<PAGE> 1
As filed with the Securities and Exchange Commission on April 6, 1998
REGISTRATION NO. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LIFEQUEST MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2559866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12961 PARK CENTRAL, SUITE 1300
SAN ANTONIO, TEXAS 78216
(210) 495-8787
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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RANDALL K. BOATRIGHT
INTERIM PRESIDENT
AND CHIEF EXECUTIVE OFFICER
LIFEQUEST MEDICAL, INC.
12961 PARK CENTRAL, SUITE 1300
SAN ANTONIO, TEXAS 78216
(210) 495-8787
(Name, address, including zip code and telephone number, including area code,
of agent for service)
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Copy to:
PHILLIP M. RENFRO
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
(210) 224-5575
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each Proposed Proposed maximum Amount
class of securities to be Amount to be maximum offering aggregate offering of registration
registered registered price per security(1) price(1) fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value per share 1,692,832 $4.28125 $7,247,437 $2,138
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase Rights(2)(3) 1,692,832 - - -
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Total...................... 1,692,832 - $7,247,437 $2,138
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</TABLE>
(1) Pursuant to Rule 457(c), the maximum offering price per security and
maximum aggregate offering price of the Common Stock have been
calculated on the basis of the average of the high and low sale prices
of the Common Stock as reported in the NASDAQ Small-Cap Market System
on March 19, 1998.
(2) No fee pursuant to Rule 457(g).
(3) Purchase Rights related to the Common Stock pursuant to Rights
Agreement dated as of June 20, 1995, between Registrant and American
Stock Transfer and Trust Company, Rights Agent.
---------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
P R O S P E C T U S
1,692,832 SHARES
LIFEQUEST MEDICAL, INC.
COMMON STOCK
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This Prospectus has been prepared for use in connection with the
proposed sale or distribution by certain stockholders (the "Selling
Stockholders") of an aggregate of 1,692,832 shares (the "Shares") of common
stock, par value $.001 per share ("Common Stock"), of LifeQuest Medical, Inc.
(the "Company"). The Shares may be sold from time to time by or for the account
of the Selling Stockholders in the over-the-counter market, on the National
Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ") or
otherwise at prices and on terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Shares may be sold
by any one or more of the following methods: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the securities 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; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions.
The Common Stock is traded on the NASDAQ SmallCap Market System (the
"SmallCap Market") under the symbol "LQMD." On March 19, 1998, the last reported
sale price for the Common Stock on the SmallCap Market was $4.25 per share.
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby and will bear all costs and expenses incident to their
registration. See "Plan of Distribution."
The Shares have not been registered for sale under the securities laws
of any state or jurisdiction as of the date of this Prospectus. Brokers or
dealers effecting transactions in the Shares should confirm the registration
thereof under the securities laws of the states in which such transactions
occur, or the existence of any exemption from registration.
---------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET
FORTH UNDER THE CAPTION "RISK FACTORS."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 6, 1998
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") in Washington, D.C., a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered by this Prospectus.
Certain of the information contained in the Registration Statement is omitted
from this Prospectus, and reference is hereby made to the Registration Statement
and exhibits and schedules relating thereto for further information with respect
to the Company and the securities offered by this Prospectus. The Company is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information are available for inspection and copies
of such materials may be obtained upon payment of the fees prescribed therefor
by the rules and regulations of the SEC from the SEC, at its principal offices
located at Judiciary Plaza, 450 Fifth Street, Room 1024, Washington, D.C. 20549,
and at the following regional offices of the SEC: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World
Trade Center, Suite 1300, New York, New York 10048, and copies of all or any
part of the Registration Statement may be obtained from the Public Reference
Section of the SEC, at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 upon the payment of the fees prescribed by the SEC. The SEC maintains a
WorldWide Web site on the Internet at http://www.sec.gov that contains reports,
proxy statements and other information regarding registrants that file
electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, is hereby incorporated herein by reference.
The description of the Company's Common Stock, which is contained under
the caption "Description of Capital Stock" in the Registration Statement on Form
S-1 dated August 19, 1992 (Registration No. 33-49196), as post-effectively
amended by the Registration Statement on Form S-1 dated August 20, 1992
(Registration No. 33-51046), and the description of the Company's Common Stock
Purchase Rights set forth in the Registration Statement on Form 8-A dated June
20, 1995, are hereby incorporated herein by reference.
All documents filed by the Company pursuant to Section 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 Registration Statement of which this Prospectus is a part
with respect to registration of the Shares, shall be deemed to be incorporated
by reference in this Prospectus and be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus, or in any other subsequently filed document which
also is or is deemed to be incorporated by reference, modifies or replaces such
statement.
The Company undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, upon written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to:
LifeQuest Medical, Inc., 12961 Park Central, Suite 1300, San Antonio, Texas
78216, Attention: Randall K. Boatright, telephone (210) 495-8787.
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THE COMPANY
LifeQuest Medical, Inc., a Delaware corporation (the "Company"), and
its subsidiary, ValQuest Medical, Inc., a Nevada corporation ("ValQuest"), are
primarily engaged in the development, manufacture and distribution of
instruments, equipment and surgical supplies used in minimally invasive surgery
("MIS").
Minimally invasive surgery, a rapidly growing field, involves surgical
procedures, accomplished without a major incision, through strategically placed
punctures in a patient's body. These procedures generally result in reduced
patient discomfort, reduced risks of infection and greatly shortened
hospitalization, thereby decreasing overall costs. MIS products include a wide
variety of reusable and disposable items such as endoscopes, trocars, trocar
sleeves/cannulas, video systems, mechanical and laser-related cutting devices,
stapling systems, electrocautery systems, suction and irrigation systems,
graspers and dissectors and hand-operated retractors. The products are used by
surgeons in hospitals and outpatient surgery facilities.
In January 1998, the Company acquired 21.5% of the voting common stock
of TFX Holding Co. ("TFX"), a business development subsidiary of Teleflex, Inc.
TFX owns the Dexterity(R) Pneumo Sleeve and the Dexterity(R) Protractor, which
the Company distributes pursuant to a distribution agreement with TFX.
The Pneumo Sleeve is a device which allows the surgeon to insert one
hand into the abdominal cavity while preserving pneumoperitoneum during
laparoscopic surgery. This new surgical modality, called Hand Assisted
Laparoscopic Surgery (HALS), is a hybrid between open and laparoscopic surgery.
