to
normal rhythm.
The Company is also developing a radio frequency ("RF") catheter
ablation system that it believes offers a potential cure for certain forms of
atrial arrhythmias (rapid heartbeats originating in the upper chambers of the
heart) and a laser catheter ablation system that it believes offers a potential
cure for certain forms of VT.
The Company was incorporated in Minnesota in May 1986. The Company's
principal executive offices are located at 7601 Northland Drive, Minneapolis,
Minnesota 55428-1088, and its telephone number at that location is (612)
315-2000.
RECENT DEVELOPMENTS
RGC BRIDGE LOAN
On March 11, 1998, the Company borrowed $5 million (the "RGC
Bridge Loan") from RGC International Investors, LDC ("RGC") pursuant to a
Convertible Senior Note (the "Note"), which Note was repaid by the Company on
April 16, 1998.
In connection with the RGC Bridge Loan, the Company issued
three warrants to purchase an aggregate amount of 970,000 shares of Common Stock
at an exercise price equal to the lower of (a) $3.86, or (b) 125% of the average
of the closing bid prices of the Common Stock over the five trading days ending
on June 9, 1998. Upon the repayment of the Note, warrants for an aggregate
amount of
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243,500 shares of Common Stock were cancelled. The remaining warrant for 727,500
shares of Common Stock (the "RGC Warrant") is exercisable until March 11, 2003
and the exercise price for the RGC Warrant has been reset to $2.992 per share.
In connection with the RGC Bridge Loan, the Company entered into an
agreement with Perpetual Growth Advisors ("PGA") dated as of March 11, 1998
pursuant to which the Company issued to PGA the 25,000 Perpetual Growth Shares
in consideration for services rendered with respect to such transaction. The
Company has agreed pursuant to such agreement to register for resale all of such
Perpetual Growth Shares under the Securities Act on the same terms provided to
RGC in the registration rights agreement between the Company and RGC (the "RGC
Registration Rights Agreement.").
In connection with the RGC Bridge Loan, the Company has agreed to
register under the Securities Act no less than one and one half times the sum of
the number of shares of Common Stock currently issuable upon exercise of the RGC
Warrant, without regard to any limitation on the RGC's ability to exercise the
RGC Warrant. All of the RGC Shares, excluding the Perpetual Growth Shares, have
been registered hereunder pursuant to the RGC Registration Rights Agreement.
OFFERING OF THE NOTES
On April 14, 1998, the Company completed a private placement whereby
the Company issued the Notes pursuant to an indenture (the "Indenture") between
the Company and U.S. Bank National Association, as trustee (the "Trustee"). For
a description of the Notes, see "Description of Securities To Be Registered -
Notes."
PLACEMENT AGENT WARRANTS
In connection with the offering of the Notes, HSBC Securities, Inc.
and Prudential Securities Incorporated (collectively, the "Placement Agents"),
each an investment banking firm, acted as placement agents for the Company in
connection with the private placement of the Notes. In connection therewith, the
Company agreed, among other things, to deliver warrants to purchase 181,462
shares of Common Stock to each of the Placement Agents at an initial exercise
price of $2.90625 per share. The exercise price shall be reduced on a specified
date to equal the lower of (a) the previously applicable exercise price or (b)
the Market Price (as defined in the Indenture) for the Company's Common Stock on
a specified date; provided, however, that in no event shall the exercise price
be reduced to less than $1.5258.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE MAKING AN INVESTMENT IN THE SECURITIES. THIS PROSPECTUS
CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS PRIMARILY WITH RESPECT TO THE FUTURE OPERATING
PERFORMANCE OF THE COMPANY. PROSPECTIVE PURCHASERS OF THE SECURITIES ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING THE INFORMATION SET FORTH BELOW, IDENTIFIES IMPORTANT FACTORS THAT
COULD CAUSE SUCH DIFFERENCES. SEE "- FORWARD-LOOKING STATEMENTS."
CONTINUING OPERATING LOSSES; PROFITABILITY UNCERTAIN; FLUCTUATIONS IN OPERATING
RESULTS.
The Company has incurred net operating losses from continuing
operations in each year since its inception in 1986, due primarily to costs
incurred in the research and development of the Company's products. The Company
has had minimal revenue since the sale of its Angeion Medical Products division
in September 1992. The Company expects to incur additional operating losses over
the next few
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years as the Company continues to fund research and development (including
clinical trials) relating to its ICDs and catheter ablation systems and invests
in building its manufacturing and marketing capabilities. The Company's ability
to achieve profitability is dependent, in part, upon obtaining regulatory
approvals for its products and developing the capacity to manufacture and sell
its products successfully. There can be no assurance that the Company will
obtain the required regulatory approvals on a timely basis, if at all, or that
the Company will successfully develop, commercialize, manufacture and market its
products, or achieve profitability. In addition, the Company's results of
operations may fluctuate significantly from quarter to quarter depending upon a
number of factors, including the availability of third party reimbursement, the
timing of regulatory approvals, the progress of product development and clinical
trials, the extent to which the Company's products gain market acceptance, as
well as the level of marketing and manufacturing costs required for the sale of
the Company's products and the extent of competition in the Company's markets.
LACK OF PMA APPROVAL; LIMITED CLINICAL REVENUES; COMPLIANCE WITH GOVERNMENT
REGULATIONS
The Company's products are all classified as medical devices by the
Food, Drug and Cosmetic Act (the "FDC Act"), and as such, are subject to
regulation and supervision by the FDA, and to regulation by foreign governmental
authorities. Medical devices are also subject to ongoing controls and
regulations under the FDC Act, including registration by the manufacturer,
compliance with established manufacturing practices, device tracking,
record-keeping, advertising, labeling, packaging and compliance to standards.
Comparable agencies in certain states and foreign countries also regulate the
Company's activities. The process of complying with such regulations with
respect to new products can be costly and time-consuming. FDA requirements for
both the Company's ICD and catheter ablation products require obtaining formal
FDA pre-market approval ("PMA approval"). The first stage of obtaining formal
FDA PMA approval is submission of an application for an Investigational Device
Exemption ("IDE"). The IDE permits clinical evaluations of products on human
subjects under controlled experimental conditions by designated qualified
medical institutions. To obtain an IDE, approval of the investigational plan for
the applicable system is required from the institutional review board within
each participating medical institution as well as from the FDA. The second stage
of formal FDA PMA approval is the PMA approval application. The PMA approval
application, which is submitted after extensive clinical evaluations are
completed under an IDE, is a comprehensive report of all data and information
obtained by the applicant throughout the product's development and testing. The
FDA will grant a PMA approval if it finds that the safety and effectiveness of
the product have been sufficiently demonstrated and that the product complies
with all applicable regulations and standards. The FDA may require further
clinical evaluation of the product, terminate the clinical studies, grant a PMA
approval but restrict the number of devices distributed, or require additional
patient follow-up for an indefinite period of time. Approval of the Company's
PMA approval applications for its ICDs and its catheter ablation systems will
depend on a wide variety of factors, many of which are outside the Company's
control. Although the Company has been successfully inspected with respect to
its old facilities for compliance of its operations with the FDA's current Good
Manufacturing Practices ("GMP"), final approval will require an inspection by
the FDA to determine whether the Company's operations at its new facilities
conform with the FDA's current GMP, which is necessary to market the Company's
products commercially in the U.S. Although the Company filed a PMA approval
application for its SENTINEL 2000 Model and SENTINEL 2010 Model ICDs in June
1997, and has received an IDE for its SENTINEL 2010 Model and AngeCool radio
frequency ("RF") catheter ablation systems in April 1997, and an IDE for the
2020 Model in February 1998, there can be no assurance that the Company will be
successful in obtaining PMA approval for any of its products in a timely manner,
or at all, which is necessary to market the Company's products commercially in
the U.S. The Company has in the past experienced delays related to the
development, testing, marketing and government approval of its
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products. For example, in November 1997, the Company announced a revision to its
clinical trial protocol of its SENTINEL 2000 Model and SENTINEL 2010 Model ICDs
and a temporary suspension of implants due to a component issue. The Company has
since incorporated a new ceramic capacitor to replace the component at issue and
received FDA approval in January 1998 to resume clinical implants of the revised
design of the SENTINEL 2000 Model and SENTINEL 2010 Model ICDs. Delays in
obtaining marketing approvals and clearances in the U.S. or recalls related to
the Company's products could have material adverse effects on the Company and
its operations. The Company is also subject to certain FDA regulations governing
defective products and complaints about its products. The Company's products are
subject to recall at any time by the FDA or the Company if it appears that use
of the products could result in unwarranted health risks. The FDA has authority
to inspect the Company's facilities to ensure compliance with the FDC Act and
regulations thereunder. Failure to comply with these regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, the FDA regulates the export of medical devices
that have not been approved or cleared for marketing in the United States. The
Company expects to export products directly to the European Union ("EU"), under
the provisions of the FDA Export Reform and Enhancement Act of 1996. In certain
instances, however, the Company may need to apply for export approval from the
FDA.
Until the Company receives PMA approval, the Company will be subject
to FDA-imposed limitations on the number of ICD implants and catheter ablation
procedures that may be performed as well as the number and location of clinical
sites at which implants and procedures may be performed. As the Company
approaches these limitations, it would be required to apply to the FDA for
approval of additional clinical implants and procedures, but there can be no
assurance that such approval will be received on a timely basis, if at all.
Should it reach the limits authorized by the FDA, the Company would be unable to
sell additional ICDs or conduct additional catheter ablation procedures in the
U.S. until such time as PMA approval is granted, if at all, or until such time
as approval for additional clinical implants or procedures is obtained. The
timing of both the IDE and PMA approval review processes is unpredictable and
uncertain, and the failure to obtain the necessary approvals on a timely basis
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Many foreign countries have similar regulatory requirements
concerning the marketing of new medical devices. In January 1995, the AIMDD (as
defined) was fully implemented in the EU, which is intended to make EU
regulatory requirements more consistent. The time required to obtain approvals
required by foreign countries may be longer or shorter than that required for
FDA approval and requirements for licensing may differ from FDA requirements.
Under AIMDD, the Company is subject to "prior notice" of intent to conduct
clinical studies in the EU. This process, similar to the FDA IDE process,
requires regulatory documents and test information to be submitted to the
governmental agency of each country in which the Company intends to conduct
clinical studies. In order to commence commercial marketing of its products in
the EU and the European Free Trade Association, the Company is required to file
for a CE Mark approval. Although the Company has obtained a CE Mark for the
SENTINEL 2000, 2010, 2011, 2012, 2020, 2021 and 2022 Series Model ICDs that
allows the Company to commence marketing of these products in countries that are
members of the EU and the European Free Trade Association, subject to limited
regulations in certain countries, there can be no assurance that the Company
will be successful in obtaining CE Mark approval for any other products on a
timely basis if at all, and any failure to receive or delay in receiving CE Mark
approval could have a material adverse effect on the Company's business,
financial condition and results of operations
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NEED FOR ADDITIONAL FINANCING
The Company will need additional financing for a number of uses,
including: progress with clinical trials; time and costs involved in obtaining
regulatory approvals; costs involved in filing, prosecuting and enforcing
patents or defending against patent infringement claims; competing with
technological and market developments; costs of manufacturing and marketing
scale-up; and potential acquisitions of technologies or products. There can be
no assurance that such additional financing would be available on acceptable
terms, if at all. If additional funds are raised by issuing equity securities,
further dilution to then existing stockholders may result. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its research and development programs or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish certain rights to certain of its technology, product candidates or
products that the Company would not otherwise relinquish, and the failure to
obtain any such additional financing would have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that Synthelabo's commitment to make an additional investment of up
to $15 million will be met. See "Risk Factors - Uncertainty of Additional
Investment by Synthelabo."
