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As filed with the Securities and Exchange Commission on December 22, 2000
Registration No. 333-49020
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
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
--------------------------------------------------------------------------------
(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 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/
-------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
-----------------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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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.
<PAGE>
Subject to Completion, dated December 22, 2000
PROSPECTUS
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---------------------
$33,000,000
CYGNUS, INC.
COMMON STOCK
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This prospectus relates to the offer and sale of common stock of
Cygnus, Inc. We are offering and selling shares with a total purchase price up
to $33 million pursuant to the terms of an agreement between us and Cripple
Creek Securities, LLC. Cripple Creek is an underwriter in connection with the
sale of the shares offered by this prospectus.
We will sell the common stock at a price equal to the average of
the two lowest volume-weighted average prices for the stock during the six
trading days preceding the sale, subject to a monthly minimum price we
designate. For further information regarding the terms governing the issuance
of shares under the agreement, see "Description of Equity Line Agreement" on
page 12.
Our common stock is quoted on the Nasdaq National Market under the
symbol "CYGN." On December 21, 2000, the last reported sale price for our common
stock was $4.25 per share. Based on this price, we could issue up to a
maximum of 7,764,706 shares.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY READ AND CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 5.
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.
---------------------
The date of this prospectus is , 2000
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
CYGNUS, INC.......................................................................................................3
RISK FACTORS......................................................................................................5
FORWARD-LOOKING STATEMENTS.......................................................................................12
USE OF PROCEEDS..................................................................................................13
DESCRIPTION OF EQUITY LINE AGREEMENT.............................................................................13
PLAN OF DISTRIBUTION.............................................................................................15
SELLING STOCKHOLDER..............................................................................................16
LEGAL MATTERS....................................................................................................17
EXPERTS..........................................................................................................17
WHERE YOU CAN FIND MORE INFORMATION..............................................................................17
IMPORTANT INFORMATION INCORPORATED BY REFERENCE..................................................................18
</TABLE>
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CYGNUS, INC
We develop and manufacture diagnostic medical devices, utilizing
proprietary technologies to satisfy unmet medical needs cost-effectively. In
1999, we sold substantially all of our drug delivery business to Ortho-McNeil
Pharmaceutical, Inc. and chose to focus on diagnostic medical devices, the
first of which is our GlucoWatch-Registered Trademark- monitor. The GlucoWatch
monitor is a frequent, automatic and non-invasive glucose monitoring device
intended for detecting trends and tracking patterns of glucose levels in
adults, 18 years and older, who have diabetes. The device is intended for use
at home and in health care facilities to supplement, but not replace,
information obtained from standard blood glucose monitoring devices. Commercial
introduction of the GlucoWatch monitor is subject to final FDA approval.
The GlucoWatch monitor extracts glucose molecules through intact
skin utilizing a patented sampling process. The GlucoWatch monitor is
comprised of two components: a durable component known as the biographer, and
a consumable component, known as the AutoSensor. The glucose is extracted
from fluid surrounding the skin cells, rather than from blood and is
collected and measured by the consumable AutoSensor. The glucose collected in
the AutoSensor measures the electrons and a custom-designed computer chip in
the biographer equates the number of electrons to a concentration of blood
glucose. The biographer displays and stores current and past glucose levels
and trend data in a device that is worn like a wristwatch. The GlucoWatch
monitor automatically measures glucose levels at twenty-minute intervals and
displays the most recent readings and trends at the push of a button. Its
electronic memory capabilities permit the retrieval of past data, allowing
longer-term trend analysis.
We believe that our GlucoWatch monitor represents a potential advance
in glucose monitoring technology, as compared to the currently-prevailing
"finger stick" blood monitoring methods, because it:
- Enables automatic, frequent and non-invasive glucose monitoring
through a portable and discreet device, worn day and night like a
wristwatch;
- Helps people with diabetes understand fluctuations in their
glucose levels;
- Offers features not available in currently marketed devices, such
as frequent data collection, electronic memory to store and display
glucose levels, alerts indicating excessively high or low glucose
levels and event markers that record factors that affect glucose
levels; and
- Does not involve some significant drawbacks of the currently
marketed systems, such as the repetitive pain of the finger stick
technique and the disruption of normal activities caused by
cumbersome procedures.
In 1999 we applied to the FDA for approval to sell our GlucoWatch
monitor. On December 6, 1999, our application received a unanimous
recommendation for approval, subject to conditions, from the FDA's Clinical
Chemistry and Clinical Toxicology Devises Panel of the Medical Devices
Advisory Committee. In May 2000, we received an approvable letter from the
FDA for our GlucoWatch monitor. An approvable letter means that the FDA has
reviewed our application, as well as its own Advisory Committee's report and
recommendation, and believes it will approve our application, pending
specific final conditions. The FDA's conditions relate to manufacturing,
final printed labeling materials, and post-market evaluations of aspects of
product performance.