This enabling technology is expected to greatly increase the number of advanced
minimal access surgeries as well as the number of surgeons who perform these
procedures.
In addition to being used with the Dexterity(R) Pneumo Sleeve, the
Dexterity(R) Protractor is used as a stand-alone product for open surgery,
providing atraumatic retraction and wound protection.
In December 1997 the Company and Canwell Medical, Inc., a Canadian
corporation ("Canwell Medical"), established a joint venture, Canwell Surgical,
Inc. ("Canwell Surgical"), owned equally by the Company and Canwell Medical.
Canwell Surgical plans to maintain offices in Atlanta, Georgia and Toronto,
Ontario, Canada. Canwell Surgical plans to establish a distribution network for
selling MIS products within the People's Republic of China and other Asian
countries.
The Company acquired Mishbucha, Inc. d/b/a Medex Surgical, a Texas
corporation, effective September 1997. Medex is located in Dallas, Texas, and
distributes instruments, equipment and surgical supplies used in MIS.
The Company acquired W.H. Bookwalter and Associates, Inc., a Vermont
corporation, in September 1997. Bookwalter is located in Milford, Massachusetts,
and develops, manufactures and distributes equipment, instruments and surgical
supplies used in MIS.
In June 1997, the Company acquired Trimedica, Inc., a Colorado
corporation located in Colorado Springs, Colorado, which distributes
instruments, equipment and surgical supplies used in MIS.
The Company acquired Klein Medical, Inc., a Texas corporation
("Klein"), in November 1996 and Val-U-Med, Inc., a Georgia corporation
("Val-U-Med"), in December 1996, private companies located in San Antonio, Texas
and Atlanta, Georgia, respectively. Both companies, which became wholly owned
subsidiaries of the Company, distribute instruments, equipment and surgical
supplies used in MIS.
In February 1996, the Company completed the merger of GM Engineering,
Inc., a California corporation ("GM Engineering"), with and into LifeQuest
Endoscopic Technologies, a wholly owned subsidiary of the Company ("LQET").
In May 1994, the Company and Valdor Fiber Optics of San Jose,
California, formed a corporate venture, ValQuest, which is an 82% owned
subsidiary of the Company. ValQuest's patented Impact Mount(TM) technology is
being used to develop proprietary, autoclavable (heat sterilizable), flexible,
fiber optic endoscopes which are expected to have applications in the MIS field.
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The Company intends to continue to allocate its resources toward
becoming a more significant competitor in the MIS market by utilizing the
combined capabilities of its subsidiaries to expand its geographical
distribution coverage in the U.S. and add relevant new products to its existing
line through internal development, licensing and acquisition.
Herbert H. Spoon resigned from his positions as President, Chief
Executive Officer and Director of the Company effective March 9, 1998. Randall
K. Boatright, Vice President and Chief Financial Officer of the Company since
1992, has been appointed as Interim President and Chief Executive Officer. A
search committee has been formed to find a new President and Chief Executive
Officer. Such committee is comprised of certain members of the Company's Board
of Directors. The Company anticipates it will find a qualified and suitable
President and Chief Executive Officer, however, there can be no assurance that
the Company will be able to hire or retain such an individual.
The Company was incorporated on December 23, 1988 as a Delaware
corporation and commenced operations on January 1, 1989. In August 1992, the
Company completed its initial public offering of Common Stock which is quoted on
the NASDAQ SmallCap Market. Effective January 1, 1998, the Company merged each
of its wholly-owned subsidiaries, LQET, Klein and Val-U-Med, into the Company.
The Company's executive offices are located at 12961 Park Central, Suite 1300,
San Antonio, Texas 78216, and its telephone number is (210) 495-8787.
RISK FACTORS
Other than historical and factual statements, the matters and items
discussed in this Prospectus are forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. In addition to other
information contained in this Prospectus, the following factors could contribute
to such differences. Prospective investors should carefully consider the
following factors and cautionary statements in determining whether to purchase
shares of Common Stock in the offering made hereby. All factors should be
considered in conjunction with the other information and financial data
appearing elsewhere in this Prospectus and in the documents incorporated herein
by reference. See "Disclosure Regarding Forward-Looking Statements."
Each investor should carefully examine this entire Prospectus and
should give particular attention to the risk factors set forth below.
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN. The Company has experienced
operating losses since its inception on January 1, 1989. At December 31, 1997,
the Company had an accumulated deficit of approximately $17.35 million. Prior to
the acquisitions of GM Engineering, Klein and Val-U-Med, the Company was a
development stage company focused primarily on obtaining FDA approval of two
medical devices. However, the Company has determined not to initiate any further
work on obtaining FDA approval of the devices unless an appropriate corporate
partner can be identified. Primarily as a result of its acquisitions in 1996 and
1997, the Company generated revenues of approximately $14.3 million during the
year ended December 31, 1997.
In the future, the Company expects to have increased cash outflow
requirements as a result of expenditures related to the expansion of sales and
marketing activity, expansion of manufacturing capacity, compliance with
regulatory requirements, and possible investment in or acquisition of additional
complementary products, technologies or businesses. The cash needs of the
Company have changed significantly as a result of the acquisitions completed
during the last two years and the support requirements of the added business
focus areas. There can be no assurance that the Company will not continue to
incur losses, that the Company will be able to raise cash as necessary to fund
operations or that the Company will ever achieve profitability.
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL
WILL BE AVAILABLE. The Company's capital requirements will depend on numerous
factors, including market acceptance and demand for its products; the resources
the Company devotes to the development, manufacture and marketing of its
products; the progress of the Company's clinical research and product
development programs; the receipt of, and the time required to obtain,
regulatory clearances and approvals; the resources required to protect the
Company's intellectual property; the resources expended, if any, to acquire
complementary businesses, products and technologies; and other factors. The
timing and amount of such capital requirements cannot be accurately predicted.
Funds may also be used for the acquisition of businesses, products and
technologies that are complementary to those marketed by the Company.
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Consequently, although the Company believes that its revenues and other sources
of liquidity will provide adequate funding for its capital requirements through
at least 1998, the Company may be required to raise additional funds through
public or private financings, collaborative relationships or other arrangements.
