<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1999
Registration No. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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CYGNUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2978092
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063-4719
(650) 369-4300
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN C. HODGMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER & CHAIRMAN
CYGNUS, INC.
400 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063-4719
(650) 369-4300
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(Name, address, including zip code, and telephone number, including area
code, of agent for service of process)
Copies to:
BLAIR W. WHITE
Pillsbury Madison & Sutro LLP
P.O. Box 7880
San Francisco, CA 94120
Approximate date of commencement of proposed sale to
the public: From time to time 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/ __________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Proposed Proposed
Class of Securities Amount To Maximum Offering Maximum Aggregate Amount of
To Be Registered Be Registered(1) Price Per Share(2) Offering Price(2) Registration Fee
- -------------------------- ------------------- ----------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par 391,868 shares $9.4375 $3,698,254 $976.34
value(3)
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</TABLE>
(1) Includes (i) up to 252,818 shares of common stock to be issued upon
conversion of Cygnus' 8.5% Convertible Debentures due 2004 (the
"Debentures"), (ii) up to 139,050 shares of common stock to be issued
upon exercise of Common Stock Purchase Warrants issued in connection
with the Debentures (the "Debenture Warrants"), and (iii) an
indeterminate number of additional shares of common stock as may from
time to time become issuable upon conversion of the Debentures and
Debenture Warrants by reason of stock splits, stock dividends and other
similar transactions, which shares are registered hereunder pursuant to
Rule 416 under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low
prices of the Company's Common Stock on the Nasdaq National Market on
November 26, 1999.
(3) Associated with the Common Stock are Series A Participating Preferred
Stock Purchase Rights that will not be exercisable or be evidenced
separately from the Common Stock prior to the occurrence of certain
events.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, dated December 2, 1999
PROSPECTUS
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391,868 Shares
CYGNUS, INC.
Common Stock
---------------------
These shares may be offered and sold at various times by the
stockholders identified in this prospectus. The offering is not being
underwritten. These shares were issued in connection with a Convertible
Debenture and Warrant Purchase Agreement.
The selling stockholders may offer and sell their shares in
transactions on the Nasdaq National Market, in negotiated transactions, or both.
These sales may occur at fixed prices that are subject to change, at prices that
are determined by prevailing market prices, or at negotiated prices.
The selling stockholders may sell shares to or through broker-dealers,
who may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders, the purchasers of the shares, or
both. We will not receive any of the proceeds from the sale of the shares.
Our common stock is traded on the Nasdaq National Market under the
symbol "CYGN."
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY READ AND CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or 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 December __, 1999
<PAGE>
We have not authorized anyone to provide you with information or to
represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. The selling stockholders are
offering to sell, and seeking offers to buy, only the shares of Cygnus common
stock covered by this prospectus, and only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date, regardless of the time of delivery of
this prospectus or of any sale of the shares.
YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS, AS WELL AS THE
DOCUMENTS INCORPORATED BY REFERENCE IN THE PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION. ALL REFERENCES TO "WE," "US," "OUR," "CYGNUS" OR THE
"COMPANY" IN THIS PROSPECTUS MEAN CYGNUS, INC.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Our Company" and "Risk Factors" and
elsewhere in this prospectus, including in the documents incorporated by
reference, are forward-looking statements that involve risks and uncertainties.
These forward-looking statements include statements about our plans, objectives,
expectations, intentions and assumptions and other statements contained in this
prospectus, including in the documents incorporated by reference, that are not
statements of historical fact. You can identify these statements by words such
as "may," "will," "should," "estimates," "predicts" "potential," "continue,"
"strategy," "believes," "anticipates," "plans," "expects," "intends" and similar
expressions. We cannot guarantee future results, levels of activity, performance
or achievements. Our actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a discrepancy include those discussed in "Risk
Factors" and elsewhere in this prospectus, including in the documents
incorporated by reference.
You should rely only on the information contained in this prospectus.
No dealer, salesperson or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted. The information contained in this prospectus is
current only as of its date, regardless of the time of its delivery or any sale
of these securities.
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THE COMPANY
We are engaged in the development and manufacture of diagnostic and
drug delivery systems, utilizing proprietary technologies to satisfy unmet
medical needs cost effectively. Our current efforts are primarily focused on
two core areas: a frequent, automatic and non-invasive glucose monitoring
device (the GlucoWatch-Registered Trademark- monitor) and transdermal drug
delivery systems.
Cygnus was incorporated in California in 1985 and was merged into a
Delaware corporation in September 1995. Our principal executive offices are
located at 400 Penobscot Drive, Redwood City, California 94063, and our
telephone number at that address is (650) 369-4300.
THE GLUCOWATCH-Registered Trademark- SYSTEM.
Our GlucoWatch-Registered Trademark- monitor represents a potential
advance in diabetes care technology as compared to the currently prevailing
"finger stick" blood monitoring method. The GlucoWatch-Registered Trademark-
monitor is designed to measure glucose frequently, automatically and
non-invasively through the ease and convenience of a device worn like a
wristwatch. Worldwide sales of blood glucose self-monitoring products were
approximately $2.5 billion in 1997 (Boston Biomedical Consultants, Inc.). It
is estimated that more than 40 million people in North America, Europe, Japan
and Korea have diabetes. In the United States alone, more than ten million
people have been diagnosed, with another five million believed to have the
condition. The number of people with diabetes is expected to continue to grow
with the aging of the population, while the number of diagnosed cases is also
expected to increase with changes in diagnostic standards and new diagnostic
technologies.