If we receive FDA approval, we anticipate introducing the GlucoWatch
monitor initially on a limited basis to a small number of patients selected by
designated physicians. We also expect to begin clinical trials with adolescents
and children. In addition, we plan to initiate professional education programs
to introduce our technology to physicians and other diabetes health care
professionals. Concurrently, before we can make the GlucoWatch monitor broadly
available, we must qualify and validate, then submit to the FDA for approval,
our large-scale production equipment and facility.
In mid-1998 we established product specifications and manufacturing
processes for the GlucoWatch monitor currently under review by the FDA. Since
that time, we have developed, and continue to develop, a number of
enhancements to the GlucoWatch monitor's performance and user convenience, as
well as means for improving manufacturing capacity and reducing manufacturing
costs. We are in the early developmental stages for a future product
involving communication by radio frequency between the consumable and durable
components of the GlucoWatch monitor to allow both a greater flexibility in
the location of the glucose extraction component and a new form of the
monitor that stores and displays glucose data. If we receive FDA approval of
our existing application, we intend to submit some of these product and
manufacturing enhancements to the FDA by supplementing our existing
application.
It has been our priority to establish alliances to allow us to
successfully develop, manufacture, and commercialize the GlucoWatch monitor,
in the event we receive FDA approval. We have already entered into several
agreements that include:
- a patent license agreement with The Regents of the University of
California;
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- supply agreements relating to materials for our GlucoWatch monitor;
- contract manufacturing agreements for the consumable and durable
components of the GlucoWatch monitor; and
- a contract for logistics services in the U.S. for our GlucoWatch
monitor.
We currently do not have any alliance for product marketing or any
arrangement for distribution of the GlucoWatch monitor outside the United
States, although we are continuing to explore possible marketing and
distribution arrangements with third parties.
In December 1999, we received a CE certificate, indicating that the
GlucoWatch monitor meets the essential requirements for selling products in the
European Community. In October 2000, we shipped our first commercial GlucoWatch
monitors to the United Kingdom. We have established a Medical Advisory Board in
the UK who will provide our GlucoWatch monitor to select adults with diabetes in
order to improve our understanding of patient and health care provider
experiences with our GlucoWatch monitor.
We have a limited operating history and we have not reported an
operating profit for any year since our inception. We expect our net losses to
continue for the foreseeable future. We have no experience developing,
manufacturing, or commercializing diagnostic products, and there have been no
sales of our GlucoWatch monitor to date.
This prospectus relates to the offer and sale of our common stock
pursuant to the terms of an agreement between us and Cripple Creek. Under the
terms of the agreement, we can sell shares of our common stock at a maximum
aggregate price of $33 million prior to June 30, 2003. We will sell the
common stock to Cripple Creek at a price equal to the average of the two
lowest volume-weighted average prices for our stock during the six trading
days preceding the sale, subject to a monthly minimum price we designate. We
may cause Cripple Creek to purchase shares at an aggregate purchase price of
up to $4.0 million each month, and Cripple Creek, subject to our approval,
can require us to sell to them shares at an aggregate purchase price of up to
an additional $3.0 million per month. Based on the closing sales price of our
common stock of $4.25 on December 21, 2000, the $7 million monthly maximum
would result in the sale of approximately 1.7 million shares, and the
aggregate maximum of $33 million would result in the sale of approximately
7.8 million shares, or 29% of our outstanding shares.
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YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS, INCLUDING THE
SECTION ENTITLED "RISK FACTORS" AS WELL AS THE DOCUMENTS INCORPORATED BY
REFERENCE IN THE PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. ALL
REFERENCES TO "WE," "US," "OUR," OR "CYGNUS" IN THIS PROSPECTUS MEAN CYGNUS,
INC., AND ALL REFERENCES TO "CRIPPLE CREEK" OR "THE UNDERWRITER" REFER TO
CRIPPLE CREEK SECURITIES, LLC.
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 MAY NOT RECEIVE REGULATORY APPROVAL ON OUR PRODUCTS FROM THE FDA AND/OR
FOREIGN AGENCIES. IF WE DO NOT RECEIVE REGULATORY APPROVAL, WE WILL NOT BE ABLE
TO SELL OUR PRODUCTS OR GENERATE REVENUE.
Although in May 2000 we received an approvable letter from the FDA
for our GlucoWatch monitor, we may not meet the pending specific final
conditions or, if we do, the FDA may still not approve the product or may not
do so in the short term. Furthermore, the FDA may not approve enhancements
and possible manufacturing changes to the GlucoWatch monitor or it may
require us to file one or more new applications rather than allowing us to
use a supplement to our existing application. In addition, a delay in FDA
approval could substantially delay introduction of product enhancements and
our ability to cost-effectively manufacture large quantities of the
consumable component of our GlucoWatch monitor. Regulatory requirements and
procedures also vary on a country-by-country basis, and we may not be able to
obtain regulatory approval in foreign countries. Furthermore, even if we
successfully develop the GlucoWatch monitor, its commercial success will
depend on its market acceptance.