There can be no assurance that the Company will not require additional funding
or that such additional funding, if needed, will be available on terms
attractive to the Company or at all. Any additional equity financings may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. The Company began
commercial sales of its first MIS products in the first quarter of 1996
following the acquisition of GM Engineering, and therefore has limited sales,
marketing and distribution experience. The Company is marketing its MIS products
as well as the MIS products of other manufacturers to hospitals and surgeons
throughout the United States. The Company markets MIS products primarily through
direct representatives who are employed by the Company or its subsidiaries
within selected geographical areas and independent sales representatives who
typically sell other complementary MIS products to the same customer base. If
the need arises, the Company may expand its sales force, which will require
recruiting and training additional personnel. There can be no assurance that the
Company will be able to recruit and train such additional personnel in a timely
fashion. Loss of a significant number of the Company's current sales personnel
or independent sales representatives, or failure to attract additional
personnel, could have a material adverse effect on the Company's business,
financial condition and results of operations.
ACQUISITION INTEGRATION. The Company's growth in recent years has
resulted from acquisitions, which involve certain operational and financial
risks. Although many of the acquired companies had significant operating
histories, the Company has limited experience owning and operating them on a
consolidated basis. Operational risks associated with an acquisition include the
possibility that an acquisition does not ultimately provide the benefits
originally anticipated by the Company's management, while the Company continues
to incur operating expenses to provide the services formerly provided by the
acquired company. Financial risks involve the incurrence of indebtedness as a
result of the acquisition and the consequent need to service that indebtedness.
In addition, the issuance of stock in connection with acquisitions dilutes the
voting power and may dilute the economic interests of existing stockholders. As
part of the Company's growth strategy, the Company will continue to review
acquisition opportunities in the future. In carrying out its acquisition
strategy, the Company attempts to minimize the risk of unexpected liabilities
and contingencies associated with acquired businesses through planning,
investigation and negotiation, but there is no assurance that it will be
successful in doing so. There can be no assurance that recent or future
acquisitions can be readily assimilated into the Company's operating structure.
Inability to efficiently integrate acquired companies could have a material
adverse effect on the Company's financial condition and results of operations.
The Company does not currently have any commitments or agreements with respect
to any material acquisitions.
MANAGEMENT OF GROWTH. The rapid growth of the Company's business has
required the Company to make significant additions in personnel and has
significantly increased the Company's working capital requirements. Although the
Company has experienced significant sales growth in 1996 and 1997, such growth
should not be considered indicative of future sales growth. Such growth has
resulted in new and increased responsibilities for management personnel and has
placed and continues to place a significant strain upon the Company's
management, operating and financial systems, and other resources. There can be
no assurance that the strain placed upon the Company's management, operating and
financial systems, and other resources will not have a material adverse effect
on the Company's business, financial condition, and results of operations, nor
can there be any assurance that the Company will be able to attract or retain
sufficient personnel to continue the expansion of its operations. Also crucial
to the Company's success in managing its growth will be its ability to achieve
additional economies of scale. There can be no assurance that the Company will
be able to achieve such economies of scale, and the failure to do so could have
a material adverse effect on the Company's business, financial condition, and
results of operations.
To manage the expansion of its operations, the Company must
continuously evaluate the adequacy of its management structure and its existing
systems and procedures, including, among others, its data processing, financial,
and internal control systems. When entering new geographic markets, the Company
will be required, on a timely and cost-effective basis, to hire personnel,
establish suitable distribution centers, and adapt the Company's distribution
systems and procedures to these new markets. There can be no assurance that
management will adequately anticipate all of the changing demands that growth
could impose on the Company's systems, procedures, and structure. In addition,
the Company will be required to react to changes in the MIS distribution
industry, and there can be no assurance that
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<PAGE> 7
it will be able to do so successfully. Any failure to adequately anticipate and
respond to such changing demands may have a material adverse effect on the
Company's business, financial condition, or results of operations.
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET; LACK OF LIQUIDITY OF
LOW PRICED STOCKS. If the Company fails to maintain the qualification for its
Common Stock to trade on the Nasdaq SmallCap Market, its securities could be
subject to delisting. The Nasdaq Stock Market recently announced increases in
the quantitative standards for maintenance of listings on The Nasdaq SmallCap
Market. The revised standards for continued listing, which became effective in
February 1998, include maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization or (z) $500,000 of net income
for two of the last three years and a minimum bid price per share of $1.00.
Although the Company is currently in compliance with the new Nasdaq SmallCap
Market continued listing requirements, no assurances can be given that the
Company will be able to maintain such compliance in the future. In the event the
Company is unable to satisfy the continued listing requirements, trading, if
any, in the Common Stock would thereafter be conducted in the over-the-counter
markets in the so-called "pink sheets" or the National Association of Securities
Dealer's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's Common Stock would likely be impaired, not only in the number of
shares which could be bought and sold, but also through delays in the timing of
the transactions, reduction in security analysts' and the news media's coverage,
if any, of the Company and lower prices for the Company's securities than might
otherwise prevail.
In addition, if the Common Stock were to become delisted from trading
on the Nasdaq SmallCap Market and the trading price of the Common Stock were
below $5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Exchange Act, which require
additional disclosures by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stock to persons other than established customers and accredited
investors (which are generally institutions). For these types of transactions,
the broker-dealer must make a special suitability determination for the purchase
and have received the purchaser's written consent to the transaction prior to
the sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in the
Common Stock which could severely limit the market liquidity of Common Stock and
the ability of purchasers in this offering to sell their shares of Common Stock
in the secondary market.
PRODUCTS SUPPLY: DEPENDENCE ON KEY SUPPLIERS. The ability of the
Company to obtain particular products or product lines in the required
quantities to fulfill customer orders for MIS devices on a timely basis is
critical to the Company's success. In most cases, the Company has no guaranteed
price or delivery agreements with its MIS device suppliers. As a result, the
Company may experience short-term inventory shortages. In addition,
manufacturers of MIS devices who currently distribute their products through the
Company may decide to distribute, or to substantially increase their existing
distribution through other distributors, their own dealer networks, or directly
to resellers. There can be no assurance that suppliers will be able to maintain
an adequate supply of products to fulfill the Company's customer orders on a
timely basis or that the Company will be able to obtain particular products or
that a product line currently offered by suppliers will continue to be
available. Failure of the Company to obtain particular products or product lines
in the required quantities or to fulfill customer orders on a timely basis could
have a material adverse effect on its business, financial condition or results
of operation.
The Company's ability to achieve increases in net sales or to sustain
current net sales levels depends in part on the ability and willingness of the
Company's suppliers to provide products in the quantities the Company requires.
Although the Company has written distribution agreements with many of its
suppliers, these agreements in certain instances provide for non-exclusive
distribution rights and often include territorial restrictions that limit the
geographical area in which the Company is permitted to distribute the products.