UNCERTAINTY OF ADDITIONAL INVESTMENT BY SYNTHELABO; LIMITED MARKETING AND SALES
RESOURCES OF ANGELLAN; DEPENDENCE UPON STRATEGIC RELATIONSHIPS
Pursuant to the Amended and Restated Investment and Restated
Investment and Master Strategic Relationship Agreement ("Investment Agreement")
with Synthelabo, a French health care company ("Synthelabo"), Synthelabo has
agreed to purchase additional shares of Common Stock for a total additional
investment of up to $15 million in the event that certain regulatory product
development milestones are met. There can be no assurance that such milestones
will be met or, even if they are met, that Synthelabo will fund these
investments in a timely manner, if at all. In addition, pursuant to the
Manufacturing and Supply Agreements with ELA Medical, S.A., a subsidiary of
Synthelabo ("ELA Medical") and Angellan Medical Systems, LLC, ("Angellan"), a
U.S.-based joint venture company formed by the Company and ELA Medical, Inc.,
another subsidiary of Synthelabo, which were entered into in connection with the
Investment Agreement with Synthelabo, the Company has committed to certain
obligations with respect to the exclusivity of marketing of its ICD products in
certain territories. In the event that such arrangements are not successful, the
Company may be restricted in its ability to enter into alternative marketing
arrangements during the term of these agreements. Although these agreements
obligate ELA Medical and Angellan to use their best efforts to market and
promote the ICD products of the Company, there can be no assurance that such
efforts will be put forth or will be successful. These agreements also provide
for transfer prices to be established for future ICD and related products based
upon good faith negotiations between the parties. There can be no assurance that
such transfer prices would be sufficient to allow the Company to operate
profitably. While there are certain minimum purchase obligations to maintain
exclusivity in the case of the Manufacturing and Supply Agreement with ELA
Medical, there can be no assurance that these minimum obligations will be
adequate or will be achieved. With respect to the Angellan joint venture, while
there are obligations for both the Company and ELA Medical to fund this joint
venture and to cooperate in the control of this joint venture, there can be no
assurance that such funding will occur or will be adequate, or that the joint
venture will able to operate successfully in the event of an unresolved dispute
between its owners. Any significant problems pursuant to the agreements with
Synthelabo or ELA Medical could have a material adverse effect upon the
Company's business, financial condition and results of operations.
The Company expects that the majority of its sales will be made
pursuant to manufacturing and supply agreements that the Company has entered
into with (i) Angellan, the joint venture which has been
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granted exclusive rights to have ICD and certain other products manufactured by
the Company for sale in the U.S., and (ii) ELA Medical which has been granted
exclusive rights to have ICD and certain other products manufactured by the
Company for sale in certain territories. The Company's ability to sell its
products successfully will depend substantially on the marketing capabilities of
ELA Medical and Angellan. In recent years there has been significant
consolidation among medical device suppliers as the major suppliers have
attempted to broaden their product lines in order to respond to cost pressures
from health care providers. This consolidation has made it increasingly
difficult for smaller suppliers, such as the Company, to effectively distribute
their products without a relationship with one or more of the major suppliers.
The sales and marketing organizations of ELA Medical and those of Angellan are
substantially smaller than the sales and marketing organizations of certain of
the Company's competitors and there can be no assurance that these organizations
will be able to compete effectively with the Company's larger competitors.
It is the objective of the strategic relationship with ELA Medical
to allow both ELA Medical and Angellan to market an array of products in the
field of cardiac rhythm management in order to compete effectively with these
larger competitors. There can be no assurance that this objective will be met,
or that ELA Medical will have competitive and timely bradycardia pacemakers and
other related products to meet this objective. In addition, as Angellan is a
joint venture, there can be no assurance that Angellan will be in a position to
accomplish the marketing and sales objectives intended by the Company.
ISSUANCE OF ADDITIONAL SHARES AND WARRANTS TO SYNTHELABO
The Investment Agreement with Synthelabo provides that, if the
Company issues and sells additional shares of its Common Stock (or securities
convertible thereinto) during a specified period after the initial $15 million
investment installment (the "Initial Installment") at a price that is less than
a specified price per share (the "Initial Reference Price"), then the Company
would be required to issue to Synthelabo a number of additional shares of its
Common Stock as anti-dilution protection equal to the product of the 2,251,408
shares multiplied by an amount equal to (A) a fraction (x) the numerator of
which shall be the number of shares of Common Stock (or securities convertible
thereinto including securities pursuant to such sale) outstanding immediately
after the issuance of such offering and (y) the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
issuance of such offering plus the number of shares of Common Stock which the
aggregate consideration received for issuance of such offering would purchase at
the Initial Reference Price, minus (B) one. The Company will issue additional
shares to Synthelabo in connection with the Company's recent financing involving
the sale of the Notes. Depending on the structure of the Company's future
financings, the Company may be required to issue to Synthelabo additional Common
Stock to satisfy the anti-dilution provision, resulting in dilution to holders
of Common Stock. A comparable adjustment to the exercise price and number of the
warrants held by Synthelabo may also be required.
The Investment Agreement also provides that if the average closing
price over a specified period for the Company's Common Stock is less than $5.125
per share during a predetermined reset period after the Initial Installment, the
Company shall issue to Synthelabo an additional number of shares of Common Stock
(the "Supplemental Shares") equal to: (A) $5.125 divided by a predetermined
formula price that involves a premium to the market price for the Common Stock
at the time (the "Market Formula Price") and multiplied by 2,251,408 minus (B)
2,251,408 and further minus (C) the number of additional shares of Common Stock,
if any, previously issued under anti-dilution provisions described in the
preceding paragraph. The Company shall also issue to Synthelabo additional
warrants to purchase Common Stock in an amount equal to sixty percent of the
number of Supplemental Shares (the "Supplemental
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Warrants"), with such Supplemental Warrants to have an exercise price equal to
the Market Formula Price, to be exercisable at any time prior to expiration of
the Initial Installment Warrants. Further, if Supplemental Warrants are issued,
the exercise price and number of the Initial Installment Warrants will be reset
based upon the exercise price of such Supplemental Warrants. To the extent that
the average closing price over a specified period of the Common Stock during the
predetermined reset period is less than $5.125 per share, the Company may be
required to issue to Synthelabo additional shares of Common Stock to satisfy the
pricing provision, resulting in dilution to holders of Common Stock. A
comparable issuance of additional warrants and an adjustment to the exercise
price of the warrants held by Synthelabo would also be required.
The Investment Agreement also provides that Synthelabo shall invest
up to $15 million (in subsequent installments of $5 million each, each a
"Subsequent Installment") upon the achievement of certain regulatory product
milestones. For each such Subsequent Installment, the Company would issue Common
Stock at a price (the "Applicable Price") equal to a premium to the then current
market price of the Common Stock. In connection with each Subsequent Installment
of Common Stock purchased. Synthelabo will also receive warrants to purchase a
number of shares of Common Stock equal to 60% of the number of shares of Common
Stock acquired in such installment with an exercise price equal to the
Applicable Price for such installment. Although the Company will receive
compensation for Common Stock purchased at each Subsequent Installment, the
total number of shares of Common Stock to be issued by the Company to Synthelabo
is dependent upon the Applicable Price, and in the event that the Applicable
Price for one or more of the Subsequent Installments is below $5.125 per share,
the total number of shares of Common Stock and warrants issued by the Company
for such Subsequent Installments could be greater than the number of shares of
Common Stock and warrants purchased by Synthelabo in the Initial Installment.
IMPACT OF COMPETITION
Competition in the ICD market is intense. Although the Company's
ICDs also compete with alternative treatments such as drug therapy, open heart
surgery and catheter ablation, the Company believes that ICD manufacturers
currently constitute its primary competition. Four companies (Medtronic, Inc.
("Medtronic"), Cardiac Pacemakers, Inc. ("CPI"), a division of Guidant
Corporation ("Guidant"), Sulzer Intermedics, Inc. ("Intermedics"), a
wholly-owned subsidiary of Sulzer Medica, and Ventritex, Inc. ("Ventritex"), a
wholly-owned subsidiary of St. Jude Medical. Inc. ("St. Jude Medical")) have
obtained PMA Approval for products in the ICD market and currently control
virtually all of the U.S. market. Furthermore, each of these companies has
greater financial, manufacturing, marketing, distribution and technical
resources and greater name recognition than the Company.
The Company believes, based upon industry analyses and attendance by
management at industry meetings, that its product pipeline of ICDs offers the
smallest and most technologically advanced ICDs currently either in clinical
studies or market approved. Competitors of the Company, however, many of whom
have greater financial and technical resources than the Company, are developing
and conducting human clinical studies of ICDs with certain comparable features.
Any ICD product developed by the Company that gains regulatory
approval will have to compete for market acceptance and market share. The timing
of market introduction of competitive products could adversely affect the
competitiveness of the Company's products. Accordingly, the relative speed with
which the Company can develop ICD products, complete clinical testing and the
regulatory approval process and supply commercial quantities of the product to
the market are expected to be important competitive factors. The Company expects
that competition in the ICD market will be based on many
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factors, including device size and weight, longevity, ease of programmability,
ability to provide diagnostic capability, product reliability, new therapies,
physician familiarity with the device, patent protection, sales and marketing
capability, third-party reimbursement policies, reputation and price. There can
be no assurance that FDA approval will be obtained for the Company's ICDs, that
competitors will not introduce new products with similar features or that the
market will accept the Company's ICDs.
Although catheter ablation offers a potential cure, rather than a
treatment, of VT, catheter ablation technologies must nonetheless compete with
drug therapy, open heart surgery and ICDs. A number of companies, certain of
which have significantly greater resources than the Company, have developed RF
catheter ablation devices to treat supraventricular tachycardia ("SVT"). There
can be no assurance that competitors of the Company will not be able to develop
and introduce cardiac ablation systems more quickly than the Company or systems
that may be more effective in treating SVT and VT than the Company's catheter
ablation systems. In addition, there can be no assurance that the Company's
catheter ablation systems will receive FDA approval or, if approved, that the
market will accept such systems. In addition, catheter ablation technologies
also compete with drug therapy. While historically drug therapy has had limited
effectiveness and caused adverse side effects, new drugs under development may
offer improved treatment outcomes which could have a material adverse effect on
the ICD market generally and on the Company's business, financial condition and
results of operations.
IMPORTANCE OF INTELLECTUAL PROPERTY PROTECTION
Patents and trademarks are critical in the medical device industry,
and the Company believes strongly in protecting its intellectual property and
has a long history of obtaining patents, when available, in connection with its
research and product development programs. As of July 28, 1998, the Company had
a portfolio of approximately 150 patents and patent applications consisting of
96 U.S. issued patents, 13 U.S. patents which have been allowed but have not yet
been issued, 15 U.S. patent applications pending, two foreign patents issued, 24
foreign patent applications pending, and additional U.S. patent applications in
preparation relating to its research and development products. The Company also
owns certain registered trademarks, and has applied for other trademarks in the
U.S. and certain foreign countries. There can be no assurance that patents and
trademarks will be granted in the future, or that any patents and trademarks
that the Company now holds or may be granted, or under which it has held license
rights, will be valid or otherwise be of value to the Company. Even if the
Company's patents and trademarks are valid, others may be able to introduce
non-infringing products that are competitive with those of the Company.
Competitors of the Company may also hold or be granted patents that are not
licensed to the Company.