Clinical studies sponsored by the National Institutes of Health
indicate that better management of glucose levels through more frequent
testing would enable people with diabetes to reduce or significantly delay
many serious diabetes-related health complications. However, largely due to
the pain of repetitive finger sticking and the associated disruption of daily
life, we believe most people with diabetes currently test their glucose
levels less than half as often as recommended. As a result of the drawbacks
of the finger stick method, we believe that there is a significant unmet
demand for an automatic and continuous glucose-monitoring device.
To address this unmet demand, we are developing the
GlucoWatch-Registered Trademark- monitor, which is expected to reduce or
eliminate significant drawbacks of the finger stick testing technique. The
device, which is worn like a wristwatch, is designed to automatically and
non-invasively extract and measure glucose levels through intact skin up to
three times per hour. The extracted glucose is collected in a consumable
component called the AutoSensor, which is attached to the back of the device
and replaced approximately every twelve hours. The GlucoWatch-Registered
Trademark- monitor potentially offers a combination of features, such as:
- an electronic memory to store and display glucose levels;
- the ability to download stored information to personal computers
to analyze glucose data and trends;
- alerts indicating hypo- and hyperglycemic conditions; and
- event markers which record factors that affect glucose levels.
The GlucoWatch-Registered Trademark- monitor can be worn during the
day and night. We believe the GlucoWatch-Registered Trademark- monitor will
provide the frequent testing and trend analysis of glucose levels necessary
to enable people with diabetes to better manage their condition. We believe
this unique combination of features will result in better control of glucose
levels, improved quality of life and more cost-effective healthcare.
In developing the GlucoWatch-Registered Trademark- monitor, Cygnus
has sought to design a device that would offer the above features and be safe
and effective for home use by patients with diabetes. In December 1998, we
completed extensive development clinical studies using a version of the
GlucoWatch-Registered Trademark- monitor designed for commercial sale. These
studies were conducted by independent clinical investigators across the U.S.
on people with diabetes. The
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results of these studies demonstrated that the GlucoWatch-Registered
Trademark- monitor is able to measure glucose levels with accuracy and
precision. The results of the most controlled testing portion of the
development clinical studies exceeded Cygnus' internal performance accuracy
target values. The protocols for the development clinical studies were
designed to be the same as the protocols used in our registration clinical
studies.
On January 25, 1999 the Company submitted the first module of the
Pre-Market Approval Application ("PMA") to the FDA. This submission included
a variety of information, including manufacturing documentation. We submitted
the second module of the PMA in June 1999, which included analysis of a
series of clinical studies totaling more than 600 people that were completed
in December 1998, as well as at least two additional studies. The FDA
notified Cygnus that the PMA for the GlucoWatch-Registered Trademark- monitor
has been deemed suitable for filing. The FDA also granted an expedited review
status to the GlucoWatch-Registered Trademark- monitor and stated that the
GlucoWatch-Registered Trademark- monitor will be reviewed by the Clinical
Chemistry and Toxicology Devices Panel on December 6, 1999. Although we
believe the clinical results to date are encouraging, no assurance can be
given that data generated in the clinical studies to date will provide a
sufficient basis for the approval of the GlucoWatch-Registered Trademark-
monitor by the FDA.
In 1996, we entered into collaboration agreements with Becton
Dickinson & Company and Yamanouchi Pharmaceutical Co., Ltd. for the
commercialization of the GlucoWatch-Registered Trademark- monitor. Under the
Yamanouchi agreement, Cygnus granted Yamanouchi the marketing and
distribution rights of the GlucoWatch-Registered Trademark- monitor in Japan
and Korea. Cygnus is eligible to receive up-front and milestone payments
prior to commercialization and to receive a percentage of the product's
future commercial success. Under the Becton Dickinson agreement, we granted
Becton Dickinson exclusive worldwide marketing and distribution rights, with
the exception of Japan and Korea. On March 31, 1998, we announced the
termination of our agreement with Becton Dickinson. Consequently, we will not
receive any future milestone payments under the Becton Dickinson agreement
and will not be obligated to share future revenue, if any, associated with
commercialization of the GlucoWatch-Registered Trademark- monitor in the
Becton Dickinson territories. We are currently in discussions with a short
list of companies to establish an alliance for the commercialization of the
GlucoWatch-Registered Trademark- monitor to provide for distribution, sales,
marketing, and customer service support in North America and Europe. There
can be no assurance that we will be able to enter into new collaborative
arrangements.
In 1998, Cygnus entered into long term agreements with E.I. du Pont
de Nemours & Company ("DuPont") for the development and supply of thick film
materials for Cygnus' GlucoWatch-Registered Trademark- monitor. A key
component of the GlucoWatch-Registered Trademark- monitor is the sensor,
which we developed with DuPont's materials. The agreements call for continued
cooperation for future sensor technology developments and continued supply of
materials.
In September 1998, Cygnus was awarded a Phase I Small Business
Innovative Research Grant for "High Performance Biosensor Electrode
Materials" from the National Institute of Diabetes and Digestive and Kidney
Diseases division of the NIH. We plan to use funding to investigate
advancements in biosensor materials used for glucose detection and
measurement, potentially to include in future versions of the
GlucoWatch-Registered Trademark- monitor.
OUR DRUG DELIVERY SYSTEMS
Drug delivery systems provide for the controlled release of drugs
directly into the bloodstream through intact skin or mucosa. Our transdermal
drug delivery products are thin multilayer systems, in the form of small
adhesive patches. Transdermal delivery can provide a number of advantages over
conventional methods of drug administration, including enhanced efficacy,
increased safety, greater convenience and improved patient compliance. By
delivering a steady flow of drugs into the bloodstream over an extended period
of time, such systems can avoid the "peak and valley" effect of traditional oral
or injectable therapy and can enable more controlled, effective treatment. By
avoiding first pass metabolism through the gastrointestinal tract and the liver,
the therapeutically equivalent dosage for the transdermal delivery of certain
compounds can be significantly less than the corresponding oral dosage.