The agreements are also generally short-term, subject to periodic renewal and
often contain provisions permitting termination by either party without cause
upon relatively short notice. The termination of an agreement may have a
material adverse effect on the Company's business, financial condition or result
of operations.
RELIANCE ON FUTURE PRODUCTS AND NEW APPLICATIONS; UNCERTAINTY OF
TECHNOLOGY CHANGES. The markets for the Company's products are characterized by
rapid, unpredictable and significant
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<PAGE> 8
technological change. Competition in the Company's industry is intense. Many of
the Company's competitors have greater financial resources, research and
development capabilities and more experience in obtaining regulatory approvals,
manufacturing and marketing than the Company. Accordingly, these competitors may
succeed in developing, obtaining regulatory approval for and some have
commercialized their products more rapidly than the Company. There can be no
assurance that developments by the Company's competitors or potential
competitors will not render the Company's MIS products noncompetitive,
uneconomical or obsolete. There can be no assurance that the Company will be
able to successfully obtain new MIS products or technologies, manufacture
products in commercial volumes or gain market acceptance of its products or the
products of others. Delays in development, manufacturing or market acceptance of
new or enhanced products could have a material adverse effect on the Company's
business, financial condition and results of operations. The future success of
the Company will also depend upon, among other factors, its ability to obtain
and distribute new and enhanced versions of products in a timely fashion.
INTENSE COMPETITION. The primary industry in which the Company
competes, minimally invasive surgery, is dominated by two large, well-positioned
entities that are intensely competitive and frequently offer substantial
discounts as a competitive tactic. The United States Surgical Corporation ("U.S.
Surgical") is primarily engaged in developing, manufacturing and marketing
surgical wound management products, and has historically been the firm most
responsible for providing products that have led to the growth of the industry.
U.S. Surgical supplies a broad line of products to the MIS industry, including
products which facilitate access, assessment and treatment. Ethicon Endo-Surgery
("Ethicon"), a Johnson & Johnson company, has made a major investment in the MIS
field in recent years and is one of the leading suppliers of hospital products
in the world. Furthermore, U.S. Surgical and Ethicon each utilize purchasing
contracts that link discounts on the purchase of one product to purchases of
other products in their broad product lines. Substantially all of the hospitals
in the United States have purchasing contracts with one or both of these
entities. Accordingly, customers may be dissuaded from purchasing access
products from the Company rather than U.S. Surgical or Ethicon to the extent it
would cause them to lose discounts on products that they regularly purchase from
U.S. Surgical or Ethicon.
The Company faces a formidable task in successfully gaining and
maintaining significant revenues within the MIS access market. In order to
succeed, management believes that the Company will need to objectively
demonstrate substantial product benefits, and its sales effort must be able to
effectively present such benefits to both clinicians and health care
administrators. The MIS access market is dominated by U.S. Surgical and Ethicon.
A number of other entities participate in various segments of the MIS access
market.
There can be no assurance that the Company will be able to successfully
compete in the MIS access market, and failure to do so would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE UPON INDEPENDENT SHIPPING COMPANIES. The Company relies
heavily on arrangements with independent shipping companies for the delivery of
its products. In order to meet customer demand, products are shipped from
suppliers through independent shipping companies. Currently, United Parcel
Service ("UPS") delivers the substantial majority of the Company's products to
its customers. The termination of the Company's relationship with UPS, or the
failure of one or more other independent shipping companies to deliver products
from suppliers to the Company or products from the Company to its customers
could have a material adverse effect on the Company's business, financial
condition or results of operations. For instance, another employee work stoppage
at UPS or an employee work stoppage or slow-down at one or more of these
independent shipping companies could materially impair the shipping company's
ability to perform the services required by the Company. There can be no
assurance that the services of these independent shipping companies will
continue to be available to the Company on terms as favorable as those currently
available or that these companies will choose or be able to perform the required
shipping services for the Company.
HEALTH CARE MARKET; UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT.
The health care industry continues to undergo change, led primarily by market
forces which are demanding greater efficiencies and reduced costs. Government
proposed health care mandates in the United States have not occurred, and it is
unclear whether, and to what extent, any government mandate will affect the
domestic health care market. Industry led changes are expected to continue
irrespective of any governmental efforts toward health care reform. The scope
and timing of any further government sponsored proposals for health care reform
are presently unclear.
-7-
<PAGE> 9
The primary trend in the industry is toward consolidation and cost
containment. Third-party payors, principally federal Medicare, state Medicaid
and private health insurance plans, have been able to exercise greater influence
through managed treatment and hospitalization patterns, including a shift from
reimbursement on a cost basis to per capita limits for patient treatment.
Hospitals have been severely impacted by the resulting cost restraints. The
increasing use of managed care, centralized purchasing decisions through group
purchasing organizations, consolidations among hospitals and hospital groups,
and integration of health care providers are continuing to affect purchasing
patterns in the health care system. Purchasing decisions are often shared by a
coalition of surgeons, nursing staff, and hospital administrators, with
purchasing decisions taking into account whether a product reduces the cost of
treatment and/or attracts additional patients to a hospital. Managed care
providers are attempting to control the cost of health care by authorizing fewer
elective surgical procedures. All of these factors have contributed to
reductions in prices for the Company's products, to a reduction in the volume of
hospital purchasing and, in the near term, slower acceptance of more advanced
surgical procedures in which the Company's products are used, given hospital and
surgeon concerns as to the costs of training and reimbursement by payors. While
the Company has implemented programs to assist hospitals in cost containment
through more efficient surgical practices and application of minimally invasive
surgery, there can be no assurance that the Company will not continue to be
adversely affected by these matters. There can be no assurance as to the impact
of cost containment on the Company's future operations.
Furthermore, the Company could be adversely affected by changes in
reimbursement policies of governmental or private health care payors,
particularly to the extent any such changes affect reimbursement for procedures
in which the Company's products are used. Failure by physicians, hospitals and
other users of products sold by the Company to obtain sufficient reimbursement
from health care payors for procedures in which the Company's products are used
or adverse changes in governmental and private third-party payors' policies
toward reimbursement for such procedures would have a material adverse effect on
the Company's business, financial condition or results of operations. The
Company is unable to predict what changes will be made in the reimbursement
methods utilized by third-party health care payors.