The Company conducts ongoing evaluations of potential infringement
of any proprietary rights of third parties by the products the Company intends
to market. Regardless of the Company's efforts to evaluate the potential
infringement of any proprietary rights of third parties, however, there can be
no assurance that such infringements do not exist or may not arise in the
future. There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry, particularly in the
ICD market; and the Company is currently engaged in patent litigation with CPI.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued to or licensed by the
Company, to protect trade secrets or know-how owned by the Company, to defend
the Company against claimed infringement of the rights of others, and to
determine the scope and validity of the proprietary rights of others. Adverse
determinations in litigation could subject the Company to significant
liabilities to third parties or could require the Company to seek licenses from
third parties.
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In November, 1996, the Company was advised of the results of an
arbitration between Pacesetter, Inc. ("Pacesetter"), a wholly-owned subsidiary
of St. Jude Medical, and Medtronic concerning a purported sublicense of certain
of the Company's patents by Pacesetter to Medtronic. This arbitration arose
under a 1992 cross-license between Medtronic and Pacesetter and under a
provision of the 1993 license agreement between Pacesetter and the Company which
purported to give Pacesetter certain rights to sublicense certain of the
Company's patents. Because the Company was not a party to the arbitration, the
Company did not have an opportunity to present its arguments in this matter and
therefore does not consider itself to be bound by the results of the
arbitration. The Company has notified both Pacesetter and Medtronic that it
disputes the entire matter. The inability of the Company to be successful in
maintaining its position in this matter could have a material adverse effect on
the Company in its ability to obtain a satisfactory resolution of this matter
with both Pacesetter and Medtronic.
The Company has an ongoing patent lawsuit against CPI which was
begun in 1996 and is expected to be tried by the end of 1998. The Company's
lawsuit involves four U.S. patents of the Company which have been asserted
against certain ICD devices manufactured by CPI. These four patents relate to
inventions by the Company with respect to reduced capacitance of the high
voltage capacitors in an ICD, decreased size of the ICD and the ability to use
the housing of the ICD as an electrode in combination with a subcutaneous
electrode. Both parties filed motions for summary judgment on the issue of
whether the Mini I and Mini II implantable defibrillators of CPI infringed
certain claims of the Company's patents. The Company was notified on June 1,
1998 that the magistrate judge in the CPI lawsuit has filed a report and
recommendation (the "Report") recommending that the district court judge grant
the Company's motions for summary judgment on infringement of three of the
Company's patents and deny CPI's counter motions for summary judgment of
non-infringement. The Report also recommends that claims for infringement of a
fourth Company patent which was not being actively pursued by the Company be
dismissed. The Report does not constitute an order or judgment of the district
court. The Company and CPI have filed objections to the Report and the Company
has responded to those objections. The district judge will make a formal ruling
on the matter in which he may accept, reject or modify all or part of the
Report. Neither party moved for summary judgment on the issues of validity,
enforceability, damages or willful infringement; consequently, the Report did
not address the issues of validity and enforceability of the patents or the
issues of damages and willful infringement, as these issues were not before the
magistrate judge as part of the motions for summary judgment. These issues will
be decided as part of a jury trial which is scheduled to be trial ready as of
December 7, 1998, with the Company having the burden of proving damages and
willful infringement and CPI having the burden of proving that the patents are
invalid or unenforceable. It is not known whether the Company's lawsuit against
CPI will be successful and, if so, what damages or other outcomes may result.
The inability of the Company to prevail in the lawsuit could result in one or
more of the patents of the Company to be declared invalid, unenforceable or not
infringed, which could have a material adverse affect on the ability of the
Company to obtain a satisfactory resolution of this matter, if at all, with CPI,
as well as to obtain satisfactory resolutions with other competitors in the
industry.
The Company has recently been notified by CPI that certain
unspecified models of the Company's SENTINEL ICD product line infringe four U.S.
patents assigned to Michel Mirowski and sublicensed to CPI. The Company does not
believe that its products infringe any valid and enforceable patents of third
parties to which the Company does not have access by means of licenses or
otherwise. Under the exemption of 35 U.S.C. Section 271(e), the Company is
protected against charges of infringement for products used in clinical trials
until such time as those products receive PMA approval. The Company has
responded to CPI, and has engaged outside patent counsel to review the
allegations and provide further legal advice. Given the litigious nature of this
industry, it is anticipated that CPI may file a lawsuit asserting one or more of
these patents against the Company. In the event that such a lawsuit is filed by
CPI, the Company believes that it is not possible for CPI to move for any kind
of preliminary injunction and it is expected that the case would not be tried
before the end of 1999. Despite the Company's position, it is not known whether
a lawsuit by CPI against the Company would be successful and, if so, what
damages or other outcomes may result. The outcome of both the Company's lawsuit
against CPI and any potential lawsuit by CPI against the Company could have a
significant material impact on the Company.
Although patent and intellectual property disputes in the medical
device area have often been settled through licensing agreements or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that necessary licenses would be available to the
Company on satisfactory terms if at all. Accordingly, an adverse determination
in a judicial or administrative proceeding or failure to obtain necessary
licenses could prevent the Company from manufacturing and selling its products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
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The Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through confidentiality agreements with
employees, consultants and other parties, as well as contractual exclusivity
with certain suppliers. There can be no assurance, however, that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors.
NEED FOR MARKET ACCEPTANCE
Market acceptance of the Company's products will depend, in part, on
the therapeutic capabilities and operating features of its products as compared
to competing products, the Company's ability to convince the medical community
of the clinical efficacy of its products and its ability to manufacture quality
products in sufficient quantities. Failure of the Company's products to gain
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. Although the markets
for the Company's products are expected to grow, there can be no assurance that
the Company will participate in such growth.
DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends largely on its senior management and
other key personnel. Competition for qualified personnel with sufficient and
relevant experience in the medical device industry is intense. Accordingly, the
loss of the services of such individuals, or the inability to hire additional
key individuals as required, could have a material adverse effect on the
Company, including its current and future product development efforts. The
Company maintains a $2.0 million key-person life insurance policy on Whitney A.
McFarlin, its Chairman.
DEPENDENCE ON THIRD PARTY VENDORS
The Company relies on third party vendors for certain of the
components used in the Company's products and for certain contract manufacturing
services. A number of significant components, such as capacitors, batteries,
integrated circuits and lead systems, are purchased from sole source suppliers.
For certain components and manufacturing services, there are relatively few
sources of supply, and establishing additional or replacement suppliers for such
components or services cannot be accomplished quickly. In addition, each
supplier and each component must be qualified with the FDA, and the time
required for such qualification may be lengthy. Although the Company tries to
maintain sufficient quantities of inventory of such components to minimize
production delays or interruptions, there can be no assurance that the Company
will find suitable alternatives at reasonable prices, if at all, or that any
such alternatives will remain available to the Company. The Company's inability
to obtain acceptable components in a timely manner or find and maintain suitable
replacement suppliers of components or manufacturing services would have a
material adverse effect on the Company, including its ability to manufacture its
products.
LIMITED MANUFACTURING EXPERIENCE
To date, the Company's products have been manufactured in limited
quantities for clinical testing purposes and have not been manufactured on a
significant commercial scale. As a result, there can be no assurance that the
Company will not encounter difficulties in scaling up its manufacturing
capabilities, including problems involving production yields, quality control,
component supply and shortages of
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qualified manufacturing personnel. Any significant manufacturing difficulties
could have a material adverse effect on the Company.
POSSIBLE OBSOLESCENCE DUE TO TECHNOLOGICAL CHANGE
The medical device industry is subject to rapid technological
innovation and, consequently, the life cycles of medical devices tend to be
relatively short, typically eighteen months to three years. The Company is
engaged in a field characterized by extensive research and development efforts.
There can be no assurance that alternative treatments or other discoveries and
developments with respect to ICDs or catheter ablation systems will not render
the Company's products obsolete. The greater financial and other resources of
many of the Company's competitors may permit such competitors to respond more
rapidly than the Company to technological advances.
ADJUSTMENT OF CONVERSION PRICE OF THE NOTES AND EXERCISE PRICES OF PLACEMENT
AGENT WARRANTS AND RGC WARRANT; POTENTIAL FOR DILUTION
The conversion price of the Notes is subject to various antidilution
adjustments. The conversion price of the Notes shall also be reduced on a
specified date to equal the lower of (a) the previously applicable exercise
price or (b) the Market Price (as defined in the Indenture) for the Company's
Common Stock on a specified date; provided, however, that in no event shall the
conversion price be reduced to less than $1.5258.
The number of Placement Agent Shares and the exercise price of the
Placement Agent Warrants is subject to various antidilution adjustments. The
exercise price shall also be reduced on a specified date to equal the lower of
(a) the previously applicable exercise price or (b) the Market Price for the
Company's Common Stock on a specified date; provided, however, that in no event
shall the exercise price be reduced to less than $1.5258.
The exercise price for the RGC Warrant was reset to $2.992 per share. The
exercise price of the RGC Warrant is also subject to various antidilution
adjustments.
The foregoing adjustments to the Notes, the Placement Agent Warrants
and the RGC Warrant could have an impact upon the price of the Company's Common
Stock and could result in dilution to existing holders and holders of the
Conversion Shares, the Placement Agent Shares, the RGC Warrant Shares, the
Perpetual Growth Shares and any related Additional Shares.
PRODUCT LIABILITY AND POTENTIAL INSUFFICIENCY OF PRODUCT LIABILITY INSURANCE
The testing, manufacturing, marketing and sale of medical devices
involves risk of liability claims and product recalls. The Company has in the
past experienced difficulties related to the development, testing and government
approval of its products. For example, in November 1997, the Company announced a
revision to the clinical trial protocol of its SENTINEL 2000 Model and 2010
Model ICDs and a temporary suspension of clinical implants due to a component
issue. The Company has since incorporated a new ceramic capacitor to replace the
component at issue and received FDA approval in January 1998 to resume clinical
implants of its SENTINEL 2000 Model and 2010 Model ICDs. The Company's products
are highly complex and some are, or will be, used in medical procedures and in
situations where there is a potential risk of serious injury, adverse side
effects or death. As a
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result, the Company currently carries product liability insurance covering its
products with policy limits per occurrence and in the aggregate which the
Company has deemed to be sufficient; it cannot be predicted, however, whether
such insurance is sufficient, or if not, whether the Company will be able to
obtain such insurance as is sufficient, to cover the risks associated with the
Company's business or whether such insurance will be available at premiums that
are commercially reasonable. A successful claim against or settlement by the
Company in excess of its insurance coverage or the Company's inability to
maintain insurance in the future could have a material adverse effect on the
Company's business, results of operations and financial condition.
SUBSTANTIAL INDEBTEDNESS; EFFECTIVE OF FINANCIAL LEVERAGE.
Following the issuance of the Notes, the Company will have
indebtedness that is substantial in relation to its stockholders' equity and
cash flow. As of December 31, 1997, after giving effect to the offering of the
Notes (the "Offering"), the Company would have had an aggregate of approximately
$22,150,000 of long-term indebtedness outstanding, representing 46% of total
capitalization. As a result of the substantial indebtedness of the Company
following the Offering, fixed charges of the Company are expected to exceed its
earnings for the foreseeable future, and there can be no assurance that the
Company's operating cash flow will be sufficient to pay interest on the Notes.
In addition, the Indenture does not limit the Company's ability to incur
additional Indebtedness, other than Secured Funded Indebtedness. The leveraged
nature of the Company could limit the ability of the Company to effect future
financings or may otherwise restrict the Company's activities. Substantial
leverage poses the risk that the Company may not be able to generate sufficient
cash flow to service its indebtedness, including the Notes, and to adequately
fund its operations. See "Description of Securities To Be Registered - Notes."