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Our drug delivery business is focused on contraception, hormone
replacement therapy and smoking cessation. We have received FDA approval for
three products, one of which is currently marketed, the Nicotrol-Registered
Trademark- (Pharmacia AB, Stockholm, Sweden) nicotine patch, and one of
which, the FemPatch-Registered Trademark- (Warner-Lambert Co., Morris Plains,
NJ) system, an estrogen replacement patch, is no longer being marketed. The
third product, a seven-day hormone replacement patch, was cleared for
marketing by the FDA in September 1999. The Company has strategic
collaborations for its transdermal products with Ortho-McNeil Pharmaceutical,
Inc. ("Ortho"), a Johnson & Johnson company (contraception), and Pharmacia &
Upjohn ("Pharmacia") (smoking cessation).
The FemPatch-Registered Trademark- (Warner-Lambert Co., Morris
Plains, NJ) system, commercially launched in 1997, is a low-dose, 7-day
estrogen replacement transdermal patch for the treatment of menopausal
symptoms. Sanofi S.A. ("Sanofi"), our worldwide licensee, had sublicensed
U.S. marketing rights to Warner-Lambert. In November 1998, Warner-Lambert
terminated its agreement with Sanofi, which also terminated the Supply
Agreement between Warner-Lambert and Cygnus. Consequently, the product is no
longer being marketed.
In July 1998, we were notified by AHP, the licensee for two of our
transdermal hormone replacement products, that AHP wanted to discuss the
status of its agreements with Cygnus and that it intended to exercise its
right under the agreements to seek a sublicensee for the products. AHP and
Cygnus negotiated an amendment to the agreements in November 1998 that
provided Cygnus immediate ownership of the regulatory filing packages for the
two products and the right to co-promote the two products as well. The
amendment also provided that if AHP was unable to sign an agreement with a
sublicensee or opted not to reacquire its rights within six months, the
rights to the two products would revert to Cygnus; however, AHP would still
be obligated to continue development activities for the two products for an
additional six months. In June 1999, AHP notified us that a sublicense
agreement was not signed and that AHP would not be exercising its option to
reacquire rights, but that they would support development activities until
mid-November 1999. Effective as of November 17, 1999, AHP is no longer a
partner with respect to these two products.
On November 18, 1999, we announced the signing of a binding
agreement to sell most of the assets of our drug delivery business to
Ortho-McNeil Pharmaceutical, Inc, a Johnson & Johnson company
("Ortho-McNeil"). Ortho-McNeil will pay up to $75 million in cash, contingent
on the achievement of certain milestones. Under terms of the agreement,
Cygnus will receive $20 million in cash at closing. The remaining contingent
payments relate to the achievement of certain technical, regulatory and
commercialization milestones for the contraceptive patch Cygnus is developing
with the R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson
company.
We will sell the assets of the drug delivery business to
Ortho-McNeil except those relating to a nicotine patch under development and
one other early stage project. Cygnus products that are being acquired
include the FemPatch-Registered Trademark- system, the Nicotrol-Registered
Trademark- system, the 7-day estrogen patch, an estrogen/progestin
combination product, and the contraceptive patch. The proposed sale is
subject to a number of customary conditions, including approval of the
transaction under the Hart-Scott-Rodino Act.
OUR PORTFOLIO OF PRODUCTS
The data in the following table summarize our current product
portfolio, the potential indications, development status and licensees of
marketing and distribution rights. The data in the table are qualified by
reference to the more detailed descriptions set forth in our Annual Report on
Form 10-K for the year ended December 31, 1998. Development of the various
products listed is being funded by the designated licensee or distributor,
Cygnus, or both. Cygnus has additional products in early development, which are
not listed below, and is conducting a number of new product feasibility studies.
5
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OUR PRODUCT PORTFOLIO
<TABLE>
<CAPTION>
PRODUCT INDICATIONS STATUS (1) STRATEGIC PARTNER
<S> <C> <C> <C>
DIAGNOSTIC SYSTEMS:
FREQUENT, AUTOMATIC GLUCOSE
MONITORING:
GlucoWatch-Registered Diabetes Filed with FDA Cygnus; Yamanouchi
Trademark- Monitor
DRUG DELIVERY SYSTEMS(2):
SMOKING CESSATION:
Nicotrol-Registered Smoking cessation Commercialized in North Pharmacia & Upjohn, Inc.;
Trademark- Patch America and certain Johnson & Johnson (3)
European countries(2)
Nicotine Patch Smoking cessation Pre-clinical Undisclosed
HORMONE REPLACEMENT:
Low-Dose Estrogen Menopausal symptoms No longer marketed(2)
7-Day: FemPatch
-Registered Trademark-
System
Estrogen 7-Day Menopausal symptoms Approved by FDA and
European Dossier under
review(2)
Estrogen/Progestin: Menopausal symptoms Phase 3 clinicals(2)
Combination 3.5-Day
CONTRACEPTION:
Combination 7-Day Contraception Phase 3 clinicals(2) Johnson & Johnson (4)
Estrogen/Progestin:
OTHER PRODUCTS:
Clonazepam Anti-epileptic Grant expired as of
9/29/99 (2) (5)
Mucosal Disk Breath freshening Marketing Authorization Undisclosed
Filed (2)
Mucosal Disk Sore throat Marketing Authorization Undisclosed
Filed (2)
</TABLE>
(1) Cygnus' drug delivery products are generally developed in the following
stages: development, prototype, pre-clinical studies in preparation to
file an Investigational New Drug Application ("IND"), clinical trials,
and regulatory submission.