If the Company obtains the necessary foreign regulatory approvals,
market acceptance of the products sold by the Company in international markets
would be dependent, in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country, and include both
government-sponsored health care and private insurance. The Company intends to
seek international reimbursement approvals, although there can be no assurance
that any such approvals will be obtained in a timely manner, if at all, and no
assurance can be given regarding the effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend in
part on its ability to obtain patent protection for products and processes, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Although the Company has obtained certain patents and
applied for additional United States and foreign patents covering certain
aspects of its technology, no assurance can be given that any additional patents
will be issued or that the scope of any patent protection will exclude
competitors or provide a competitive advantage, or that any of the Company's
patents will be held valid if subsequently challenged. The validity and breadth
of claims covered in medical technology patents involves complex legal and
factual questions and therefore may be highly uncertain. The Company also relies
upon unpatented trade secrets, and no assurance can be given that others will
not independently develop or otherwise acquire substantially equivalent trade
secrets. In addition, whether or not the Company's patents are issued, others
may hold or receive patents and contain claims having a scope that covers
products developed by the Company.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and companies in the
medical device industry have used litigation to gain competitive advantage.
Litigation involving the Company would result in substantial cost and diversion
of management attention from the day-to-day operation of the business, but could
be necessary to enforce patents issued to the Company, to protect trade secrets
and other specialized knowledge unknown to outside parties, to defend the
Company against claimed infringement of the rights of others or to determine the
scope and validity of the proprietary rights of others. An adverse determination
in litigation could subject the Company to significant liabilities to third
parties, could require the Company to seek licenses from third parties under
less favorable terms than might otherwise be possible and could prevent the
Company from manufacturing, selling or using its products, any of which could
have a material adverse effect on the Company's business, financial condition or
results of operations.
-8-
<PAGE> 10
The Company may decide for business reasons to retain certain knowledge
that it considers proprietary as trade secrets. In that event, or if patent
protection is unattainable, then the Company must rely upon trade secrets,
know-how and continuing technological innovation to maintain its competitive
position. Employees and consultants of the Company who have access to
proprietary information have signed confidentiality agreements with the Company.
There can be no assurance that these agreements will provide meaningful
protection for the Company's trade secrets in the event of unauthorized use or
disclosure of such information. The Company intends to require any new employees
to sign similar confidentiality agreements.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques, or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to its unpatented trade secrets.
Government Regulation. As a manufacturer of medical devices, the
Company is subject to regulation by, among other governmental entities, the Food
and Drug Administration (the "FDA") and the corresponding agencies of states and
foreign countries in which the Company sells its products. These regulations
govern the introduction of new medical devices, the observance of certain
standards with respect to the manufacture and labeling of such devices, the
maintenance of certain records and the reporting of potential product defects
and other matters. Failure to comply with such regulations may have a material
adverse effect on the Company.
Manufacturers of medical devices marketed in the United States are
required to adhere to applicable regulations setting forth detailed Good
Manufacturing Practices ("GMP") requirements, which include testing, control and
documentation requirements. Manufacturers also must comply with Medical Device
Reporting ("MDR") requirements which require that a firm report to the FDA
certain adverse events associated with the Company's devices. The Company is
subject to routine inspection by the FDA and certain state agencies for
compliance with GMP requirements, MDR requirements and other applicable
regulations. The FDA is using its statutory authority more vigorously during
inspections of companies and in other enforcement matters. The FDA has
promulgated new GMP regulations and MDR regulations, both of which will likely
increase the cost of compliance with GMP requirements. The Company also is
subject to numerous federal, state and local laws relating to matters such as
safe working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances.
Changes in existing requirements or adoption of new requirements could have a
material adverse effect on the Company's business, financial condition or
results of operations. Although the Company believes that it is in compliance
with all applicable regulations of the FDA and the various states in which it
operates, current regulations depend heavily on administrative interpretation
and there can be no assurance that the Company will not incur significant costs
to comply with laws and regulations in the future or that laws and regulations
will not have a material adverse effect upon the Company's business, financial
condition or results of operations. In addition, the potential effects on the
Company of heightened enforcement of federal and state regulations cannot be
predicted.
With the enactment of the Medical Device Amendments in May 1976 to the
Federal Food, Drug and Cosmetic Act (the "FDC Act"), the FDA classified medical
devices in commercial distribution into three classes, Class I, II or III. This
classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of the medical device. Class I devices are those
devices whose safety and effectiveness can reasonably be ensured through general
controls such as adequate labeling, premarket notification and adherence to GMP
regulations. Some Class I devices are further exempted from some of the general
controls. Class II devices are those devices whose safety and effectiveness can
reasonably be ensured through the use of special controls such as performance
standards, post-market surveillance, patient registries and FDA guidelines.
Class III devices are devices which must receive premarket approval by the FDA
pursuant to a Premarket Approval ("PMA") application to ensure their safety and
effectiveness. Generally, Class III devices are limited to life-sustaining,
life-supporting or implantable devices.
-9-
<PAGE> 11
Most medical instruments introduced to the United States market are
required by the FDA, as a condition of marketing, to secure either clearance of
a premarket notification pursuant to Section 510(k) of the FDC Act (a "510(k)
Notification") or an approved PMA. Obtaining PMA can take several years. In
contrast, the process of obtaining a 510(k) Notification clearance requires the
submission of substantially less data and generally involves a shorter review
period.
In general, clearance of a 510(k) Notification may be obtained if a
manufacturer or distributor of medical devices can establish that a new device
is "substantially equivalent" to a legally marketed medical device. The 510(k)
Notification and the claim of substantial equivalence may have to be supported
by various types of information indicating that the device is as safe and
effective for its intended use as a legally marketed predicate device. In
addition to requiring clearance for new products, FDA rules typically require a
filing and a waiting period prior to marketing modified versions of existing
products. The Company anticipates that most of its products will be eligible for
the 510(k) Notification procedure. At this time, the FDA typically responds to a
submission of a 510(k) Notification within 180 to 360 days. Market clearance may
take three to 12 months or longer. In the event that the shorter 510(k)
Notification procedure is not available, the Company will be required to file a
PMA.
Under the Safe Medical Devices Act of 1990 ("SMDA"), the FDA is
directed to adopt new 510(k) Notification regulations which could potentially
make the approval process for the Company's products more time-consuming,
difficult and expensive. The SMDA includes new provisions relating to
post-market surveillance requirements for certain types of devices and
authorizes the FDA to adopt new controls to be applied to certain devices such
as some currently being developed by the Company, including the promulgation of
a performance standard, requirements for patient registries, distributor and
purchaser reporting and imposition of guidelines.