The Company's leverage could have important consequences to the
holders of the Notes or other Securities, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal of and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the Company's leverage may hinder its ability to adjust rapidly
to changing market conditions; and (iv) the leverage could make the Company more
vulnerable in the event of a downturn in its business or in general economic
conditions.
ABSENCE OF A TRADING MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF NOTE AND
COMMON STOCK PRICES.
The Notes are a new issue of securities with no established trading
market or prior trading history. The Placement Agents have informed the Company
that they do not intend to make a market in the Notes. The absence of a market
maker in respect of the Notes can be expected to limit the opportunity for the
development of a trading market and, accordingly, there can be no assurance as
to the development or liquidity of any market for the Notes. In light of these
considerations, purchasers should be prepared to bear the economic risk of an
investment in the Notes for an indefinite period of time, including the risk of
complete loss of their investment. The Company does not intend to apply for
listing of the Notes on an established trading market including any securities
exchange or for quotation through any automated quotation system. The Company
has agreed to file this Registration Statement under the Securities Act as
provided in the various registration rights agreements regarding the Securities
and to use its reasonable or best efforts, as applicable, to have such
registration statement declared effective by the Commission. The Commission,
however, has broad discretion to determine whether any registration
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statement will be declared effective and may delay or deny the effectiveness of
any registration statement filed by the Company for a variety of reasons.
Failure to have a registration statement relating to the Securities declared
effective could have a material adverse effect on the liquidity and the price of
the Notes and the liquidity of the Conversion Shares, Placement Agent Shares and
RGC Shares as well as any Additional Shares.
If a market for the Notes were to develop, the Notes could trade at
prices that may be higher or lower than their initial offering price depending
upon many factors, including prevailing interest rates, the Company's operating
results and the markets for similar securities. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes. There
can be no assurance that, if a market for the Notes were to develop, such a
market will not be subject to similar disruptions. The liquidity of, and trading
market for, the Securities may also be materially and adversely affect such
liquidity and trading independently of the financial performance of, and
prospects for, the Company. In addition, the market price of the Common Stock
has experienced substantial fluctuations in the past and may continue to be
volatile depending on news announcements or changes in general market
conditions. In particular, news announcements regarding quarterly results of
operations, competitive developments, product developments, litigation or
governmental regulatory actions impacting the Company may adversely affect the
Common Stock price. Any decrease in the market price of the Common Stock would
adversely affect the market price of the Notes and the Shares.
DESIGNATED EVENT. Upon the occurrence of a Designated Event, each
holder of Notes shall have the right to require the Company to repurchase all or
any part of such holder's Notes at a repurchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the Designated Event
Payment Date (as defined). The Company's failure to purchase the Notes would
result in a default under the Indenture. If a Designated Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to satisfy all of its
obligations. See "Description of Securities To Be Registered - Notes -
Repurchase at the Option of Holders" and "-- Events of Default and Remedies."
RANKING OF THE NOTES. The Notes will be senior unsecured obligations
of the Company ranking PARI PASSU in right of payment to all existing and future
Indebtedness, other than Indebtedness that is expressly subordinated to the
Notes. The Notes also will be effectively subordinated to any secured
indebtedness of the Company to the extent of the value of the assets securing
such indebtedness and to any liabilities of the Company's Subsidiaries. If the
Company becomes insolvent or is liquidated, or if payment under any secured
obligation is accelerated, the creditor with respect to any secured obligation
would be entitled to exercise the remedies available to a secured creditor under
applicable law and pursuant to instruments governing such obligation.
Accordingly, such creditors will have a prior claim on the secured assets of the
Company. In any event, because the Notes will not be secured by any of the
Company's assets, it is possible that there would be no assets remaining from
which claims of the holders of the Notes could be satisfied, or, if any such
assets remain, such assets might be insufficient to satisfy such claims fully.
See "Description of Securities To Be Registered - Notes."
UNCERTAINTY OF THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM
The Company's ability to market its products successfully in the
U.S. and elsewhere will depend in part on the extent to which reimbursement for
the cost of such products and related treatment will be available from
government health administration authorities (such as the Health Care Financing
Administration ("HCFA"), which determines Medicare reimbursement levels),
private health insurers, health maintenance organizations and other third-party
payors. Payors are increasingly challenging the
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need for and prices of medical products and services. Payors may deny
reimbursement for procedures that they deem experimental or for devices that are
used other than for FDA-approved indications. Currently, HCFA does not allow
Medicare reimbursement for certain kinds of products and related procedures that
have not received PMA approval and for which underlying questions of safety and
effectiveness have not been resolved, and certain private third-party payors
have also begun denying such reimbursement. Although the Company's products are
currently being reimbursed by HCFA and third-party payors, there can be no
assurance that HCFA and the third-party payors will continue to reimburse such
products in the future. Even if some products are approved for reimbursement,
some payors may deny coverage until the procedure becomes generally accepted by
the medical profession. The inability of hospitals and other providers to obtain
reimbursement from third-party payors for the Company's products and related
procedures would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects that there will be continued pressure on
cost-containment throughout the U.S. health care system. Reforms may include
mandated basic health care benefits, controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, the creation of large insurance purchasing groups and
fundamental changes to the health care delivery system. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery systems and payment methodologies and public
debate of these issues will likely continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. These anti-takeover
provisions could potentially operate to deny shareholders the receipt of a
premium on their Common Stock and may also have a depressive effect on the
market price of the Company's Common Stock. Section 302A.671 generally provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved by the shareholders in a
prescribed manner. A "control share acquisition" is generally defined as an
acquisition of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. Section
302A.673 prohibits a public corporation from engaging in a "business
combination" with an "interested shareholder" for a period of four years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions.
An "interested shareholder" is a person who is the beneficial owner of 10% or
more of the corporation's voting stock. Reference is made to the detailed terms
of Sections 302A.671 and 302A.673 of the Minnesota Business Corporation Act.
Furthermore, Section 3.5 of Article III of the Company's Restated
Articles of Incorporation provides that the affirmative vote of the holders of
two-thirds of the voting power of the shares entitled to vote is required for
shareholder approval of a plan of merger, exchange of securities, or transfer of
assets, as described in Section 302A.601 of the Minnesota Business Corporation
Act. In addition, the Company has adopted a shareholder rights plan that may
have an anti-takeover effect in that any person or group acquiring control of
the Company without the consent of the Company's Board of Directors could suffer
18
<PAGE>
substantial dilution through operation of the shareholder rights plan. The
Company has also entered into agreements with certain executive officers that
provide for certain benefits upon a change of control.
YEAR 2000 COSTS
Currently, many computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company and third parties with which the Company does business
rely on numerous computer programs in their day to day operations. The Company
has completed a preliminary evaluation of the Year 2000 issue as it relates to
the Company's internal computer systems and third party computer systems with
which the Company interacts. Based on this evaluation, the Company does not
expect to incur significant costs related to these issues. However, there can be
no assurance that the Year 2000 issues will be resolved in 1998 or 1999. If not
resolved, this issue could have a material adverse impact on the Company's
operations.
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical
fact are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Management of the Company wishes to caution potential purchasers
of the Securities that these forward-looking statements contained above and
herein in this Prospectus regarding matters that are not historical facts, are
only predictions. No assurances can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these projections and other forward-looking statements
are based upon a variety of assumptions relating to the business of the Company,
which, although considered reasonable by the Company, may not be realized.
Because of the number and range of the assumptions underlying the Company's
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond the reasonable
control of the Company, some of the assumptions inevitably will not materialize
and unanticipated events and circumstances may occur subsequent to the date of
this Prospectus. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Therefore, the actual experience of the Company and results achieved during the
period covered by any particular projections or forward-looking statements may
differ substantially from those projected. Consequently, the inclusion of
projections and other forward-looking statements should not be regarded as a
representation by the Company or any other person that these estimates and
projections will be realized, and actual results may vary materially. There can
be no assurance that any of these expectations will be realized or that any of
the forward-looking statements contained herein will prove to be accurate.
19
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
<TABLE>
<CAPTION>
Three Months Ended Five Months Ended
March 31, December 31, Year Ended July 31,
---------------------------- ---------------------------- -------------------------------------------
1998 1997 1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings/(loss) $ (9,674,898) $ (6,879,527) $(14,940,896) $ (7,734,829) $(26,908,861) $(15,182,019) $ (9,643,351)
Interest expense 19,931 29,425 4,893 48,674 103,635 116,683 271,162
Amortization of
debt costs 225,720 -- -- -- -- -- 22,800
Income taxes -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings/(loss) before
fixed charges (9,429,247) (6,850,102) (14,936,003) (7,686,155) (26,805,226) (15,065,336) (9,349,389)
Fixed charges (1) 245,651 29,425 4,893 48,674 103,635 116,683 293,962
Ratio of net
earnings
before fixed charges
to fixed charges -38.4:1 -232.8:1 -3052.5:1 -157.9:1 -258.7:1 -129.1:1 -31.8:1
Deficiency of
earnings
to cover fixed
charges (9,674,898) (6,879,527) (14,940,896) (7,734,829) (26,908,861) (15,182,019) (9,643,351)
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
Net earnings/(loss) $(7,675,743) $(2,708,438)
Interest expense 161,185 76,019
Amortization of
debt costs 22,800 11,400
Income taxes - -
------------------ -------------------
Earnings/(loss) before
fixed charges (7,491,758) (2,621,019)
Fixed charges (1) 183,985 87,419
Ratio of net
earnings
before fixed charges
to fixed charges -40.7:1 -30.0:1
Deficiency of
earnings
to cover fixed
charges (7,675,743) (2,708,438)
</TABLE>
(1) - Fixed charges consist of interest expense and amortization of debt
issuance costs
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the Securities by the Selling Securityholders. See "Selling Securityholders" for
a list of those persons and entities receiving proceeds from sales of
Securities. This Registration Statement is intended to satisfy certain of the
Company's obligations under the registration rights agreements entered into with
certain Selling Securityholders.