(2) Cygnus has entered an agreement to sell its drug delivery systems to
Ortho-McNeil Pharmaceutical, Inc, a Johnson & Johnson company. Please see
"Our Drug Delivery Systems" above.
(3) Pharmacia has worldwide rights and has sublicensed rights in North
America to Johnson & Johnson.
(4) Cygnus' agreement with Johnson & Johnson grants Johnson & Johnson
exclusive rights to the estrogen/progestin combination 7-day
contraception product.
(5) Product funding, through an NIH grant, expired on September 29, 1999.
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RISK FACTORS
IN DETERMINING WHETHER TO INVEST IN THE COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER THE INFORMATION BELOW IN ADDITION TO ALL OTHER INFORMATION PROVIDED TO
YOU IN THIS PROSPECTUS, INCLUDING THE INFORMATION INCORPORATED BY REFERENCE IN
THIS PROSPECTUS.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUING LOSSES.
We have a limited operating history to evaluate our prospects. You
should consider our prospects in light of the substantial risks, expenses and
difficulties encountered by companies entering into the medical device and
drug delivery industry. We reported a net loss of $4.1 million for the
quarter ended September 30, 1999 and have experienced annual operating losses
since our inception. We expect to continue to incur operating losses at least
until we have significant sales, if we ever do, of the GlucoWatch-Registered
Trademark- monitor. We cannot assure you that we will generate significant
revenues or achieve profitability. We have, and expect to continue to have,
fluctuations in quarterly results based on varying contract revenues and
expenses associated with our contracts and collaborative projects. Some of
these fluctuations could be significant. To date, we have generated limited
revenues from product sales. We do not have significant experience in
manufacturing, marketing or selling our products. Our future development
efforts may not result in commercially viable products. We may fail in our
efforts to introduce our products or to obtain required regulatory
clearances. Our products may never gain market acceptance, and we may never
generate revenues or achieve profitability. Our revenues to date have been
derived primarily from:
- product development and licensing fees related to our products
under development, and
- manufacturing and royalty revenues from the Nicotrol-Registered
Trademark- (Pharmacia AB, Stockholm, Sweden) nicotine patch and
the FemPatch-Registered Trademark- system.
In the future, we will no longer receive manufacturing revenue from
the Nicotrol-Registered Trademark- patch or the FemPatch-Registered
Trademark- system. If the sale of our drug delivery business is consummated,
we will no longer receive royalty payments for the Nicotrol-Registered
Trademark- patch. If we obtain regulatory approvals, we expect that a
substantial portion of our future revenues will be derived from sales of the
GlucoWatch-Registered Trademark- monitor and other products currently under
development.
WE MAY NEED ADDITIONAL FINANCING AND IT MAY NOT BE AVAILABLE.
In order to continue to develop our products, we will require
substantial resources to conduct research and conduct preclinical development
and clinical trials necessary to bring our products to market and to establish
production and marketing capabilities. We may seek additional funding through
public or private financings, including debt or equity financings. We may also
seek other arrangements, including collaborative arrangements.
Any additional equity financings may dilute the holdings of current
stockholders. Debt financing, if available, may restrict our ability to issue
dividends and take other actions. We may not be able to obtain adequate funds
when we need them from financial markets or arrangements with corporate partners
or other sources. Even if funds are available, they may not be on acceptable
terms. If we cannot obtain sufficient additional funds, we may have to delay,
scale back or eliminate some or all of our research and product development
programs or license or sell products or technologies that we would otherwise
seek to develop ourselves.
We believe that our existing cash, cash equivalents and investments,
plus cash from revenues, other fundings such as potential product funding
collaborations or financings, and earnings from investments, will suffice to
meet our operating expenses, debt servicing and repayments and capital
expenditure requirements at least through the next 12 months. The amounts and
timing of future expenditures will depend on:
- progress of ongoing research and development;
- results of preclinical testing and clinical trials;
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- rates at which operating losses are incurred;
- executing any development and licensing agreements with
corporate partners;
- developing our products;
- manufacturing scale-up for the GlucoWatch-Registered Trademark-
monitor;
- the FDA regulatory process; and
- other factors, many of which are beyond our control.
WE DEPEND ON LICENSEES, DISTRIBUTORS AND COLLABORATIVE ARRANGEMENTS.
Our strategy to develop, clinically test, obtain regulatory
approval, manufacture and commercialize our products depends, in large part,
upon our ability to selectively enter into and maintain collaborative
arrangements with licensees and distributors. If we commercialize our
GlucoWatch-Registered Trademark- monitor, we will depend upon Yamanouchi
Pharmaceutical Co., Ltd. to market and distribute the GlucoWatch-Registered
Trademark- monitor in Japan and Korea. We do not have any marketing or
distribution agreements for the GlucoWatch-Registered Trademark- monitor
other than the Yamanouchi collaboration. However, we are currently involved
in discussions with a short list of companies about collaborating to market
and distribute the GlucoWatch-Registered Trademark- monitor in the U.S.,
Europe and elsewhere outside Japan and Korea.
Our licensees and distributors generally have the right to terminate
product development, for any reason without significant penalty, at any time
before we are granted regulatory approval. These cancelations may cause us to
delay, suspend or abandon our clinical testing, regulatory filings and
product development and commercialization efforts. Licensees have exercised
this right in the past and we cannot assure you that current and future
licensees or distributors will not exercise this right in the future. All
payments to us under our licensing and distribution agreements depend on
future events or sales levels, and the licensee or distributor may terminate
these agreements. As a result, we cannot assure you when or if we will
receive any particular payment. In the past, some of our licensees,
distributors and collaborators have asked us to modify the terms of existing
agreements. If a licensee or distributor stopped funding one of our products,
we would either fund development efforts ourselves, enter into an agreement
with an alternative licensee or distributor, or suspend further development
work on the product. We cannot assure you that we would be able to negotiate
an acceptable agreement with an alternative licensee or distributor.