OUR PRODUCT PIPELINE IS SEVERELY LIMITED, SO THE FAILURE OF ANY ONE PRODUCT
COULD RESULT IN THE FAILURE OF OUR ENTIRE BUSINESS.
We recently sold substantially all of the assets of our drug
delivery business segment assets to Ortho-McNeil Pharmaceutical, Inc. and
terminated our remaining drug delivery projects. We are now exclusively
focused on diagnostic medical devices, and initially on a line of frequent,
automatic and non-invasive glucose monitoring devices. A narrow range of
products in development subjects us to the risk of not having alternate
sources of revenue if we are unable to commercialize our narrow line of
products. We may not be successful with a non-diversified line of products.
The failure of any one product, such as the GlucoWatch monitor, could cut off
our only source of revenue and result in the failure of our entire business.
WE DO NOT HAVE MEDICAL DEVICE MARKETING, DISTRIBUTION, MANUFACTURING OR SALES
EXPERIENCE. IF WE ARE UNABLE TO MAKE SATISFACTORY ARRANGEMENTS FOR EACH OF
THESE, WE MAY BE UNABLE TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
Even if we receive the necessary regulatory approvals for the
GlucoWatch monitor, we may have problems in product manufacturing, commercial
scale-up, marketing or product distribution. We do not have any experience in
any of these areas. To successfully market, distribute, manufacture and sell
the GlucoWatch monitor and our other glucose monitoring products under
development, we must either develop these capabilities ourselves or enter
into arrangements with third parties. We may not succeed in either course of
action. If we attempt to develop our own capabilities, we will incur
significant start-up expenses and we will compete with other companies that
have experienced and well-funded operations. If we enter into arrangements
with third parties, any revenues we receive will depend on the third party,
and we will likely have to pay fees, sales commissions or similar amounts. If
we are unable to make satisfactory arrangements, we may be unable to
successfully commercialize our products after FDA approval or may experience
delays in commercialization.
WE MAY NEED TO RELY ON AGREEMENTS WITH THIRD PARTIES IN ORDER TO COMMERCIALIZE
OUR PRODUCTS. IF WE ARE UNABLE TO SECURE THESE NECESSARY AGREEMENTS, WE MAY NOT
BE ABLE TO SELL OUR PRODUCTS OR GENERATE REVENUE.
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One of our priorities is to establish alliances to secure
commercialization functions worldwide for the GlucoWatch monitor, such as
distribution, sales and customer service. We do not currently have any
marketing or distribution agreements for the GlucoWatch monitor other than an
agreement with Livingston Healthcare Services to provide receiving, storage,
customer service, technical support and shipment services in the United
States. Our agreement with Yamanouchi to commercialize the GlucoWatch monitor
in Japan was terminated in October 2000. We may never enter into an agreement
with a worldwide commercialization partner. Even if we obtain a worldwide
commercialization partner, we may not do so until after the FDA approves our
large-scale manufacturing process.
We are currently evaluating outsourced capabilities for launch
without a worldwide commercialization alliance. We may not be able to
outsource some commercialization capabilities in time for launch. Third
parties performing these outsourced capabilities may, for competitive
reasons, support, directly or indirectly, a company or product that competes
with one of our products. If a third party terminates an arrangement, cannot
fund or otherwise satisfy its obligations under its arrangements, or disputes
or breaches a contractual commitment, then we would likely be required to
seek an alternative third party. If we were unable to find a replacement
third party, we might not be able to perform or fund the activities of the
current third party, or our capital requirements could increase
substantially.
WE MAY NEED ADDITIONAL FINANCING AND IT MAY NOT BE AVAILABLE. IF ADEQUATE FUNDS
ARE NOT AVAILABLE OR ARE NOT AVAILABLE ON ACCEPTABLE TERMS, WE MAY BE UNABLE TO
DEVELOP OR ENHANCE OUR PRODUCTS, TAKE ADVANTAGE OF FUTURE OPPORTUNITIES, OR
RESPOND TO COMPETITIVE PRESSURES, WHICH COULD NEGATIVELY IMPACT OUR PRODUCT
COMMERCIALIZATION.
In order to continue to develop our diagnostic products, we will
require substantial resources to conduct research and 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 in
the future and take other actions. We may not be able to obtain adequate
funds when we need them from financial markets or arrangements with
commercialization 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. The
amounts and timing of future expenditures will depend on progress of ongoing
research and development, results of clinical trials, rates at which
operating losses are incurred, executing possible commercialization
agreements, developing our products, manufacturing of the GlucoWatch monitor,
the FDA regulatory process, and other factors, many of which are beyond our
control.
WE ARE HIGHLY LEVERAGED AND MAY BE UNABLE TO SERVICE OUR DEBT. IF WE CANNOT PAY
AMOUNTS DUE UNDER OUR DEBT OBLIGATIONS, WE MAY NEED TO REFINANCE ALL OR A
PORTION OF OUR EXISTING DEBT, SELL ALL OR A PORTION OF OUR ASSETS, OR SELL
EQUITY SECURITIES.