20
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information, as of July 27,
1998, and as adjusted to reflect the sale of the Shares offered hereby, with
respect to the beneficial ownership of the Securities by the Selling
Securityholders. None of the Selling Securityholders or their respective
affiliates has held any position or office or maintained any material
relationship with the Company or its predecessors or affiliates over the past
three years, except for HSBC Securities, Inc. and Prudential Securities,
Incorporated, each of whom served as placement agents in connection with the
offering of the Notes. Unless otherwise indicated, the persons named in the
table have sole voting and sole investment control with respect to all
Securities beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER
SHARES OF COMMON COMPLETION OF
STOCK BENEFICIALLY NUMBER OF SHARES BEING THE OFFERING HEREBY(2)
OWNED PRIOR TO THE REGISTERED FOR -------------------------
SELLING SECURITYHOLDERS OFFERING HEREBY(1) SALE HEREBY NUMBER % OF CLASS (3)
- ----------------------- ------------------ ---------------------- ------ --------------
<S> <C> <C> <C> <C>
- ----------------------------------------------
Argent Classic Convertible Arbitrage Fund L.P. $ 1,000,000** $ 1,000,000** 0 *
327,697 327,697 0
Avdan Partners, L.P. $ 250,000** $ 250,000** 0 *
81,924 81,924 0
Awad & Associates L.P. $ 500,000** $ 500,000** 3,838,340(4) 10.6%
4,002,188(4) 163,848 0
Calvert New Vision Small Cap Fund $ 1,000,000** $ 1,000,000** 0 *
327,697 327,697 0
Heritage Small Cap Fund $ 1,000,000** $ 1,000,000** 0 *
327,697 327,697 0
Cincinnati Financial Corporation $ 1,500,000** $ 1,500,000** 0 *
491,545 491,545 0
CCF Partners II, LLC $ 2,000,000** $ 2,000,000** 0 *
655,394 655,394 0
Highbridge Capital Corporation $ 2,000,000** $ 2,000,000** 0 *
655,394 655,394 0
J.M. Hull Associates, L.P. $ 400,000** $ 400,000** 0 *
131,079 131,079 0
JMG Capital Partners, LP $ 250,000** $ 250,000** 0 *
81,924 81,924 0
KA Management $ 1,675,000** $ 1,675,000** 0 *
548,892 548,892 0
KA Trading $ 825,000** $ 825,000** 0 *
270,350 270,350 0
Keyway Investments, LTD $ 1,000,000** $ 1,000,000** 0 *
327,697 327,697 0
CPR (USA) Inc. $ 1,000,000** $ 1,000,000** 0 *
327,697 327,697 0
Loews Corporation $ 2,500,000** $ 2,500,000** 0 *
819,242 819,242 0
EDJ Limited $ 150,000** $ 150,000** 0 *
49,155 49,155 0
Legion Fund, LTD $ 200,000** $ 200,000** 0 *
65,539 65,539 0
Porter Partners, LP $ 850,000** $ 850,000** 0 *
278,542 278,542 0
Professional Edge Fund L.L.C. $ 500,000** $ 500,000** 0 *
163,848 163,848 0
Sonz Partners, L.P. $ 250,000** $ 250,000** 0 *
81,924 81,924 0
Southbrook International Investments, Ltd. $ 300,000** $ 300,000** 0 *
98,309 98,309 0
Triton Capital Investments, LTD $ 250,000** $ 250,000** 0 *
81,924 81,924 0
William Bone Trust of 1992 $ 200,000** $ 200,000** 0 *
65,539 65,539 0
Viviana Partners, L.P. $ 200,000** $ 200,000** 10,000 *
75,539(5) 65,539 0
Michael Klein $ 300,000** $ 300,000** 0 *
98,309 98,309 0
Steel Roven Revocable Trust $ 150,000** $ 150,000** 0 *
49,155 49,155 0
Spiegel 1982 Grandchildren's Trust $ 300,000** $ 300,000** 0 *
98,309 98,309 0
Abraham and Edita Spiegel 1992 Revocable Trust u/a/d
September 26, 1994 $ 100,000** $ 100,000** 0 *
32,770 32,770 0
HSBC Securities, Inc.(6) 181,462 181,462 0 *
Prudential Securities, Inc.(6) 181,462 181,462 0 *
$1,500,000 $1,500,000
RGC International Investors, LDC.............. 1,582,795(7) 1,582,795(7) 0 *
Perpetual Growth Advisors..................... 25,000 25,000 0 *
</TABLE>
- --------------------------------------
* Less than one percent (1%)
** Amount of Notes
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated as
outstanding only when determining the amount and percentage owned by such person
or group.
(2) This assumes all Securities being offered and registered hereunder are sold,
although the Selling Securityholders are not obligated to sell any Securities.
(3) Based upon 33,275,946 shares of Common Stock outstanding as of July 27,
1998.
(4) Shares include (i) 3,838,340 shares which are under the management of Awad &
Associates L.P. and its affiliates and (ii) 163,848 shares underlying the Note
issued to Awad & Associates L.P.
(5) Includes (i) 10,000 shares beneficially owned by Viviana Partners, L.P. and
(ii) 65,539 shares underlying the Note issued to Viviana Partners, L.P.
(6) The aggregate amount of 362,924 Placement Shares offered hereby constitute
all securities beneficially owned by HSBC Securities, Inc. and Prudential
Securities Incorporated as of the date of this Prospectus. The actual number of
shares of Common Stock offered hereby and included in the Registration Statement
of which this Prospectus is a part, includes such additional number of shares of
Common Stock as may be issued or issuable upon exercise of the Placement Agent
Warrants by reason of any stock split, stock dividend or similar transaction
involving the Common Stock in order to prevent dilution, in accordance with Rule
416 under the Securities Act.
21
<PAGE>
(7) The number of shares of Common Stock being registered for sale hereby on
behalf of RGC equals (i) 491,545 shares of Common Stock issuable upon conversion
of the Note held by RGC and (ii) 1,091,250 shares of Common Stock issuable upon
exercise of the RGC Warrant, which equals 150% times the number of shares of
Common Stock issuable upon exercise of the RGC Warrant, without regard to any
limitation on RGC's ability to exercise the RGC Warrant. The number of shares of
Common Stock offered hereby and included in the Registration Statement of which
this Prospectus is a part, includes such additional number of shares of Common
Stock as may be issued or issuable upon exercise of the RGC Warrant by reason of
the floating rate conversion price mechanism or other adjustment mechanisms
described therein, or by reason of any stock split, stock dividend or similar
transaction involving the Common Stock in order to prevent dilution, in
accordance with Rule 416 under the Securities Act. The 1,091,250 shares issuable
upon the exercise of the RGC Warrant represent an estimate of the number of
shares of Common Stock beneficially owned and to be offered by RGC. The RGC
Warrant is exercisable into 727,500 shares of Common Stock at an exercise price
of $2.992 per share. Pursuant to the terms of the RGC Warrant, the RGC Warrant
is exercisable by any holder only to the extent that the number of shares of
Common Stock owned by such holder and its affiliates (but not including shares
of Common Stock underlying the unexercised portions of the RGC Warrant) would
not exceed 4.9% of the then outstanding Common Stock as determined in accordance
with Section 13(d) of the Exchange Act.
PLAN OF DISTRIBUTION
RGC
The RGC Selling Securityholders have advised the Company that sales
of the RGC Shares offered hereunder by them, or by their respective pledgees,
donees, transferees or other successors in interest, may be made from time to
time in the Nasdaq National Market, the over-the-counter market, through
negotiated transactions, through the writing of options on the Common Stock,
short sales or a combination of such methods of sale, at market prices
prevailing at the time of sale or at negotiated prices. The RGC Shares may be
sold by one or more of the following methods: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
Sales may be made pursuant to this Prospectus to or through broker-dealers who
may receive compensation in the form of discounts, concessions or commissions
from the RGC Selling Securityholders or the purchasers of Common Stock for whom
such broker-dealer may act as agent or to whom they may sell as principal, or
both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). To the extent required, one or more supplemental
prospectuses will be filed pursuant to Rule 424 under the Securities Act to
describe any material arrangements for the sales of the RGC Shares offered
hereunder when such arrangements are entered into by the RGC Selling
Securityholders and any other broker-dealers that participate in the sale of the
RGC Shares. In addition, any RGC Shares that qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than pursuant to
this Prospectus. No period of time has been fixed within which the RGC Shares
covered by this Prospectus may be offered or sold.
22
<PAGE>
The RGC Selling Securityholders and any broker-dealers or other
persons acting on its behalf in connection with the sale of Common Stock
hereunder may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any commissions received by the RGC Selling Securityholders
and any profit realized by them on the resale of Common Stock as principals may
be deemed to be underwriting commissions under the Securities Act. As of the
date hereof, there are no special selling arrangements between any broker-dealer
or other person and any of the RGC Selling Securityholders.
The RGC Selling Securityholders and any other persons participating
in the sale or distribution of the RGC Shares will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the RGC Shares
by the RGC Selling Securityholders or any other such person. The foregoing may
affect the marketability of the RGC Shares.
Pursuant to the terms of certain written agreements between the
Company and the RGC Selling Securityholders, the Company will pay all the
expenses of registering the RGC Shares offered hereby, except for selling
expenses incurred by the RGC Selling Securityholders in connection with this
offering, including any fees and commissions payable to broker-dealers or other
persons, which will be borne by the RGC Selling Securityholders. In addition,
such written agreement provides for certain other usual and customary terms,
including indemnification by the Company of the RGC Selling Securityholders
against certain liabilities arising under the Securities Act.
NOTES
The Notes and the Conversion Shares are being registered to permit
public secondary trading of such securities by the holders thereof from time to
time after the date of the Prospectus. The Company has agreed, among other
things, to bear all expenses, including reasonable fees and disbursements of one
firm or counsel (not to exceed $20,000) designated by the majority holders to
act as counsel for the holders (other than underwriting discounts and selling
commission) in connection with the registration and sale of the Notes and the
Conversion Shares covered by this Prospectus. The Company will not receive any
of the proceeds from the offering of Notes or the Conversion Shares by the
Selling Convertible Securityholders.
The Notes being offered by the Selling Convertible Securityholders
or their respective pledgees, donees, transferees or other successors in
interest, will be sold in one or more transactions (which may involve block
transactions) in privately-negotiated transactions. The sale price to the public
may be the market price prevailing at the time of sale, a price related to such
prevailing market price or such other price as the Selling Convertible
Securityholders determined from time to time. The Notes may also be sold
pursuant to Rule 144. The Selling Convertible Securityholders shall have the
sole and absolute discretion not to accept any purchase offer or make any sale
of Notes if they deem the purchase price to be unsatisfactory at any particular
time.
The Conversion Shares being offered by the Selling Convertible
Securityholders or their respective pledgees, donees, transferees or other
successors in interest, will be sold in one or more transactions (which may
involve block transactions) on the Nasdaq National Market or on such other
market on which the Common Stock may from time to time be trading, in
privately-negotiated transactions, through the writing of options on the shares,
short sales or any combination thereof. The sale price of the public may be the
market price prevailing at the time of sale, a price related to such
23
<PAGE>
prevailing market price or such other price as the Selling Convertible
Securityholders determined from time to time. The Conversion Shares may also be
sold pursuant to Rule 144. The Selling Convertible Securityholders shall have
the sole and absolute discretion not to accept any purchase offer or make any
sale of Conversion Shares if they deem the purchase price to be unsatisfactory
at any particular time.
The Selling Convertible Securityholders or their respective
pledgees, donees, transferees or other successors in interest, may also sell the
Notes or Conversion Shares directly to market makers acting as principals and/or
broker-dealers acting as agents for themselves or their customers. Brokers
acting as agents for the Selling Convertible Securityholders will receive usual
and customary commissions for brokerage transactions, and market makers and
block purchasers purchasing the Notes or Conversion Shares will do so for their
own account and at their own risk. It is possible that a Selling Convertible
Securityholder will attempt to sell shares of Common Stock in block transactions
to market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the Notes or
Conversion Shares offered hereby will be issued to, or sold by, the Selling
Convertible Securityholders.
Alternatively, any of the Selling Convertible Securityholders may
from time to time offer the Notes or Conversion Shares beneficially owned by
them through underwriters, dealers or agents, who may receive compensation in
the form of underwriting discounts, commissions or concessions from the Selling
Convertible Securityholders and the purchasers of the Notes or Conversion Shares
for whom they may act as agent. The aggregate proceeds to the Selling
Convertible Securityholders from the sale of the Notes or Conversion Shares
offered by them hereby will be the purchase price of such Notes or Conversion
Shares less discounts and commissions, if any.
The Conversion Shares have been approved for listing on the Nasdaq
National Market.
The Selling Convertible Securityholders and any broker and any
broker-dealers, agents or underwriters that participate with the Selling
Convertible Securityholders in the distribution of the Notes or Conversion
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, in which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Notes or Conversion Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Convertible Securityholder will sell any or all of
the Notes or Conversion Shares described herein, and any Selling Convertible
Securityholder may transfer, devise or gift such securities by other means not
described herein.