Additionally, we may choose to self-fund certain research and
development projects in order to exploit our technologies. If these
activities result in a commercial product, they will help our long-term
operating results. However, any increase in self-sponsored research and
development or sales and marketing activities will negatively affect our
short-term operating results. Furthermore, we cannot control the resources
and attention a licensee or distributor devotes to a product. As a result, we
may experience delays in clinical testing, regulatory filings and
commercialization efforts conducted by our licensees or distributors. We
cannot assure you that our licensees or distributors will not, for
competitive reasons, support, directly or indirectly, a company or product
that competes with one of our products that is the subject of its license or
distributor agreement with us. Furthermore, any dispute between us and one of
our licensees or distributors might require us to initiate or defend against
expensive litigation or arbitration proceedings. If one of our licensees or
distributors terminates an arrangement, cannot fund or otherwise satisfy its
obligations under its arrangements, or significantly disputes or breaches a
contractual commitment, then we would likely be required to seek an
alternative licensee or distributor. We cannot assure you that we would be
able to reach agreement with a replacement licensee or distributor. If we
were unable to find a replacement licensee or distributor, we might not be
able to perform or fund the activities of the current licensee or
distributor. Even if we were able to perform and fund these activities, our
capital requirements would increase substantially. In addition, the further
development and the clinical testing, regulatory approval process, marketing,
distribution and sale of the product covered by such licensee or distributor
would be significantly delayed. (See "Risk Factors - we have limited
marketing and sales experience.")
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For us to be competitive, we will need to develop, license or acquire
new diagnostic and drug delivery products. Furthermore, our ability to develop
and commercialize products in the future will depend, in part, on our ability to
enter into collaborative arrangements with additional licensees on favorable
terms. We cannot assure you that we will be able to enter into new collaborative
arrangements on favorable terms, if at all, or that existing or future
collaborative arrangements will succeed.
WE DEPEND ON LICENSED PATENT APPLICATIONS AND PROPRIETARY TECHNOLOGY.
Our success depends in large part on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing the proprietary rights of others, both in the U.S. and abroad. Since
patent applications in the U.S. are secret until issuance, and publication of
discoveries in the scientific or patent literature tends to lag behind actual
discovery by several months, we cannot be certain that we were the first to file
our patent applications or that we will not infringe upon third party patents.
We cannot assure you that any patents will be issued with respect to any of our
patent applications or that any patents will provide competitive advantages for
our products or will not be challenged or circumvented by our competitors.
We also rely on trade secrets and proprietary know-how that we seek to
protect, in part, by confidentiality agreements with our licensees, employees
and consultants. We cannot assure you that these agreements will not be
breached, that we would have adequate remedies for any breach or that our trade
secrets will not otherwise become known or be independently developed by our
competitors. Any litigation, in the U.S. or abroad, as well as foreign
opposition and/or domestic interference proceedings, could result in substantial
expense to us and significant diversion of effort by our technical and
management personnel. We may resort to litigation to enforce our patents or
protect trade secrets or know-how as well as to defend against infringement
charges. A negative determination in such proceedings could subject us to
significant liabilities or require us to seek licenses from third parties.
Although patent and intellectual property disputes in the pharmaceutical product
area have often been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include ongoing
royalties. Furthermore, we cannot assure you that necessary licenses would be
available to us on satisfactory terms, if at all. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling certain of
our products, and could materially adversely affect us.
WE ARE HIGHLY LEVERAGED AND MAY BE UNABLE TO SERVICE OUR DEBT.
As of September 30, 1999, we had indebtedness of $51.6 million. The
degree to which we are leveraged could materially and adversely affect our
ability to obtain financing for working capital, acquisitions or other purposes
and could make us more vulnerable to industry downturns and competitive
pressures. Our ability to meet our debt service obligations depends upon our
future performance, which will depend upon financial, business and other
factors, many of which are beyond our control. Although we believe our cash
flows will be adequate to meet our interest payments, we cannot assure you that
we will continue to generate cash flows in the future sufficient to cover our
fixed charges or to permit us to satisfy any redemption obligations pursuant to
the our indebtedness. If we cannot generate cash flows in the future sufficient
to cover our fixed charges or to permit us to satisfy any redemption obligations
pursuant to our indebtedness, and we cannot borrow sufficient funds either under
our credit facilities or from other sources, we may need to refinance all or a
portion of our existing debt, to sell all or a portion of our assets, or to sell
equity securities. There is no assurance that we could successfully refinance,
sell our assets or sell equity securities, or, if we could, we cannot give any
assurance as to the amount of proceeds we could realize.
In the event of insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of our business or upon default or acceleration
relating to our debt obligations, our assets will first be available to pay the
amounts due under our debt obligations. Holders of common stock would only
receive the assets remaining, if any, after payment of all indebtedness and
preferred stock. Although we do not currently conduct operations through
subsidiaries, we may elect to do so as products become commercialized. In such
event, our cash flow and our ability to service debt would partially depend upon
the earnings of our subsidiaries and the distribution, loaning or other payments
of funds by those subsidiaries to us. The payment of dividends and the making of
loans and advances to us by our subsidiaries would be subject to statutory or
contractual restrictions, would depend upon the earnings of those
9
<PAGE>
subsidiaries and would be subject to various business considerations. Our right
to receive assets of any of our subsidiaries upon their liquidation or
reorganization would be effectively subordinated to the claims of our
subsidiaries' creditors, except to the extent that we are recognized as a
creditor of such subsidiary, in which case our claims would still be subordinate
to any security interests in the assets of such subsidiary and any senior
indebtedness.