As of September 30, 2000, we had indebtedness of approximately $45.8
million. $11.1 million of this debt is scheduled to become due and payable in
2001, of which $8.0 million is due in December 2001. The degree to which we
are leveraged could limit our ability to obtain financing for working
capital, commercialization of products 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
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payments, we may not 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 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, sell all or a portion of our
assets, or sell equity securities. We may not successfully complete any of these
courses of action. 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, if any.
WE HAVE INCURRED SUBSTANTIAL LOSSES, HAVE A HISTORY OF OPERATING LOSSES, HAVE AN
ACCUMULATED DEFICIT AND EXPECT CONTINUED OPERATING LOSSES.
We reported a net loss from continuing operations of $22.4 million
for the nine months ended September 30, 2000 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 monitor. We may never generate significant revenues or achieve
profitability. 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 our discontinued operations. If we obtain
regulatory approvals, we expect to significantly increase our level of
expenditures for sales, marketing and general and administrative activities
in connection with product commercialization, and these expenditures will
precede commercial revenues, if any.
OUR STOCK PRICE IS VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL CYGNUS SHARES
AT OR ABOVE THE PRICE YOU PAID, OR AT ALL.
The trading price of our common stock fluctuates substantially in
response to factors such as, but not limited to:
- 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;
- general conditions in the medical technology industry;
- changes in securities analysts' recommendations; or
- other events or factors, many of which are beyond our control.
In addition, the stock market in general has experienced extreme price
and volume fluctuations in recent years and even in recent months 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 discourage investors from
purchasing 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
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instituted. Such litigation could result in substantial costs to us and divert
management's attention and resources from developing and commercializing the
GlucoWatch monitor.
OWNERSHIP DILUTION CAUSED BY THE ISSUANCE OF SHARES UNDER THE EQUITY LINE OR BY
ADDITIONAL SHARES OF OUR COMMON STOCK BECOMING AVAILABLE FOR SALE IN THE FUTURE
COULD LOWER OUR STOCK PRICE. IF OUR STOCK PRICE DECLINES, YOU MAY NOT BE ABLE TO
RESELL OUR SHARES AT OR ABOVE THE PRICE YOU PAID, OR AT ALL.
Under the equity line, each month we may sell up to $4 million of
common stock and Cripple Creek may exercise its option to purchase, subject to
our approval, up to an additional $3 million of common stock during each month
in an investment period. The total number of shares that may be issued under the
equity line depends on the market price of our common stock at the time that the
shares are sold and whether we choose to sell shares, and the number of shares
we choose to sell. The following table illustrates the effect of variations in
the market price in our common stock, and resulting variations in sales prices
to Cripple Creek, on the number of shares issued in a one month period, assuming
that we choose to sell all possible shares under the equity line. This table
illustrates how the ownership dilution resulting from the sale of shares under
the equity line agreement increases as the market value of our common stock
declines.
PRICE PER SHARE NUMBER OF SHARES ISSUED
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(one month)
$15 466,667
$10 700,000
$5 1,400,000
Our decision to choose to sell all possible shares under the equity
line would be influenced by, among other things, whether it is in the best
interests of our stockholders to sell at lower market prices, given our
financing requirements and access to alternative sources of financing. As of the
date of this prospectus, we expect to satisfy substantially all of our expected
financing needs during 2001 through sales under the equity line.
We have also agreed to issue to Cripple Creek warrants to purchase
10,000 shares for every $1,000,000 in gross proceeds from the sale of common
stock under the equity line agreement. The warrants will be issued after the
end of each calendar year. The warrants are exercisable for 5 years from the
date they are issued at an exercise price equal to the weighted average price
at which shares were sold during the preceding calendar year. Please see the
section of this prospectus entitled "Description of Equity Line Agreement"
for more information about the equity line.
IF OUR STOCK CONTINUES TO TRADE AT PRICES BELOW $5 PER SHARE, OUR SHARES
COULD BE DE-LISTED FROM THE NASDAQ NATIONAL MARKET. IF OUR SHARES ARE
DE-LISTED, OUR STOCKHOLDERS MAY EXPERIENCE SUBSTANTIALLY DECREASED LIQUIDITY
IN THEIR SHARES, AND THE OUTSTANDING AMOUNTS UNDER OUR CONVERTIBLE DEBENTURES
COULD BECOME IMMEDIATELY DUE AND PAYABLE.
Our stock is currently traded on the Nasdaq National Market. The
Nasdaq National Market requires companies such as ours without at least
$4 million in net tangible assets to maintain a minimum bid of $5 per share for
30 consecutive business days for continued listing. If, after notice, we have
not maintained a $5 bid price for ten consecutive days in the next 90 days,
Nasdaq may institute de-listing proceedings. In the event Nasdaq institutes
de-listing procedures, we plan to explore the possibility of a stock split to
maintain our listing. As of December 21, 2000, our closing bid price was
$3.03125, and had been under $5 per share for five consecutive days. If our
stock is de-listed from the Nasdaq National Market,
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our stockholders would find it more difficult to dispose of, and obtain
accurate quotations as to the market value of, their shares, and the market
price of our stock would likely decline further.