Pursuant to the Registration Rights Agreement, the Company has
agreed to indemnify each holder of a Note that is a Selling Convertible
Securityholder, and each holder of a Note that is a Selling Convertible
Securityholder has agreed to indemnify the Company and each other Selling
Convertible Securityholder against certain liabilities arising under the
Securities Act.
PLACEMENT AGENT SHARES
24
<PAGE>
The Company has been advised by the Placement Agents that all or a
portion of the Placement Agent Shares may be disposed of hereunder from time to
time in one or a combination of the following transactions: (a) to or through
brokers, acting as principal or agent, who may themselves dispose of the
Placement Agent Shares in transactions (which may involve block transactions) in
the over-the-counter market or otherwise, at market prices prevailing at the
time of sale or at prices related to such prevailing market prices; or (b)
directly by gift or directly or through brokers or agents in privately
negotiated transactions at negotiated prices. Any commissions or discounts paid
or allowed to brokers, dealers or agents may be changed from time to time. The
Placement Agents and any brokers, dealers or agents who participate in a sale of
the Securities may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and the commissions paid or discounts allowed to
any of such brokers, dealers or agents, in addition to any profits received on
resale of the Placement Agent Shares, if any of such brokers, dealers or agents
should purchase any Placement Agent Shares as a principal, may be deemed to be
underwriting discounts or commissions under the Securities Act. In the event of
a transaction hereunder in which a broker or dealer acts as principal, this
Prospectus will be supplemented to provide material facts with respect to such
transaction. Placement Agent Shares offered hereby also may be sold in
transactions under Rule 144 promulgated by the Commission under the Securities
Act.
25
<PAGE>
DESCRIPTION OF SECURITIES TO BE REGISTERED
CAPITAL STOCK
This Registration Statement incorporates by reference (a) the
description of the Company's Common Stock contained in its Registration
Statement on Form 8-A and any amendments or reports filed for the purpose of
updating such description; and (b) the description of the Company's Series B
Junior Preferred Stock and rights to purchase Series B Junior Preferred Stock
contained in its Registration Statement on Form 8-A and any amendments or
reports filed for the purpose of updating such description.
NOTES
GENERAL
On April 14, 1998, the Company completed the private placement
whereby the Company issued the Notes pursuant to the Indenture between the
Company and the Trustee. The following summary of certain provisions of the
Indenture and the registration rights agreement between the Company and each
investor in the Notes (the "Registration Rights Agreement"), does not purport to
be complete and is qualified in its entirety by reference to the Indenture and
the Registration Rights Agreement, including the definitions in the Indenture of
certain terms used in the following summary. The definitions of certain terms
used in the following summary are set forth below under "Certain Definitions."
The Notes are senior unsecured obligations of the Company ranking
PARI PASSU in right of payment to all existing and future Indebtedness of the
Company, other than Indebtedness that is expressly subordinated to the Notes.
The Notes are also effectively subordinated to any secured indebtedness of the
Company to the extent of the value of assets securing such indebtedness and to
any liabilities of the Company's Subsidiaries. As of December 31, 1997, the
company and its Subsidiaries had approximately $3,132,606 of Indebtedness
outstanding. The Indenture contains no limitation on the incurrence of
Indebtedness, other than Secured Funded Indebtedness. The Indenture prohibits
the Company and its Subsidiaries from incurring Secured Funded Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes bear interest from April 15, 1998, at 7 1/2% per annum,
and mature on April 15, 2003.
Interest on the Notes is payable semiannually on April 15 and
October 15 of each year (each an "Interest Payment Date"), commencing on October
15, 1998, to holders of record at the close of business on specified dates (each
a "Regular Record Date") immediately preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. If an Interest Payment Date is not a Business Day (as defined
herein), then interest will be payable on the next succeeding Business Day.
Interest on the Notes accrues from the most recent date to which
interest has been paid or, if no interest has been paid, from April 15, 1998.
The Notes were issued in registered form, without coupons, and in
denominations of $25,000 and integral multiples of $1,000 in excess thereof.
26
<PAGE>
NO GROSS-UP
All payments made by the Company on the Notes will be made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed or levied
by or on behalf of the jurisdiction of incorporation of the Company or any
political subdivision thereof or any authority therein or thereof having power
to tax unless the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law. If any such withholding or deduction is
required, the Company will not be obliged to pay any additional amounts in
respect of such withholding or deduction.
PAYMENT; PAYING AGENTS, CONVERSION AGENTS AND TRANSFER AGENTS
Payments with respect to principal of, premium, if any, and interest
and Liquidated Damages, if any, on the Notes will be made at the corporate trust
office of the Trustee in the Borough of Manhattan, The City of New York, which
is located at 100 Wall Street, Suite 200, New York, NY 10005 and subject to any
fiscal or other laws and regulations applicable thereto, at the office of any
other Paying Agents appointed by the Company. Payments with respect to principal
of the Notes will be made only against surrender of such Notes. Payment with
respect to principal of, premium, if any, and interest and Liquidated Damages,
if any, with respect to any Note may, at the Company's option, be made, subject
to applicable laws and regulations, by U.S. dollar check drawn on a bank in The
City of New York mailed to the holders of the Notes at their respective
addresses set forth in the register of holders of Notes provided that all
payments with respect to Notes the holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
Unless such designation is revoked, any such designation made by such person
with respect to such Note will remain in effect with respect to any future
payments with respect to such Note payable to such person.
If any payment on a Note is due on a day that is, at any place of
payment, a day on which banking institutions are authorized or obligated by law
or executive order to close, then, at each such place of payment, such payment
need not be made on such day but may be made on the next succeeding day that is
not, at such place of payment, a day on which banking institutions are
authorized or obligated by law or executive order to close, with the same force
and effect as if made on the date for such payment, and no interest will accrue
for the period from and after such due date to such next succeeding day that is
not, at such place of payment, a day on which banking institutions are
authorized or obligated by law or executive order to close.
The Indenture provides that any money paid by the Company to the
Trustee and the Paying Agents for any payment with respect to the Notes that
remains unclaimed for two years after such payment became due and payable will
be repaid to the Company, and thereafter the holder of such Notes will look only
to the Company for payments thereof as an unsecured creditor.
Subject to certain limitations set forth in the Indenture, the
Company reserves the right at any time to vary or terminate the appointment of
the Trustee, Registrar, Transfer Agent, any Conversion Agent or any Paying Agent
with or without cause and to appoint another Trustee or additional or other
Paying Agents, Registrars, Conversion Agents or Transfer Agents and to approve
any change in the specified offices through which any Paying Agent, Conversion
Agent or Transfer Agent acts.
OPTIONAL REDEMPTION
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The Notes will not be subject to redemption prior to April 14, 2001
and will be redeemable on such date and thereafter at the option of the Company,
in whole or in part (in any integral multiple of $1,000; provided the Notes may
be redeemed only in whole to the extent a redemption in part would reduce the
principal amount thereof to an amount less than $25,000), upon not less than 30
nor more than 60 days' prior notice by mail at a redemption price equal to 100%
of the principal amount thereof together with accrued and unpaid interest and
Liquidated Damages, if any, up to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on an
Interest Payment Date). On and after the redemption date, interest will cease to
accrue on the Notes, or portion thereof, called for redemption.
MANDATORY REDEMPTION; SINKING FUND
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Designated Event (as defined below), each
holder of Notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof; provided the Notes
shall only be repurchased in whole to the extent a repurchase in part would
reduce the principal amount thereof to an amount less than $25,000) of such
holder's Notes pursuant to the terms described below (the "Designated Event
Offer") at a repurchase price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the Designated Event Payment Date (the "Designated Event Payment").
Within 30 days following any Designated Event, the Company shall mail a notice
to each holder stating: (1) that the Designated Event Offer is being made
pursuant to the covenant described in this paragraph and that all Notes tendered
will be accepted for payment; (2) the repurchase price and the repurchase date,
which shall be no earlier than 30 days nor later than 40 days from the date such
notice is mailed (the "Designated Event Payment Date"); (3) that any Notes not
tendered or accepted for payment will continue to accrue interest and, if
applicable, Liquidated Damages; (4) that, unless the Company defaults in the
payment of the Designated Event Payment, all Notes accepted for payment pursuant
to the Designated Event Offer shall cease to accrue interest or Liquidated
Damages after the Designated Event Payment Date; (5) that holders electing to
have any Notes repurchased pursuant to a Designated Event Offer will be required
to surrender the Notes, with the form entitled "Option of Noteholder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Designated Event Payment Date; (6) that holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Designated
Event Payment Date, or such longer period as may be required by law, a telegram,
telex, facsimile transmission or letter setting forth the name of the holder,
the principal amount of Notes delivered for repurchase and a statement that such
holder is withdrawing his election to have such Notes repurchased; and (7) that
holders whose Notes are being repurchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes in connection with a Designated Event.
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At least one Business Day prior to the Designated Event Payment
Date, the Company shall irrevocably deposit with the Trustee or the Paying
Agents in immediately available funds an amount equal to the Designated Event
Payment in respect of all Notes or portions thereof so tendered. On the
Designated Event Payment Date, the Company will, to the extent lawful (1) accept
for payment the Notes or portions thereof duly tendered pursuant to the
Designated Event Offer, and (2) deliver or cause to be delivered to the Trustee
the Notes so accepted together with an officers' certificate stating the Notes
or portions thereof have been accepted for payment by the Company. The Paying
Agents shall promptly mail to each holder of Notes so accepted payment in an
amount equal to the repurchase price for such Notes, and the Trustee shall
promptly authenticate and mail to each holder a new certificate representing a
Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new certificate representing a Note
shall be in a principal amount of $1,000 or an integral multiple thereof. Any
Notes that are not so accepted shall be promptly mailed or delivered by or on
behalf of the Company to the holder thereof. The Company will publicly announce
the results of the Designated Event Offer on or as soon as practicable after the
Designated Event Payment Date.
Except as described above with respect to a Designated Event, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring.
The Designated Event repurchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Designated Event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the
Designated Event repurchase feature is a result of negotiations between the
Company and the Placement Agents to establish the terms of the Notes. Management
has no current intention to engage in a transaction involving a Designated
Event, although it is possible that the Company could decide to do so in the
future. Subject to the limitations on mergers, consolidations and sales of
assets described herein, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Designated Event under the Indenture, but that could
increase the amount of Indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings. If a Designated Event were to
occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by holders thereof.
A "Designated Event" will be deemed to have occurred upon a Change
of Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Stock are reclassified into or exchanged for any other
property or security, unless the stockholders of the Company immediately before
such transaction own, directly or indirectly immediately following such
transaction, at least a majority of the combined voting power of the outstanding
voting securities of the corporation resulting from such transaction in
substantially the same
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proportion as their ownership of the Voting Stock immediately before such
transaction, (iii) the Company conveys, transfers or leases all or substantially
all of its assets to any person (other than to one or more wholly-owned
subsidiaries of the Company) unless the stockholders of the Company immediately
before such transaction own, directly or indirectly immediately following such
transaction, at least a majority of the combined voting power of the outstanding
securities of the acquiring entity in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction, or (iv) at
any time that the Continuing Directors (as defined) do not constitute a majority
of the Board of Directors of the Company (or, if applicable, a successor
corporation to the Company).
The definition of Change of Control includes a phrase relating to
the lease, transfer or conveyance of "all or substantially all" of the assets of
the Company. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of Notes to
require the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group may be uncertain.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the directors who were either members of such board at the time of such
nomination or election or became Continuing Directors thereafter.