The process of obtaining necessary government approvals can be
time-consuming and expensive. There can be no assurance that the necessary
approvals will be obtained by the Company or, if they are obtained, that they
will be obtained on a timely basis. Furthermore, the Company or the FDA may
suspend clinical trials at any time upon a determination that the subjects or
patients are being exposed to an unacceptable health risk. The FDA may also
require post-approval testing and surveillance programs to monitor the effects
of the Company's products and the products it distributes as a condition of
approval. Approvals that have been or may be granted are subject to continual
review and surveillance programs required by regulatory agencies, and later
discovery of previously unknown problems may result in product labeling
restrictions or withdrawal of products from marketing.
International sales of medical devices are subject to the regulatory
agency requirements of each country, and more recently in Europe, the
regulations of the European Economic Community. The regulatory review process
varies from country to country. In addition, international sales of medical
devices not cleared by the FDA for distribution in the United States may be
subject to FDA export requirements, which require the Company to document that
the sale of the device is not in violation of that country's medical device
laws. This documentation is then submitted to the FDA with a request for a
permit for export to that country. The Company intends to apply for regulatory
approval, import approval and export approval for its products for sales in
countries comprising the major foreign market.
In addition to the statutes and regulations enforced by the FDA, the
Company is also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state and local statutes, regulations and ordinances, including those
promulgated by the Environmental Protection Act and the Department of Labor.
Regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business.
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the efforts of a number of key management and technical personnel.
The loss of the services of one or more key employees could have an adverse
effect on the Company. The Company believes that its future success will depend
in large part upon its ability to hire and retain suitable operating, marketing,
financial and technical personnel. The competition for qualified personnel in
the medical device industry is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain necessary personnel.
PRODUCT LIABILITY: CLAIMS IN EXCESS OF INSURANCE COVERAGE. The
development, manufacture and sale of MIS products by the Company entails the
risk of product liability claims, involving both potential
-10-
<PAGE> 12
financial exposure and associated adverse publicity. The Company's current
product liability insurance coverage limits are $1,000,000 per occurrence and
$2,000,000 in the aggregate, and there can be no assurance that such coverage
limits are adequate to protect the Company from any liabilities it might incur
in connection with the development, manufacture and sale of its current and
potential products. In addition, the insurance is expensive and may not be
available in the future on acceptable terms, or at all. In addition, if such
insurance is available, there can be no assurance that the limits of coverage of
such policies will be adequate. A successful product liability claim in excess
of the Company's insurance coverage could have a material adverse effect on the
Company's business, financial condition or results of operations.
STOCK PRICE VOLATILITY. The stock market in general, and stocks of
medical device companies in particular, have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the Common Stock has been and is likely to continue to be
highly volatile. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new products by the
Company or its competitors, the FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents of proprietary rights, public concern as to the safety of products
developed or marketed by the Company or others, changes in health care policy in
the United States and internationally, changes in stock market analyst
recommendations regarding the Company, or the medical device industry generally
or general market conditions may have a significant effect on the market price
of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of shares of Common Stock by
existing stockholders under Rule 144 of the Securities Act, or through the
exercise of outstanding vested options, could have an adverse effect on the
price of the Common Stock. On the date of this Prospectus, in addition to the
1,692,832 shares of Common Stock offered hereby, approximately 876,024 shares of
Common Stock held by affiliates of the Company are eligible for sale in the
public market upon compliance with the volume and other limitations contained in
Rule 144 of the Securities Act. In addition, on the date of this Prospectus,
there were outstanding options to acquire up to approximately 1,136,000 shares
under the Company's stock option plan and outstanding options to acquire up to
approximately 750,000 additional shares under option agreements entered into
outside of such plan.
RIGHTS AGREEMENT. On June 21, 1995, the Board of Directors of the
Company declared a dividend of one Common Stock purchase right (a "Right") for
each share of Common Stock outstanding. Each Right entitles the holder to
purchase one share of the Company's Common Stock at an initial exercise price of
$7.00 per share, subject to adjustment, upon the terms and subject to the
conditions set forth in a Rights Agreement dated as of June 20, 1995, between
the Company and American Stock Transfer & Trust Company, as the Rights Agent.
The Rights trade with the Common Stock and will not detach from the Common Stock
or become exercisable until the earlier of (i) ten business days after a public
announcement that a person or group of affiliated or associate persons
("Acquiring Person") has acquired beneficial ownership of 15% or more of the
Company's Common Stock (a "Shares Acquisition Date") and (ii) ten business days
after the commencement of, or the first public announcement of an intention to
make, a tender offer or exchange offer for the Common Stock, the consummation of
which would result in beneficial ownership by a person or group.
If any person or group which acquires beneficial ownership of 15% or
more of the outstanding shares of the Company's Common Stock, each Right (other
than the Rights held by the Acquiring Person, which shall be void), will entitle
its holder to purchase at the exercise price an additional number of shares of
Common Stock equal to the amount determined by dividing the exercise price by
50% of the then current market price of the Common Stock.
In addition, if following the Shares Acquisition Date, the Company is
acquired in a merger or other business-combination transaction, or sells more
than 50% of its assets or earning power to any person, each Right (other than
those beneficially held by an Acquiring Person) will entitle its holder to
purchase at the existing exercise price a number of shares of common stock of
the acquiring company having twice the value of the exercise price.
The Company may redeem the Rights at $.02 per Right at any time on or
prior to the tenth business day following the first public announcement of the
acquisition by a person of 15% or more of its Common Stock or the commencement
of a tender offer or exchange offer for such 15% ownership.
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<PAGE> 13
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group who attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being acquired.
The Rights should not interfere with any merger or other business combination
approved by the Board of Directors of the Company since the Board of Directors
may, at its option, at any time prior to the close of business on the tenth
business day after the Shares Acquisition Date, redeem all the then outstanding
Rights at a price of $.02 per Right.
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of preferred stock with designations,
rights and preferences determined from time to time by its Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of the Common Stock. In the event of issuance, the preferred stock could
be used, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present intention to issue any additional shares of its preferred stock, there
can be no assurance that it will not do so in the future.