Additionally, we currently have outstanding convertible debentures
in the amount of $19.2 million (including accrued interest). Under the terms
of the convertible debentures, we are required to maintain our listing with
the Nasdaq National Market. In the event our shares are de-listed from the
Nasdaq National Market, the holders could assert that a default has occurred.
A default would result in all outstanding principal and interest becoming
immediately due and payable. Payment of these amounts would require us to
obtain alternative financing, which may not be available on acceptable terms,
if at all.
INTENSE COMPETITION IN THE MARKET FOR GLUCOSE DIAGNOSTIC PRODUCTS COULD PREVENT
US FROM INCREASING OR SUSTAINING OUR REVENUE AND PREVENT US FROM ACHIEVING OR
SUSTAINING PROFITABILITY.
The medical device industry in general, and the market in which we
expect to offer the GlucoWatch monitor in particular, is intensely
competitive. Even if we successfully develop, gain FDA approval for and
manufacture the GlucoWatch monitor, we will compete with other providers of
personal glucose monitors. A number of our competitors are currently
marketing traditional finger stick glucose monitors. These monitors are
widely accepted in the health care industry and have long histories of
acceptable accuracy and effective use. Furthermore, a number of companies
have announced that they are developing products that permit less painful or
painless, as well as continual or continuous, glucose monitoring.
Accordingly, we expect competition to increase. Many of our competitors have
substantially greater resources than we do and have greater name recognition
and lengthier operating histories in the health care industry. We may not be
able to compete effectively against our competitors. Additionally, the
GlucoWatch monitor or our other enhanced products under development may fail
to replace any currently used devices or systems. Our competitors may also
develop, even before we develop or commercialize the GlucoWatch monitor or
our other enhanced products under development, devices and technologies that
permit more efficient and less expensive glucose monitoring devices.
Pharmaceutical or other health care companies may also develop therapeutic
drugs, treatments or other products that will substantially reduce the
prevalence of diabetes or otherwise render our products obsolete.
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IF THE MARKET DOES NOT ACCEPT OUR NEW TYPE OF PRODUCTS, WE MAY NOT GENERATE
REVENUES AND ACHIEVE OR SUSTAIN PROFITABILITY.
We are focusing our efforts predominantly on a line of frequent,
automatic, and non-invasive glucose monitoring devices. The market may not
accept our products, given that they are different from the established finger
stick glucose monitors currently on the market. Additionally, some of our
competitors have announced, and others may be developing, new glucose monitoring
devices that are frequent, automatic, and less invasive. The introduction of
competing products may decrease our future market sales.
IF THIRD PARTIES DO NOT REIMBURSE THE COSTS OF OUR MEDICAL DEVICES, PATIENTS,
HOSPITALS AND PHYSICIANS MAY DECIDE NOT TO USE OUR PRODUCTS, DIMINISHING OUR
PRODUCT SALES.
Successful commercialization of our products may depend in part on the
availability of reimbursement from third-party health care payers, such as
private insurance plans and the government. We plan to conduct outcome studies
for reimbursement; however, reimbursement may not be available on a sufficient
time frame. Third-party payers are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement for new
therapeutic and diagnostic products. Adequate levels of reimbursement may not be
available to enable us to achieve market acceptance of the GlucoWatch monitor or
other new products under development or to maintain price levels sufficient to
realize an appropriate return on our investment. In both the US and foreign
countries, the period of time needed to obtain such reimbursement can be
lengthy. We may delay the launch of our products in some countries until we have
established our eligibility for reimbursement. This delay could potentially harm
our business.
WE DEPEND ON THIRD-PARTY SUPPLIERS. ANY INTERRUPTION IN THE SUPPLY OF SYSTEM
COMPONENTS OR THE PRICING OF THESE COMPONENTS COULD PREVENT US FROM
MANUFACTURING OUR PRODUCTS.
The GlucoWatch monitor is manufactured from components purchased
from outside suppliers, most of which are our single source for such
components. In the event that we are unable, for whatever reason, to obtain
these components from our suppliers or that the components obtained from
these suppliers do not pass quality standards, we will be required to obtain
the components from alternative suppliers. Additionally, in the event a
current supplier is unable to meet our component requirements, we might not
be able to rapidly find another supplier of the particular component or an
alternate supply at the same price or lead time. Any interruption in the
supply of the GlucoWatch monitor components or the pricing of these
components could prevent us from manufacturing our products.
WE DEPEND ON PROPRIETARY TECHNOLOGY. IF WE FAIL TO OBTAIN PATENT PROTECTION FOR
OUR PRODUCTS, PRESERVE OUR TRADE SECRETS AND OPERATE WITHOUT INFRINGING UPON THE
PROPRIETARY RIGHTS OF OTHERS, WE MAY NOT GENERATE PROFITS.