A "Termination of Trading" will be deemed to have occurred if the
Common Stock (or other securities into which the Notes are then convertible) are
neither listed for trading on a United States national securities exchange nor
approved for trading on an established automated over-the-counter trading market
in the United States.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed, selection of Notes
for redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate, PROVIDED that no
Notes of $25,000 or less shall be redeemed in part. The Company does not intend
to seek admission for the Notes to trade on any established trading market
including the Nasdaq National Market or the Private Offerings Resales and
Trading through Automated Linkages ("Portal") market. Notice of redemption shall
be mailed to each holder whose Notes are to be redeemed at its registered
address, in each case, at least 30 but not more than 60 days before the
redemption date. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
and Liquidated Damages, if any, will cease to accrue on the Notes called for
redemption.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to any Secured Funded Indebtedness.
REGISTRATION RIGHTS
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Pursuant to the Registration Rights Agreement, the Company agreed
for the benefit of the holders of the Notes or the Conversion Shares that are,
in either case, Registrable Securities (as defined), that (i) it will, at its
cost, within 90 days after the closing of the sale of the Notes (the "Closing"),
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to resales of the Notes and the Conversion Shares
(collectively, the "Registrable Securities"), (ii) the Company will use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective under the Securities Act as soon as practicable but, in any
event, within 180 days after the Closing and (iii) the Company will keep such
Shelf Registration Statement continuously effective under the Securities Act
until the earlier of (a) the second anniversary of the date of the Closing, (b)
the date on which the Notes or the Conversion Shares may be sold by
non-affiliates of the Company pursuant to paragraph (k) of Rule 144 (or any
successor provision) promulgated by the Commission under the Securities Act and
(c) the date as of which all the Notes or the Conversion Shares have been sold
pursuant to such Shelf Registration Statement (the "Shelf Registration Period").
The Company shall have the right, however, to defer the use of the prospectus
which will be a part of the Shelf Registration Statement, as more fully
described below.
The Company will provide or cause to be provided to each holder of
the Notes or the Conversion Shares, copies of the prospectus, which will be a
part of such Shelf Registration Statement, notify or cause to be notified to
each such holder when such Shelf Registration Statement for the Notes and the
Conversion Shares has become effective and take certain other actions as are
required to permit unrestricted resales of the Notes and the Conversion Shares.
A holder of Notes or Conversion Shares that sells such securities pursuant to a
Shelf Registration Statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers, will
be subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification and contribution rights or obligations). The Company
currently intends to distribute a questionnaire to each beneficial holder of
Notes as of a specified date to obtain certain information regarding such
selling security holders for inclusion in the prospectus.
At least three business days prior to any intended resale of the
Notes or the Conversion Shares, a Selling Convertible Securityholder must notify
the Company of such intention and provide such information with respect to such
holder and the specifics of the intended resale as may be required to amend the
Shelf Registration Statement or supplement the related prospectus (a Selling
Convertible Securityholder giving such notice, a "Notice Holder"). Within two
business days after the foregoing notice is provided by a Notice Holder, the
Company will either (i) notify such Notice Holder that resales may proceed or
file any amendment to the Shelf Registration Statement or supplement to the
related prospectus needed to ensure that those documents, among other things,
comply with the Securities Act, use its reasonable efforts to cause any such
amendment to be declared effective and notify such Notice Holder thereof or (ii)
notify such Notice Holder of the Company's election to defer resales until
further notice (a "Deferral Period") under certain circumstances relating to
issuance of a stop order by the Commission, suspension of qualification under
state law, accuracy of the prospectus which is a part of the Shelf Registration
Statement, pending corporate developments, public filings with the Commission
and similar events. If the Company elects the option described in clause (i) of
the preceding sentence, such Notice Holder may resell Notes or the underlying
Common Stock pursuant to the Shelf Registration Statement for a period of 45
days (with respect to such Notice Holder, a "Selling Period") from the date
notice of such election is given and, if the Company elects the option described
in clause (ii) of the preceding sentence, such Notice Holder may resell such
securities for a Selling Period that commences at the end of the Deferral
Period. The Company may also defer until further notice a Notice Holder's
existing Selling Period upon the occurrence of the events described in clause
(ii) of the second preceding
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sentence; PROVIDED that upon receipt of such further notice, such Selling Period
shall be extended by the number of days elapsed prior to deferral. The Company
may not defer Selling Periods more than one time in any three-month period or
three times in any twelve-month period and no deferral shall exceed 30 days. The
Company will pay all expenses of the Shelf Registration Statement, provide to
each registered holder of Notes copies of such prospectus, notify each such
registered holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the Notes and the underlying Common Stock.
The holders of Registrable Securities covered by the Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an underwritten offering. In any such underwritten offering, the managing
underwriters that administer the underwritten offering will be selected by, and
the underwriting arrangements with respect thereto will be approved by, the
holders of a majority of the Registrable Securities to be included in such
underwritten offering; PROVIDED, HOWEVER, that (i) such managing underwriters
and underwriting arrangements must be reasonably satisfactory to the Company and
(ii) the Company shall not be obligated to arrange for more than one
underwritten offering during the Shelf Registration Period. No holder may
participate in any such underwritten offering contemplated unless such holder
(a) agrees to sell such holder's Registrable Securities in accordance with any
approved underwriting arrangements, (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such approved
underwriting arrangements and (c) at least 70% of the outstanding Registrable
Securities are included in such underwritten offering. Holders participating in
any underwritten offering shall be responsible for any expenses customarily
borne by selling securityholders, including underwriting discounts and
commissions and fees and expenses of counsel to the selling securityholders and
shall reimburse the Company for the fees and disbursements of its counsel, its
independent public accountants and any printing expenses incurred in connection
with such underwritten offering.
In the event the Company fails to file the Shelf Registration
Statement within 90 days after Closing, the Shelf Registration Statement is not
declared effective under the Securities Act within 180 days after the Closing, a
stop order is issued by the Commission prior to the end of the Shelf
Registration Period, or Selling Periods have been deferred more frequently or
for longer periods than are described above, the Company has agreed to pay
Liquidated Damages to all Notice Holders of Notes and underlying Common Stock
until such event is cured. Further, if such event continues for a period in
excess of 30 days, the Company has agreed to pay Liquidated Damages to all
holders of Notes and underlying Common Stock which are, in either case,
Registrable Securities, without regard to whether such holder is a Notice
Holder. Liquidated Damages shall be calculated, with respect to Notes held by a
holder, at a rate of one-quarter of one percent (25 basis points) per annum of
the aggregate principal amount of such Notes and, with respect to Common Stock
held by a holder and issued upon conversion of Notes, the same percentage of the
aggregate principal amount of Notes that were converted into such shares.
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CONVERSION
The holder of any Note has the right, exercisable at any time after
90 days following the date of original issuance thereof and prior to the close
of business (New York time) on the Business Day immediately preceding the
maturity date of the Notes, to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $1,000; provided that a holder
of a Note may convert such Note only in whole to the extent a conversion in part
would reduce the principal amount thereof to an amount less than $25,000) into
Common Stock at a conversion price of $3.0516 per share of Common Stock (the
"Conversion Price"), except that if a Note is called for redemption, the
conversion right will terminate at the close of business (New York time) on the
Business Day immediately preceding the redemption date. The Conversion Price of
the Notes shall be reduced on a specified date to the lower of (a) the
previously applicable Conversion Price or (b) the Market Price for the Common
Stock on a specified date; provided, however, in no event shall the Conversion
Price be reduced below $1.5258. In the event that the Company cannot convert the
Notes into Common Stock in excess of the Nasdaq Cap (as defined below), the Note
holders will be entitled to a Cap Payment (as defined below) upon conversion.
To convert a Note, a holder must (1) complete and sign a notice of
election to convert (a "Conversion Notice") substantially in the form set forth
in the Indenture (copies of which are available from the Conversion Agent in New
York), (2) deliver the Conversion Notice and the Note to be converted to a
Conversion Agent in New York, (3) furnish appropriate endorsements or transfer
documents if required by the Registrar or such Conversion Agent and (4) pay any
transfer or similar tax, if required. Upon conversion, no adjustment or payment
will be made for interest, Liquidated Damages, dividends or distributions, but
if any holder surrenders a Note for conversion after the close of business on
the record date for the payment of an installment of interest and Liquidated
Damages and prior to the opening of business on the next interest payment date,
then, notwithstanding such conversion, the interest and Liquidated Damages
payable on such interest payment date will be paid to the registered holder of
such Note on such record date. In such event, such Note, when surrendered for
conversion, must be accompanied by payment in funds acceptable to the Company of
an amount equal to the interest and Liquidated Damages payable on such interest
payment date on the portion so converted. The number of shares of Common Stock
issuable upon conversion of a Note is determined by dividing the principal
amount of the Note converted by the Conversion Price in effect on the Conversion
Date. No fractional shares will be issued upon conversion but a cash adjustment
will be made for any fractional interest.
As soon as practicable after the Conversion Date (subject to the
expiration of any required waiting period following any required filing pursuant
to the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976),
the Company will deliver directly to the holder through a Conversion Agent a
certificate for the number of whole shares of Common Stock issuable upon the
conversion and a check for any fractional share determined pursuant to the
Indenture. The person or entity in whose name the certificate is registered
shall become the shareholder of record on the Conversion Date and, as of such
date, such person's or entity's rights as a Noteholder with respect to the
converted Note shall cease.
The Conversion Price is also subject to adjustment upon the
occurrence of certain events, including: (i) the issuance of Common Stock as a
dividend or distribution to holders of Common Stock; (ii) the subdivision,
reclassification or combination of the outstanding Common Stock, (iii) the
issuance to substantially all holders of Common Stock or rights or warrants to
subscribe for or purchase Common Stock at a price per share, or securities
convertible into Common Stock at a conversion price per share, less than the
then Current Market Price per share, as defined; (iv) the distribution of
Capital Stock of the Company (other than Common Stock), evidences of
indebtedness or other assets (excluding cash
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dividends out of current or retained earnings, except as described in clause (v)
below) to all holders of Common Stock; (v) the distribution, by dividend or
otherwise, of cash to all holders of Common Stock in an aggregate amount that,
together with the aggregate of any other distributions of cash that did not
trigger a Conversion Price adjustment to all holders of its Common Stock within
the 12 months preceding the date fixed for determining the stockholders entitled
to such distribution and all Excess Payments (as defined) in respect of each
tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the product of the
Current Market Price per share (determined as set forth below) on the date fixed
for the determination of shareholders entitled to receive such distribution
times the number of shares of Common Stock outstanding on such date; (vi)
payment of an Excess Payment in respect of a tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for shares of Common
Stock, if the aggregate amount of such Excess Payment, together with the
aggregate amount of cash distributions made within the preceding 12 months not
triggering a Conversion Price adjustment and all Excess Payments in respect of
each tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for shares of Common Stock concluded within the preceding 12 months
not triggering a Conversion Price adjustment, exceeds 15% of the product of the
Current Market Price per share (determined as set forth below) on the expiration
of such tender offer or the date of payment of such negotiated transaction
consideration times the number of shares of Common Stock outstanding on such
date; and (vii) the distribution to substantially all holders of Common Stock of
rights or warrants to subscribe for securities (other than those securities
referred to in clause (iii) above). In the event of a distribution to
substantially all holders of Common Stock of rights to subscribe for additional
shares of the Company's capital stock (other than those securities referred to
in clause (iii) above), the Company may, instead of making any adjustment in the
Conversion Price, make proper provision so that each holder of a Note who
converts such Note after the record date for such distribution and prior to the
expiration or redemption of such rights shall be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of such
rights. No adjustment of the Conversion Price will be made until cumulative
adjustments amount to one percent or more of the Conversion Price as last
adjusted.