NONPAYMENT OF DIVIDENDS. The Company has never declared or paid
dividends on Common Stock and does not anticipate paying dividends on Common
Stock at any time in the foreseeable future. The terms of certain of the
Company's loan agreements restrict the payment of dividends.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Specifically, all statements other than statements of historical facts
included in this report regarding the Company's financial position, business
strategy and plans and objectives of management of the Company for future
operations are forward-looking statements. These forward-looking statements are
based on the beliefs of the Company's management, as well as assumptions made by
and information currently available to the Company's management. When used in
this report, the words "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the Company
or Company management are intended to identify forward-looking statements. Such
statements reflect the current view of the Company with respect to future events
and are subject to certain risks, uncertainties and assumptions related to
certain factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, product
introductions and acceptance, technological change, changes in industry
practices, one-time events and other factors described herein ("cautionary
statements"). Although the Company believes that its expectations are
reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
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<PAGE> 14
USE OF PROCEEDS
The Shares to be sold pursuant to the Prospectus are owned by certain
stockholders (the "Selling Stockholders") of the Company. The Company will not
receive any of the proceeds from the sale of the Shares. See "Selling
Stockholders."
SELLING STOCKHOLDERS
The following table sets forth the name of each of the Selling
Stockholders and, as of March 16, 1998, the beneficial ownership of Common Stock
held by each of the Selling Stockholders, immediately prior to and upon
completion of this offering. All information as to beneficial ownership has been
furnished by each of the Selling Stockholders. The number of Shares that may be
actually sold by each of the Selling Stockholders will be determined by each
such Selling Stockholder, and may depend upon a number of factors, including,
among other things, the market price of the Common Stock. Because each Selling
Stockholder may offer all, some or none of the Shares that each holds, and
because the offering contemplated by this Prospectus is currently not being
underwritten, no estimate can be given as to the number of Shares that will be
held by any Selling Stockholder upon or prior to the termination of this
offering. See "Plan of Distribution." Except as otherwise specified, each
Selling Stockholder has sole voting and investment power over the shares listed.
Except as set forth below, no Selling Stockholder has had a material
relationship with the Company or any of its predecessors or affiliates within
the past three years.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE OFFERING AFTER THE OFFERING(1)
--------------------------------- ----------------------------------
NUMBER PERCENTAGE SHARES TO NUMBER PERCENTAGE
NAME OF SHARES OF CLASS(2) BE SOLD OF SHARES OF CLASS(2)
---- -------------- ------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Renaissance Capital Growth &
Income Fund III, Inc.(3) 500,000 7.04% 500,000 0 0
Renaissance US Growth &
Income Trust PLC(3) 500,000 7.04% 500,000 0 0
Jerry Fadem, Jr 227,875 3.38% 150,621 67,254 *
Robert and Beth Fadem(5) 200,000(4) 2.97% 112,746 87,254(4) 1.29%
Kalford C. Fadem(6) 200,000(4) 2.97% 112,746 87,654(4) 1.29%
Beverly A. Evans and
Robert L. Evans(7) 131,950(8) 1.96% 63,996 67,954(8) 1%
Barbara E. Hansen and
Michael J. Cohen 131,250 1.95% 63,996 67,254 1%
William H. Bookwalter(9) 306,780 4.56% 61,356 245,424 3.65%
Robert Kraus 49,123 * 9,825 39,298 *
Edward Kraus 49,123 * 9,825 39,298 *
Joseph Andriole, M.D 78,750 1.17% 11,496 67,254 1%
John R. Bookwalter, M.D 84,049 1.25% 16,810 67,239 *
Mark Lovejoy 57,143 * 14,286 42,857 *
Frederick F. Judd III 67,259 * 13,448 53,811 *
1997 Bookwalter Family Trust 8,405 * 1,681 6,724 *
Herbert H. Spoon(10) 201,904 3.00% 50,000 151,904 2.26%
=======================================================================================================================
</TABLE>
* Represents less than 1%
(1) Assumes all shares of Common Stock offered hereby are sold.
(2) Based on 6,899,742 shares of Common Stock outstanding as of March 16,
1998.
(3) Includes 125,000 shares of Common Stock issued pursuant to a
Subscription Agreement dated December 19, 1997, between the Company and
such Selling Stockholder and 375,000 shares of Common Stock issuable
upon the conversion of presently convertible 9% Convertible Debentures
issued by the Company on December 19, 1997, and held by such Selling
Stockholder.
(4) Includes 20,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(5) Robert Fadem currently serves as a Vice President of the Company.
(6) Kalford C. Fadem currently serves as Vice President and Director of the
Company.
(7) Robert L. Evans currently serves as a Director of the Company.
(8) Includes 700 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(9) William H. Bookwalter currently serves as a Vice President and Director
of the Company.
(10) Herbert H. Spoon resigned from his positions of President, Chief
Executive Officer, and Director of the Company effective March 9, 1998.
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<PAGE> 15
In December 1996, Val-U-Med, Inc. was merged (the "Val-U-Med Merger")
into a wholly owned subsidiary of the Company. In connection with the Val-U-Med
Merger, the shareholders of Val-U-Med received an aggregate of $400,000 and an
aggregate of 1,200,000 shares of Common Stock (the "Val-U- Med Shares"). Certain
of the Val-U-Med Shares are being offered hereby by Jerry Fadem, Jr., Robert and
Beth Fadem, Kalford C. Fadem, Beverly A. Evans and Robert L. Evans, Barbara E.
Hansen and Michael J. Cohen and Joseph Andriole, M.D.
In June 1997, Trimedica, Inc. was merged (the "Trimedica Merger") into
a wholly owned subsidiary of the Company. In connection with the Trimedica
Merger, Mark Lovejoy received 57,143 shares of Common Stock (the "Trimedica
Shares"). Certain of the Trimedica Shares are being offered hereby by Mark
Lovejoy.
In September 1997, W. H. Bookwalter & Associates, Inc. ("Bookwalter")
was merged (the "Bookwalter Merger") into a wholly owned subsidiary of the
Company. In connection with the Bookwalter Merger, the shareholders of
Bookwalter received an aggregate of 466,773 shares of Common Stock (the
"Bookwalter Shares"). Certain of the Bookwalter Shares are being offered hereby
by William H. Bookwalter, John R. Bookwalter, M.D., Frederick F. Judd III, and
The 1997 Bookwalter Family Trust.
Effective September 1997, Mishbucha, Inc. d/b/a Medex Surgical
("Medex") was merged (the "Medex Merger") into a wholly owned subsidiary of the
Company. In connection with the Medex Merger, Robert Kraus and Edward Kraus
received an aggregate of 98,246 shares of Common Stock (the "Medex Shares").