Our success depends in large part on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing upon the proprietary rights of others, both in the U.S. and abroad.
Currently, most patent applications in the U.S. are maintained in secrecy until
issuance, and publication of discoveries in the scientific or patent literature
tends to lag behind actual discovery by several months. Thus, we may not have
been the first to file patent applications on our inventions or we may have
infringed upon third-party patents. Our patent applications may fail to issue
any patents. Any patents that are issued may not provide competitive advantages
for our products or could 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 suppliers, employees and
consultants. These agreements could be breached, that we might not have adequate
remedies for any breach. Additionally, our trade secrets could 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
10
<PAGE>
significant liabilities or require us to seek licenses from third parties.
Although patent and intellectual property disputes in the medical device area
have often been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include ongoing
royalties. Furthermore, necessary licenses may not 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 our products.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT ARE COSTLY TO DEFEND AND
COULD LIMIT OUR ABILITY TO USE SOME TECHNOLOGIES IN THE FUTURE.
The design, development, manufacture and use of our medical 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 may become subject to product liability claims, our current insurance
may not cover any claims, and adequate insurance may not be available on
acceptable terms in the future. We could be held liable for damages in excess of
the limits of our insurance coverage, and any claim or product recall could
create significant adverse publicity.
THE COMPETITION FOR QUALIFIED PERSONNEL IS PARTICULARLY INTENSE IN OUR INDUSTRY
AND IN NORTHERN CALIFORNIA. IF WE ARE UNABLE TO RETAIN OR HIRE KEY PERSONNEL, WE
MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS.
Our ability to operate successfully and manage our potential future
growth significantly depends upon retaining key scientific, technical, sales,
marketing, managerial and financial personnel, and attracting and retaining
additional highly qualified scientific, technical, sales, marketing, managerial
and financial personnel. We face intense competition for qualified personnel in
these areas, and we may not 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 prevent us from sustaining or growing
our business.
WE DO NOT PAY DIVIDENDS AND DO NOT ANTICIPATE PAYING ANY DIVIDENDS IN THE
FUTURE, SO ANY SHORT TERM RETURN ON YOUR INVESTMENT WILL DEPEND ON THE MARKET
PRICE OF OUR SHARES.
We have never declared or paid cash dividends on our common stock. Our
current bank term loan agreement 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. Any short
term return on your investment will depend only on the market price of our
shares.
11
<PAGE>
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. Forward-looking statements include, but are not
limited to, statements about:
- our ability to secure FDA approval;
- plans for manufacturing and commercial scale-up of the GlucoWatch
monitor;
- plans for commercialization alliances;
- our ability to achieve market acceptance of the GlucoWatch monitor;
and
- plans for enhancements and possible manufacturing changes through the
premarket approval supplement process.
In some cases, 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.
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. Cripple Creek is 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.
12
<PAGE>
USE OF PROCEEDS
We could receive up to $32.6 million in proceeds in connection with
this offering, after deducting the estimated offering expenses. The actual
amount of proceeds from the equity line will depend upon
- the market price of the common stock;
- whether we elect to sell common stock under the terms of the equity
line; and
- whether Cripple Creek exercises its option to purchase common stock
as permitted under the terms of the equity line.
However, there can be no assurance that we will issue any shares or
receive any proceeds from the equity line and, under the terms of the equity
line, it is possible that no shares will be issued.
We expect that any net proceeds from the equity line will be used
for development and commercialization expenditures in support of our
GlucoWatch monitor and for general corporate purposes, including working
capital.
DESCRIPTION OF EQUITY LINE AGREEMENT
We entered into the Structured Equity Line Flexible Financing
Agreement with Cripple Creek on June 30, 1999. We subsequently amended the
equity line agreement on September 29, 1999, March 27, 2000, May 9, 2000 and
October 27, 2000. Since June 1999, we have sold an aggregate of approximately
$27 million under the equity line agreement. These shares were issued under a
different registration statement. The shares covered by this prospectus are
being issued under this amended equity line agreement.
Under the amended equity line agreement, subject to the satisfaction of
conditions, we may require Cripple Creek to purchase shares of common stock over
a period of 48 months from June 30, 1999, for an aggregate purchase price of up
to $60 million. As of the date of this prospectus, we have issued Cripple Creek
shares for an aggregate purchase price of $27 million. We may therefore still
issue Cripple Creek additional shares with an aggregate purchase price of up to
$33 million.
We have also agreed to issue to Cripple Creek warrants to purchase
10,000 shares for every $1,000,000 in gross proceeds from the sale of common
stock under the equity line agreement. The warrants will be issued after the
end of each calendar year. The warrants are exercisable for 5 years from the
date they are issued at an exercise price equal to the weighted average price
at which shares were sold during the preceding calendar year. We are
obligated to issue warrants to purchase a minimum of 120,000 shares of common
stock, regardless of the amount of common stock sold under the equity line.