WE HAVE LIMITED MARKETING AND SALES EXPERIENCE.
We have limited experience marketing or selling medical device
products. To successfully market and sell the GlucoWatch-Registered
Trademark- monitor or our other products under development, we must either
develop a more extensive marketing and sales force or enter into arrangements
with third parties to market and sell our products. We cannot assure you that
we could successfully develop a more extensive marketing and sales force or
that we could enter into acceptable marketing and sales agreements with third
parties. If we maintain our own marketing and sales capabilities, we will
compete with other companies that have experienced and well-funded marketing
and sales operations. If we enter into a marketing arrangement with a third
party, any revenues we receive will depend on the third party, and we will
likely have to pay a sales commission or similar amount.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
The design, development, manufacture and use of our products involve
an inherent risk of product liability claims and associated adverse
publicity. Producers of medical products may face substantial liability for
damages in the event of product failure or allegations that the product
caused harm. We currently maintain product liability insurance, but it is
expensive and difficult to obtain and may not be available in the future on
acceptable terms. We cannot assure you that we will not be subject to product
liability claims, that our current insurance would cover any claims, or that
adequate insurance will continue to be available on acceptable terms in the
future. In the event we are held liable for damages in excess of the limits
of our insurance coverage, or if any claim or product recall creates
significant adverse publicity, our business, financial condition and results
of operations could be materially and adversely affected.
WE MAY NOT BE ABLE TO RETAIN OR HIRE KEY PERSONNEL.
Our ability to operate successfully and manage our potential future
growth significantly depends upon retaining key scientific, technical,
managerial and financial personnel, and attracting and retaining additional
highly qualified scientific, technical, managerial and financial personnel.
We face intense competition for qualified personnel in these areas, and we
cannot assure you that we will be able to attract and retain qualified
personnel. The loss of key personnel or our inability to hire and retain
additional qualified personnel in the future could adversely affect our
business, financial condition and operating results.
OUR STOCK PRICE IS VOLATILE.
The trading price of our common stock substantially fluctuates in
response to factors such as:
- announcements by us or our competitors of results of regulatory
approval filings or clinical trials or testing;
- developments or disputes governing proprietary rights;
- technological innovations or new commercial products,
government regulatory action, and general conditions in the
medical technology industry;
- changes in securities analysts' recommendations, or
- other events or factors, many of which are beyond our control.
10
<PAGE>
In addition, the stock market in general has experienced extreme price
and volume fluctuations in recent years that have particularly affected the
market prices of many medical technology companies, unrelated to the operating
performance of these companies. Fluctuations or decreases in the trading price
of our common stock may adversely affect the market for our common stock. In the
past, following periods of volatility in the market price for a company's
securities, securities class action litigation often has been instituted. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on our
business, financial condition and operating results.
WE DO NOT PAY DIVIDENDS.
We have never declared or paid cash dividends on our common stock. Our
current bank term loan precludes us from paying dividends to stockholders. We
currently intend to retain any earnings for use in our business and therefore do
not anticipate paying any dividends in the future.
PROCEEDS FROM THE OFFERING
We will not receive any proceeds from the sale of the shares by the
selling stockholders. All proceeds from the sale of the shares will be for the
account of the selling stockholders, as described below. See "Selling
Stockholders" and "Plan of Distribution" below.
11
<PAGE>
SELLING STOCKHOLDERS
The table below sets forth the following information:
* the name of each selling stockholder;
* the number of shares each selling stockholder beneficially owns;
* the number of shares the selling stockholder may resell under this
prospectus; and
* the number of shares each selling stockholder would own, assuming
that each selling stockholder sells all of the shares it may sell
under this prospectus.
Beneficial ownership is determined in accordance with rules promulgated
by the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. This table is based upon information supplied
to us by the selling stockholders. Except as otherwise indicated, we believe
that the persons named in the table have sole voting and investment power with
respect to all of the shares of our common stock listed as beneficially owned by
them, subject to community property laws where applicable.
The actual number of shares of common stock offered by this prospectus,
and included in the registration statement of which this prospectus is a part,
includes additional shares that may be issued or issuable:
* upon exercise of the warrants or adjustment mechanisms in the
warrants; 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 of
1933.
<TABLE>
<CAPTION>
Shares Beneficially Shares Offered Shares Beneficially
Owned Prior to the by this Owned After
Offering Prospectus The Offering
-------- ---------- ------------
<S> <C> <C> <C>
Conseco Direct Life
Insurance Company.............. 114,723 20,900 93,823
The Gleneagles Fund Company....... 191,647 35,268 156,379
Lancer Securities
(Cayman) Limited............... 191,647 35,268 156,379
Palladin Partners I, L.P.......... 152,524 27,431 125,093
Palladin Overseas Fund Limited.... 114,723 20,900 93,823
PGEP III, L.L.C................... 114,723 20,900 93,823
Halifax Fund, L.P................. 1,263,273 231,201 1,032,072
</TABLE>
The shares being sold by the selling stockholders were issued in
connection with the exercise of warrants and conversion of convertible
debentures sold to the selling stockholders pursuant to a Convertible Debenture
and Warrant Purchase Agreement, dated as of June 29, 1999. In accordance with
registration rights granted to the selling stockholders, Cygnus has filed with
the SEC, under the Securities Act, a Registration Statement on Form S-3, of
which this prospectus forms a part, with respect to the resale of the shares
from time to time on the Nasdaq National Market, in privately-negotiated
transactions or otherwise, and has agreed to prepare and file such amendments
and supplements to the Registration Statement as may be necessary to keep such
Registration Statement effective until the shares are no longer required to be
registered for the sale thereof by the selling stockholders.