Certain of the Medex Shares are being offered hereby by Robert Kraus and Edward
Kraus.
In November 1997, the Company and Herbert H. Spoon entered into an
investment agreement whereby Mr. Spoon purchased 50,000 shares of Common Stock.
Such shares of Common Stock are being offered hereby by Mr. Spoon.
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<PAGE> 16
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or his donees or pledgees).
The Shares may be sold from time to time by or for the account of the
Selling Stockholders in the over-the-counter market, on the Nasdaq SmallCap
Market or otherwise at prices and on terms then prevailing or at prices related
to the then current market price, or in negotiated transactions. The Shares may
be sold by any one or more of the following methods: (a) a block trade in which
the broker or dealer so engaged will attempt to sell the securities 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; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions. Each Selling Stockholder will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. To the Company's knowledge, no Selling Stockholder
has entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of the Shares, nor does the
Company know the identity of the brokers or market makers which will participate
in the offering. The Selling Stockholders may effect such transactions by
selling the Shares directly to purchasers or to or through broker-dealers which
may act as agents or principals. In effecting sales, broker-dealers engaged by
the Selling Stockholders may arrange for other broker-dealers to participate.
Such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of Common Stock for whom such broker-dealers may act as agents or to whom they
sell as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). Each of the Selling Stockholders
and any broker-dealers that act in connection with the sale of the Shares might
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the resale
of the shares of Common Stock as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. Each Selling Stockholder may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. Liabilities under the
federal securities laws cannot be waived. Because each Selling Stockholder may
be deemed to be an "underwriter" within the meaning of Section 2(11) of the
Securities Act, each Selling Stockholder will be subject to prospectus delivery
requirements under the Securities Act. Furthermore, each Selling Stockholder,
any broker or dealer and any "affiliated purchasers" will be subject to the
applicable provisions of the Exchange Act and the Securities Act and the rules
and regulations thereunder, including, without limitation, Regulation M under
the Exchange Act, which provisions may limit the timing of the purchases and
sales of the Company's securities by the Selling Stockholders, any broker or
dealer and any "affiliated purchasers."
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby and will bear all costs and expenses incident to their
registration.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Fulbright & Jaworski L.L.P., San Antonio, Texas.
EXPERTS
The consolidated financial statements included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996 incorporated
by reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, to the extent and for the periods set forth in
their reports incorporated herein by reference, and are incorporated herein in
reliance on such reports given upon the authority of such firm as experts in
accounting and auditing.
-15-
<PAGE> 17
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------------------
TABLE OF CONTENTS
PAGE
-----
Available Information...................................................... 2
Incorporation of Certain Documents......................................... 2
The Company................................................................ 3
Risk Factors............................................................... 4
Use of Proceeds............................................................ 13
Selling Stockholders....................................................... 13
Plan of Distribution....................................................... 14
Legal Matters.............................................................. 14
Experts.................................................................... 14
================================================================================
================================================================================
1,692,832 SHARES
LIFEQUEST MEDICAL, INC.
COMMON STOCK
--------------------
P R O S P E C T U S
APRIL 6, 1998
--------------------
================================================================================
<PAGE> 18
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee* $ 2,138
Legal fees and expenses* 5,000
Miscellaneous* 1,000
-------
Total* $ 8,138
</TABLE>
- --------------------
* Estimated
The Company has agreed to pay all the costs and expenses of
this offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers the
Registrant to, and the Bylaws of the Registrant provide that it shall, indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that, in the case
of an action or suit by or in the right of the Registrant, no indemnification
may be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Registrant unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that such person is fairly and reasonably entitled to indemnity for
proper expenses.
ITEM 16. EXHIBITS.
Exhibit No. Exhibit
- ----------- -------
5 Opinion of Fulbright & Jaworski L.L.P. regarding legality.
24.1 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit
5).
24.2 Consent of Arthur Andersen LLP.
25 Power of Attorney (included on signature page).
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-1
<PAGE> 19
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio and State of Texas the 20th day of March,
1998.
LIFEQUEST MEDICAL, INC.
By: /s/ Randall K. Boatright
--------------------------------
Randall K. Boatright
Interim President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Randall K. Boatright or Robert B.
Johnson, or either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
and all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Randall K. Boatright Interim President and Chief March 20, 1998
- --------------------------- Executive Officer, Chief
Randall K. Boatright Financial Officer and Director
(Principal Executive Officer,
Principal Financial Officer,
and Principal Accounting Officer)
/s/ William H. Bookwalter Vice President and Director March 20, 1998
- ---------------------------
William H. Bookwalter
/s/ Kalford C. Fadem Vice President and Director March 20, 1998
- ---------------------------
Kalford C. Fadem
/s/ Robert B. Johnson Director March 20, 1998
- ---------------------------
Robert B. Johnson
/s/ Jeffrey H. Berg Director March 20, 1998
- ---------------------------
Jeffrey H. Berg
/s/ Richard H. Klein Director March 20, 1998
- ---------------------------
Richard H. Klein
/s/ Robert L. Evans Director March 20, 1998
- ---------------------------
Robert L. Evans
</TABLE>
II-3
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE
- ---------- ------- ----
<S> <C> <C>
5 Opinion of Fulbright & Jaworski L.L.P. regarding legality............................... II-5
24.1 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5)......................... II-5
24.2 Consent of Arthur Andersen LLP.......................................................... II-6
25 Power of Attorney (included on signature page).......................................... II-3
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
April 6, 1998
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Dear Sirs:
We refer to the Registration Statement on Form S-3 (the
"Registration Statement") to be filed on March 24, 1998, by LifeQuest Medical,
Inc. (the "Company") under the Securities Act of 1933, as amended, relating to
an aggregate of 1,692,832 shares of Common Stock, $.001 par value ("Common
Stock"), to be sold by certain selling stockholders listed in the Registration
Statement (the "Selling Stockholders").
As counsel for the Company, we have examined such corporate
records, documents and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the 1,692,832 shares of Common Stock
to be sold by the Selling Stockholders have been duly and validly authorized,
have been legally issued, and are fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the prospectus contained therein and elsewhere in the Registration
Statement and prospectus. This consent is not to be construed as an admission
that we are a party whose consent is required to be filed with the Registration
Statement under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 16, 1998
included in LifeQuest Medical, Inc.'s Form 10-KSB for the year ended December
31, 1997 and to all references to our Firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
April 6, 1998