We have to date issued warrants to purchase 95,000 shares of common stock,
for 1999 equity line purchases and have registered the shares underlying
these warrants effective as of February 11, 2000. We will issue Cripple Creek
an additional warrant to purchase approximately 150,000 shares of common
stock in January 2001 for equity line purchases in 2000, and intend to
register the underlying shares shortly thereafter. We have agreed to register
the shares issuable upon exercise of any other warrants that are issued to
Cripple Creek.
Under the amended equity line agreement, we may, at our sole option
and discretion, subject to the satisfaction of conditions and limitations,
require Cripple Creek to purchase shares. We may agree with Cripple Creek to
have an investment period of 30, 60 or 90 days, or 30 days if we are unable
to agree. For each month during a particular investment period, we may cause
Cripple Creek to purchase shares for an aggregate purchase price of up to
$4.0 million, and Cripple Creek, subject to our approval, can require us to
sell them additional shares for an aggregate purchase price of up to $3.0
million. Cripple Creek may satisfy these obligations by purchasing up to 5%
more or less than the total aggregate dollar amount of these obligations.
Three trading days prior to the beginning of each monthly investment period,
we are required to notify Cripple Creek of the dollar amount of common stock
required to be purchased by Cripple Creek, if any, during the investment
period. We will sell the shares at a price equal to the average of the two
lowest volume-weighted average prices for the stock during the six trading
days preceding the date of delivery by Cripple Creek from time to time during
an investment period of a purchase notice. In no event may the purchase price
be lower than a designated minimum per share price we indicate in our
13
<PAGE>
notice to Cripple Creek. If the investment period is for a period greater than
30 days, we may reset the minimum per share price after every 30 days.
Cripple Creek's obligation to purchase shares of common stock during
any investment period is subject to the satisfaction of various conditions,
including:
- our registration statement must remain effective under the Securities
Act of 1933;
- our common stock must continue to trade on the Nasdaq National
Market; and
- Cripple Creek may not become the beneficial owner, at any time, of
more than 9.9% of the outstanding shares of our common stock.
The equity line agreement also provides limitations on the amount of
common stock that may be sold, which may be less than the amount indicated in
the put notice and call notice. Specifically, the amount of common stock sold
during each monthly investment period will be equal to the lesser of:
- the amount indicated in the put notice and call notice, if any,
- an amount equal to 8% of the aggregate value of open market trading
for each trading day during the investment period immediately
preceding the current investment period on which the stock price is
above the minimum price for such preceding investment period, or
- an amount equal to 8% of the aggregate value of open market trading
for each trading day during the current investment period on which
the stock price is above the minimum price for the current investment
period.
In addition, the equity line also provides for a pro rata reduction in
the amount of common stock that may be sold if there are any trading days during
the period in which the volume-weighted average price of the common stock is
below the minimum price that we set for the period.
We may terminate the equity line at any time without further
obligation to Cripple Creek. However, in any event we must issue Cripple
Creek warrants to purchase a minimum of an additional 25,000 shares. Cripple
Creek may terminate the equity line without further obligation to us if we
breach the equity line agreement or if Cripple Creek determines, in its
reasonable discretion, that the adoption of, or change in, or any change in
the interpretation or application of, any law, regulation, rule, guideline or
treaty makes it illegal or materially impractical for Cripple Creek to
fulfill its obligations under the equity line agreement.
Cripple Creek has advised us that it may sell the common stock offered
by this prospectus from time to time primarily in transactions on the Nasdaq
National Market or in other types of transactions, including those described in
"Plan of Distribution."
The equity line agreement provides that we must indemnify Cripple Creek
in some circumstances against liabilities, including liabilities under the
Securities Act, and contribute to payments that Cripple Creek may be required to
make in respect of those liabilities. Cripple Creek is required by the equity
line agreement to indemnify us in some circumstances against liabilities,
including liabilities under the Securities Act, and to contribute to payments
that we may be required to make in respect of those liabilities.
Cripple Creek may create a short position in the common stock for
its own account by selling more shares of common stock than we have actually
sold to it under the equity line. The potential size of the short position at
any time is not expected to be substantially greater than the amount
remaining to be purchased under any put notice or call notice. The
underwriter may elect to cover any short position by delivering shares of
common stock purchased in the open market or shares of common stock purchased
pursuant to a particular put notice or call notice. Cripple Creek will
deliver a prospectus to all purchasers of shares in short sales which Cripple
Creek covers with purchases under the equity line. Purchasers of shares sold
pursuant to such short sales may be entitled to the same remedies under the
federal securities laws as any other purchaser of shares covered by the
registration statement. Under the equity line agreement, Cripple Creek is
prohibited from making any sales with the intention of reducing the price of
our common stock to its benefit.
14
<PAGE>
PLAN OF DISTRIBUTION
Cripple Creek 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.
Cripple Creek may sell the shares by one or more of the following
methods, without limitation:
- block trades in which the broker or dealer 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; or
- a combination of any of the above methods of sale.