12
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell all or a portion
of the shares:
- on the Nasdaq National Market, or such other exchange on which the
common stock may from time to time be trading;
- in privately negotiated transactions or otherwise;
- at fixed prices that may be changed;
- at market prices prevailing at the time of sale; or
- at prices related to such market prices or at negotiated prices.
The shares may be sold by the selling stockholders by one or more of
the following methods, without limitation:
- block trades 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;
- purchases by a broker or dealer as principal;
- an exchange distribution in accordance with the rules of such
exchange;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- privately negotiated transactions;
- short sales; and
- a combination of any of the above methods of sale.
In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the selling stockholders, or,
if any broker-dealer acts as agent for the purchaser of the shares, from the
purchaser, in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the selling stockholder to sell a specified number of shares at a stipulated
price per share. To the extent a broker-dealer is unable to sell a specified
number of shares acting as agent for selling stockholders, it will purchase as
principal any unsold shares at the price required to fulfill the broker-dealer
commitment to selling stockholders. Broker-dealers who acquire shares as
principal may resell the shares from time to time in transactions which may
involve block transactions of the nature described above, in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices related to the then-current market price or in
negotiated transactions. In connection with resales, broker-dealers may pay to
or receive from the purchasers of the shares commissions as described above. The
selling stockholders may also sell the shares in accordance with Rule 144 under
the Securities Act, rather than under this prospectus.
From time to time the selling stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in Cygnus'
common stock, and may sell and deliver the shares in connection with these
transactions or to settle securities loans. If the selling stockholders engage
in such transactions, the price of our common stock may be affected. Under the
Convertible Debenture and Warrant Purchase Agreement, the selling stockholders
may not make any sales with the intention of reducing the price of our common
stock. From time to time the selling stockholders may pledge their shares
pursuant to the margin provisions of its agreements with its
13
<PAGE>
brokers. Upon a default by the selling stockholders, the broker may offer and
sell the pledged shares from time to time.
The selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to the Securities Exchange
Act of 1934 and the related rules and regulations. The Exchange Act and related
rules may limit the timing of purchases and sales of any of the shares by the
selling stockholders or any other such person which may affect the marketability
of the shares. The selling stockholders also must comply with the applicable
prospectus delivery requirements under the Securities Act in connection with the
sale or distribution of the shares.
We are required to pay certain fees and expenses incident to the
registration of the shares.
We have agreed to indemnify in certain circumstances the selling
stockholders against certain liabilities, including liabilities under the
Securities Act. The selling stockholders have agreed to indemnify us in certain
circumstances against certain liabilities, including liabilities under the
Securities Act.
We have agreed to use our best efforts to keep the registration
statement, of which this prospectus supplement and prospectus is a part,
effective until the shares may be or have been sold under Rule 144(k) of the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of common stock
offered by this prospectus are being passed upon for us by Pillsbury Madison &
Sutro LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements (and schedules) included in our Annual Report on Form 10-K for the
year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements (and schedules) are incorporated by
reference in reliance upon Ernst & Young's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements, and
other information with the Securities and Exchange Commission. You may read and
copy any materials we file with the Commission at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for more information on its public reference
rooms. The Commission also maintains an Internet Website at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
We have filed with the Commission a registration statement (which
contains this prospectus) on Form S-3 under the Securities Act of 1933. The
registration statement relates to the common stock offered by the selling
stockholders. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. Please refer to the registration statement and its exhibits and
schedules for further information with respect to Cygnus and the common stock.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, we refer you
to the copy of that contract or document filed as an exhibit to the registration
statement. You may read and obtain a copy of the registration statement and its
exhibits and schedules from the Commission, as described in the preceding
paragraph.
14
<PAGE>
IMPORTANT INFORMATION INCORPORATED BY REFERENCE
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS CYGNUS TO "INCORPORATE BY
REFERENCE" THE INFORMATION CYGNUS FILES WITH THEM, WHICH MEANS THAT IT CAN
DISCLOSE IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT CYGNUS TO YOU THAT
IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS BY REFERRING YOU TO THOSE
DOCUMENTS.
The information incorporated by reference is considered to be part of
this document. Information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any filings we will make
with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 following the date of this
prospectus:
1. Annual Report on Form 10-K of Cygnus for the fiscal year ended December 31,
1998;
2. Quarterly Reports on Form 10-Q filed by Cygnus for the fiscal quarters
ended March 31, 1999 (Amendment No. 2), June 30, 1999 and September 30,
1999;
3. Current Reports on Form 8-K dated June 7, 1999, July 2, 1999, July 20,
1999, July 28, 1999 , October 20, 1999, November 4, 1999 and November 22,
1999;
4. The description of common stock contained in Cygnus' registration statement
on Form 8-A; and
5. The description of our Series A Junior Participating Preferred Stock
contained in the registration statement on Form 8-A12B/A filed December 14,
1988.
YOU MAY REQUEST A COPY OF THESE FILINGS, AT NO COST, BY WRITING OR
TELEPHONING US AT THE FOLLOWING ADDRESS:
CYGNUS, INC.
400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
ATTENTION: CORPORATE COMMUNICATIONS
TELEPHONE REQUESTS MAY BE DIRECTED TO: (650) 369-4300
FACSIMILE REQUESTS MAY BE DIRECTED TO (650) 599-2503
15
<PAGE>
---------------------
391,868 Shares
CYGNUS, INC.