The Company shall not be obligated to issue upon conversion of the
Notes, the number of shares, if any, as would exceed the difference between (i)
19.9% of the number of shares of the Company's Common Stock outstanding as of
the date hereof and (ii) the number of Placement Agent Shares (such difference
hereinafter referred to as the "Nasdaq Cap"), if issuing such shares would
constitute a breach of the Company's obligations under its agreements with the
National Association of Securities Dealers, Inc. ("NASD") or the Nasdaq Stock
Market, Inc. or the rules and regulations promulgated thereby (collectively, the
"Nasdaq Rules"). As long as the issuance of any shares of Common Stock exceeding
the Nasdaq Cap would constitute such a breach of the Company's obligations under
the Nasdaq Rules, if any Notes are submitted for conversion, the holders of such
Notes shall receive, to the extent of the Notes or portion of the Note or Notes
not converted in accordance with the preceding sentence, in lieu of effecting
such conversion, a cash payment (the "Cap Payment") in an amount equal to 100%
of the principal amount thereof or of such portion thereof, together with
accrued and unpaid interest and Liquidated Damages for such amount or such
portion thereof, if any, to the date the Cap Payment is made, plus the
Applicable Amount for the Notes or portion of the Note or Notes not converted.
Payment of the Cap Payment shall be made no later than one business day after
the date the holder has submitted a properly completed Conversion Notice (the
"Conversion Notice Date"), and shall bear interest daily thereafter at the rate
of 7 1/2% (the interest rate on the Notes) per day until paid. The Nasdaq Cap
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shall be proportionately and equitably adjusted in the event of stock splits,
stock dividends, reverse stock splits, reclassifications or other such events,
in such manner as the Board of Directors of the Company shall reasonably
determine.
Subject to compliance by the Company with the covenants set forth in
the Indenture, if the Company reclassifies or changes its outstanding Common
Stock, or consolidates with or merges into any person or transfers or leases all
or substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the Notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
Notes would have owned immediately after the transaction if the holders had
converted the Notes immediately prior to the effectiveness of such transaction.
The Indenture also provides that if rights, warrants or options
expire unexercised, the Conversion Price shall be readjusted to take into
account the actual number of such warrants, rights or options which were
exercised.
In the Indenture, the "Current Market Price" for the Common Stock on
any date shall be deemed to be the average of the Daily Market Prices for the
shorter of (i) 30 consecutive Business Days ending on the last full Trading Day
on the exchange or market referred to in determining such Daily Market Prices
prior to the time of determination or (ii) the period commencing on the date
next succeeding the first public announcement of the issuance of such rights or
warrants or such other distribution or such negotiated transaction through such
last full Trading Day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash
and fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the Daily Market Price on the Trading Day
immediately following the completion of the tender offer or other negotiated
transaction multiplied by the number of acquired shares.
The Company from time to time may to the extent permitted by law
reduce the Conversion Price by any amount for any period of at least 20 days, in
which case the Company shall give at least 15 days' notice of such reduction, if
the Board of Directors has made a determination that such reduction would be in
the best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the Conversion Price, in
addition to those set forth above, as it deems advisable to avoid or diminish
any income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge
with or into any person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i) (a) the Company
is the surviving or continuing corporation or (b) the person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
corporation formed by or surviving any such consolidation or merger (if other
than the Company) or the person to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the obligations
of the
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Company, pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, under the Notes and the Indenture; (iii) such sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the Company's properties or assets shall be as an entirety or virtually as an
entirety to one corporation; (iv) immediately after such transaction no Default
or Event of Default exists; and (v) the Company or such corporation shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such transaction and the supplemental indenture comply with
the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
REPORTS
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will file with the
Commission and furnish to the Trustee and the holders of Notes all quarterly and
annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by the
Company's certified independent auditors.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an
"Event of Default": (i) default for 30 days in the payment when due of interest
or Liquidated Damages on the Notes; (ii) default in payment when due of
principal on the Notes or of the Cap Payment in respect of the Notes; (iii)
failure by the Company to comply with the provisions described under "Designated
Event"; (iv) failure by the Company for 60 days after the receipt of written
notice to comply with certain other covenants and agreements contained in the
Indenture or the Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Material
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Material Subsidiaries), whether such Indebtedness or guarantee now exists or is
created after the date on which the Notes are first authenticated and issued,
which default (a) is caused by a failure to pay when due principal of or
interest or Liquidated Damages on such Indebtedness within the grace period
provided for in such Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity without such acceleration being
rescinded or annulled and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $3,000,000 or more; (vi) failure by the Company or
any Material Subsidiary of the Company to pay final non-appealable judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $3,000,000, which judgments are not
stayed within 60 days after their entry; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Material Subsidiaries.
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If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
By notice to the Trustee, the holders of a majority in aggregate
principal amount of the Notes then outstanding may, on behalf of the holders of
all of the Notes, waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the Designated Event Payment or interest or Liquidated Damages
on, or the principal of the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar or the Transfer Agent may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to exchange or register
the transfer of any Note selected for redemption. Also, the Company is not
required to exchange or register the transfer of any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture
or the Notes may be amended or supplemented with the written consent of the
holders of at least a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the written consent of the holders of
a majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver
may not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes,
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a default in the payment of principal of or interest or Liquidated
Damages on any Notes (except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment
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default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or interest or
Liquidated Damages on the Notes, (vii) waive a redemption payment payable on any
Note, (viii) impair the right to convert the Notes into Common Stock, (ix)
modify the conversion provisions of the Indenture in a manner adverse to the
holders of the Notes or (x) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for the
assumption of the Company's obligations to holders of the Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such holder, or to comply with
requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act of 1939 (15 U.S.
Code ss.ss. 77aaa-77bbbb), as amended.
GOVERNING LAW
The Indenture and the Notes are governed by, and shall be construed
in accordance with, the law of New York.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that, in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
REPLACEMENT OF THE NOTES
Any Note that becomes mutilated, destroyed, stolen or lost will be
replaced by the Company at the expense of the holder upon delivery to the
Trustee of such Note or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note, an indemnity satisfactory to the Company and the Trustee may be
required at the expense of the holder of such Note before a replacement Note
will be issued.
CERTAIN DEFINITIONS
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Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"APPLICABLE AMOUNT" means the sum of (i) the product of the number
of shares that would have been issued upon conversion of the Note or Notes but
for the occurrence of the Nasdaq Cap multiplied by a positive difference, if
any, between (a) the average of Daily Market Prices for the five consecutive
Business Days ending on the last full Trading Day on the exchange or market
referred to in determining such Daily Market Prices immediately prior to the
Conversion Notice Date and (b) the Conversion Price on the Conversion Notice
Date; plus (ii) any such adjustment that would have been made for any fractional
interest upon conversion; plus (iii) an amount equal to 5% of the aggregate
principal amount of the Note or Notes submitted for conversion.
"BANK CREDIT AGREEMENT" means, with respect to the Company or any
Subsidiary, one or more debt facilities or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, other
borrowings (including term loans), receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"BUSINESS DAY" means any day that is not a Legal Holiday.
"CAPITAL STOCK" means any and all shares, interests, participations,
rights or other equivalents (however designated) of equity interests in any
entity, including, without limitation, corporate stock and partnership
interests.
"CONVERSION AGENT" means any person authorized by the Company to
convert any Notes.
"CONVERSION DATE" means the date on which the holder satisfies all
requirements for conversion set forth in the Notes.
"DEFAULT" means any event that is or, with the passage of time or
the giving of notice or both, would be an Event of Default.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect from time to
time.
"INDEBTEDNESS" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of such person which is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances (including
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reimbursement obligations with respect to any of the foregoing), (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of deferred and
unpaid purchase price of any property or assets and (g) under interest rate or
currency swap agreements, cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below assumed by or guaranteed in any manner by such person or in
effect guaranteed by such person through an agreement to purchase (including,
without limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
"LEGAL HOLIDAY" means a Saturday, Sunday or a day on which banking
institutions in the State of New York or Luxembourg are not required to be open.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or capital lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LIQUIDATED DAMAGES" means any liquidated damages payable pursuant
to the Registration Rights Agreement.
"MARKET PRICE" per share of Common Stock on any date shall be deemed
to be the average of the Daily Market Prices for the five consecutive Business
Days ending on the last full Trading Day on the exchange or market referred to
in determining such Daily Market Prices occurring immediately prior to the date
of determination.
"MATERIAL SUBSIDIARY" means any Subsidiary of the Company which at
the date of determination is a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date hereof).
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PAYING AGENT" means any person authorized by the Company to pay the
principal of or interest or Liquidated Damages on any Notes on behalf of the
Company.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
limited liability company or government or any agency or political subdivision
thereof.
"PMA APPROVAL" means the written letter or order indicating
pre-market approval for the SENTINEL 2010 Model ICD issued by the FDA, which
letter or order authorizes the Company to market and sell the SENTINEL 2010
Model ICD with substantially the same level of product characteristics as
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set forth in the related pre-market application dated June 21, 1997, as amended
through the date of the Indenture, and without limiting the number of SENTINEL
2010 Model ICDs that can be sold.
"REGISTRAR" means any person authorized by the Company to (i)
maintain the register, subject to such reasonable regulations as the Company may
prescribe, in which the Company shall provide for the registration, exchange and
transfer of any Notes, and (ii) effectuate the exchange or transfer of any Notes
on behalf of the Company.
"SECURED FUNDED INDEBTEDNESS" means, with respect to any Person, all
Secured Indebtedness of such Person; PROVIDED, HOWEVER, Secured Funded
Indebtedness shall not include Secured Indebtedness incurred pursuant to one or
more Bank Credit Agreements.
"SECURED INDEBTEDNESS" means, with respect to any Person, any
Indebtedness of such Person that is secured in any manner by any Lien or any
property.
"SENTINEL 2010 MODEL ICD" means the SENTINEL 2010 Model implantable
cardioverter-defibrillator product manufactured by the Company and identified in
the pre-market approval application of the Company dated June 21, 1997.
"SUBSIDIARY" of a person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that person or one or more of
the other Subsidiaries of that person or a combination thereof.
"TRANSFER AGENT" means any person authorized by the Company to
effectuate the exchange or transfer of any Notes on behalf of the Company.
VALIDITY OF SECURITIES
The validity of the Shares and the Notes offered hereby will be passed
upon for the Company by Oppenheimer Wolff & Donnelly LLP, Minneapolis,
Minnesota. The binding nature of the obligations contained in the Notes offered
hereby will be passed upon for the Company by Morrison & Foerster LLP, San
Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of July 31,
1997 and 1996, and for each of the years in the three-year period ended July 31,
1997, incorporated by reference in this Prospectus, have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. Such consolidated
financial statements have been incorporated by reference in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing. To the extent that KPMG Peat Marwick LLP audits and reports on the
consolidated financial statements of the Company issued at future dates and
consents to the use of their reports thereon, such consolidated financial
statements also will be incorporated by reference in this Prospectus in reliance
upon their report and said authority.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING,
OTHER THAN THOSE MADE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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Available Information .................................... 3
Incorporation of Certain Documents by
Reference .............................................. 3
The Company .............................................. 5
Risk Factors ............................................. 6
Ratio of Earnings to Fixed Charges ....................... 20
Use of Proceeds .......................................... 20
Selling Securityholders .................................. 21
Plan of Distribution...................................... 22
Description of Securities to be Registered ............... 26
Validity of Securities ................................... 41
Experts .................................................. 41