Common Stock
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements ................................................................2
The Company................................................................................3
Our Product Portfolio......................................................................6
Risk Factors...............................................................................7
We have incurred substantial losses and anticipate continuing losses..................7
We may need additional financing and it may not be available..........................7
We depend on licensees, distributors and collaborative arrangements...................8
We depend on licensed patent applications and proprietary technology..................9
We are highly leveraged and may be unable to service our debt.........................9
We have limited marketing and sales experience........................................10
We may be subject to product liability claims.........................................10
We may not be able to retain or hire key personnel....................................10
Our stock price is volatile...........................................................10
We do not pay dividends...............................................................11
Proceeds from the Offering.................................................................11
Selling Stockholders.......................................................................12
Plan of Distribution.......................................................................13
Legal Matters..............................................................................14
Experts....................................................................................14
Where You Can Find More Information........................................................14
Important Information Incorporated by Reference............................................15
</TABLE>
Prospectus
December __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the selling stockholders. All amounts are estimated except the
Commission registration fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee............................................ $ 976.34
Accounting fees and expenses.................................... $ 5,000.00
Legal fees and expenses......................................... $ 3,000.00
Miscellaneous fees and expenses................................. $17,500.00
Total ....................................................... $26,476.34
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's Certificate of Incorporation and Bylaws provide for mandatory
indemnification by the Registrant of all persons the Registrant may indemnify
under Section 145 to the maximum extent permitted by the Delaware General
Corporation Law. The Registrant's Certificate of Incorporation further provides
that the liability of its directors is eliminated to the fullest extent
permitted by the Delaware General Corporation Law. These provisions in the
Certificate of Incorporation do not eliminate the directors' fiduciary duty, and
in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
indemnification agreements with all of its officers and directors.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
4.1 Specimen of Common Stock certificate of the Registrant, incorporated
by reference to Exhibit 4.1 of the Registrant's Registration Statement
Form S-1 No. 33-38363.
4.2 Convertible Debenture and Warrant Purchase Agreement, incorporated by
reference to Exhibit 10.41 of the Registrant's Quarterly Report on
Form 10-Q filed on August 16, 1999.
II-1
<PAGE>
4.3 Registration Rights Agreement, incorporated by reference to Exhibit
4.12 of the Registrant's Quarterly Report Form 10-Q filed on August
16, 1999.
4.5 Form of 8.5% Convertible Debenture due 2001, incorporated by reference
to Exhibit 10.42 of the Registrant's Quarterly Report Form 10-Q filed
on August 16, 1999.
4.6 Form of Common Stock Purchase Warrant, incorporated by reference to
Exhibit 10.43 of the Registrant's Quarterly Report Form 10-Q filed on
August 16, 1999.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in its opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (see page II-2).
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) 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;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act, 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.
(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.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood City, State of California, on December 2,
1999.
CYGNUS, INC.
By /s/ JOHN C. HODGMAN
-----------------------------------------------
John C. Hodgman
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John C. Hodgman as his or her true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him or her and in his or her 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, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
each of said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ JOHN C. HODGMAN Chairman of the Board of Directors, December 1, 1999
- ------------------------------------ President, and Chief Executive Officer
John C. Hodgman (Principal Executive Officer)
/s/ CRAIG W. CARLSON Chief Financial Officer and Senior December 1, 1999
- ------------------------------------ Vice President, Finance (Principal
Craig W. Carlson Accounting Officer)
/s/ FRANK T. CARY Director December 1, 1999
- ------------------------------------
Frank T. Cary
/s/ GARY W. CLEARY Director; Chairman Emeritus of the December 1, 1999
- ------------------------------------ Board of Directors
Gary W. Cleary, Ph.D.
/s/ ANDRE F. MARION Vice Chairman of the Board of Directors December 1, 1999
- ------------------------------------
Andre F. Marion
II-4
<PAGE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ RICHARD G. ROGERS Director December 1, 1999
- ------------------------------------
Richard G. Rogers
/s/ WALTER B. WRISTON Director December 1, 1999
- ------------------------------------
Walter B. Wriston
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included
in its opinion filed as Exhibit 5.1 to this
Registration Statement).
24.1 Power of Attorney (see page II-2).
</TABLE>
<PAGE>
EXHIBIT 5.1
LAW OFFICES OF
PILLSBURY MADISON & SUTRO LLP
LOS ANGELES POST OFFICE BOX 7880 PALO ALTO
NEW YORK SAN FRANCISCO, CALIFORNIA 94120 ORANGE COUNTY
SACRAMENTO TELEPHONE (415) 983-1000 SAN DIEGO
SAN FRANCISCO TELECOPIER (415) 983-1200 HONG KONG
WASHINGTON, D.C. TOKYO
December 2, 1999
Cygnus, Inc.
400 Penobscot Drive
Redwood City, CA 94063-4719
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel for Cygnus, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended, of 391,868 shares of Common Stock, $.001 par value (the
"Common Stock"), of the Company issuable upon the exercise of certain
warrants dated as of September 29, 1999 (the "Warrants") and the conversion
of certain debentures due September 29, 2004 (the "Debentures"), to be
offered and sold by certain stockholders of the Company (the "Selling
Stockholders"). In this regard we have participated in the preparation of a
Registration Statement on Form S-3 relating to such 391,868 shares of Common
Stock. (Such Registration Statement, as amended, is herein referred to as the
"Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Selling Stockholders issuable upon conversion of the Debentures
or exercise of the Warrants will be duly and validly authorized, and, upon
delivery thereof and payment therefore in accordance with the terms of the
Debentures or the Warrants, respectively, will be duly and validly issued and
will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
PILLSBURY MADISON & SUTRO LLP
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Cygnus, Inc. for the
registration of 391,868 shares of its common stock and to the incorporation by
reference therein of our report dated January 19, 1999, except for the Note 14,
as to which the date is February 23, 1999, with respect to the consolidated
financial statements and schedules of Cygnus, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
November 29, 1999