In effecting sales, brokers and dealers engaged by Cripple Creek may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from Cripple Creek, 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 Cripple Creek 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
Cripple Creek, it will purchase as principal any unsold shares at the price
required to fulfill the broker-dealer commitment to Cripple Creek.
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.
15
<PAGE>
Cripple Creek is an "underwriter" as defined in the Securities Act of
1933 in connection with the sale of the shares offered by this prospectus. Any
broker-dealers or agents that participate with Cripple Creek in sales of the
shares may be considered to be "underwriters" within the meaning of the
Securities Act in connection with sales in which they participate. If any
broker-dealers or agents are considered to be "underwriters," then any
commissions they receive and any profit on the resale of the shares purchased by
them may be considered to be underwriting commissions or discounts under the
Securities Act.
From time to time Cripple Creek 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 Cripple Creek engages in such transactions, the
price of our common stock may be affected. Under the equity line, Cripple Creek
may not make any sales with the intention of reducing the price of our common
stock. From time to time Cripple Creek may pledge its shares pursuant to the
margin provisions of its agreements with its brokers. Upon a default by Cripple
Creek, the broker may offer and sell the pledged shares from time to time.
Cripple Creek 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, including Regulation M, to the
extent it applies. The Exchange Act and related rules may limit the timing of
purchases and sales of any of the shares by Cripple Creek or any other such
person which may affect the marketability of the shares. Cripple Creek also must
comply with the applicable prospectus delivery requirements under the Securities
Act in connection with the sale or distribution of the shares. Cripple Creek
has advised us that it is a registered broker-dealer under the Securities
Exchange Act of 1934.
We are required to pay certain fees and expenses incident to the
registration of the shares.
We have agreed to use our best efforts to keep the registration
statement, of which this prospectus is a part, effective until the shares may be
or have been sold under Rule 144(k) of the Securities Act.
SELLING STOCKHOLDER
The table below sets forth the following information:
- the name of the selling stockholder;
- the number of shares the selling stockholder beneficially owns;
- the number of shares the selling stockholder may resell under this
prospectus; and
- the number of shares the selling stockholder would own, assuming that the
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
16
<PAGE>
supplied to us by the selling stockholder. 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 Owned
Shares Beneficially Owned Shares Offered by this After
Prior to the Offering Prospectus(2) The Offering
--------------------- ------------- ------------
<S> <C> <C> <C>
Cripple Creek Securities, LLC(1)..... 95,000 7,764,706 95,000
</TABLE>
(1) Jeffrey E. Devers is the sole managing member of Cripple Creek
Securities, LLC. Mr. Devers also may be deemed to control The Palladin
Group, L.P. and Palladin Asset Management LLC, which act as investment
advisors and managers for various client accounts. Those accounts hold
an aggregate of approximately $19.2 million in principal amount and accrued
interest of the Company's 8.5% Convertible Debentures Due June 29, 2004
and September 29, 2004 and warrants to purchase approximately 745,207
shares. Subject to limits on the holders' right to convert, the
debentures are convertible into a total of approximately 1.5 million
shares of our common stock. Mr. Devers disclaims beneficial ownership of
such shares.
(2) Based on the closing sales price of our common stock of $4.25 on
December 21, 2000.
LEGAL MATTERS
Selected legal matters with respect to the validity of common stock
offered by this prospectus will be passed upon for us by Pillsbury Madison &
Sutro LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance upon Ernst &
Young LLP'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.
17
<PAGE>
We have filed with the Commission a registration statement on Form
S-3 under the Securities Act of 1933. The registration statement relates to
the common stock offered by Cripple Creek and contains this prospectus. 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.
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 WE CAN
DISCLOSE IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US 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, 1999;
2. Quarterly Reports on Form 10-Q filed by Cygnus for the fiscal quarters
ended March 31, 2000, June 30, 2000 and September 30, 2000;
3. Current Report on Form 8-K dated October 17, 2000 and December 19,
2000;
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
18
<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................................................... $ 9,504
Accounting fees and expenses........................................... $ 8,000
Legal fees and expenses................................................ $ 40,000
Nasdaq Additional Listing Fee.......................................... $ 17,500
Placement Fee.......................................................... $ 330,000
Miscellaneous fees and expenses........................................ $ 2,996
Total ............................................................ $ 408,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law 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 and expenses 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>
1.1 Structured Equity Line Flexible
Financing Agreement between Cygnus,
Inc. and Cripple Creek Securities,
LLC., incorporated by reference to
Exhibit 1 of the Registrant's Form
8-K filed on July 2, 1999.
1.2 Amendment No. 1 to Structured Equity
Line Flexible Financing Agreement
between Cygnus, Inc. and Cripple
Creek Securities, LLC,
II-1
<PAGE>
incorporated by reference to Exhibit
1 of the Registrant's Form 8-K filed
on October 7, 1999.
1.3 Amendment No. 2 to Structured Equity
Line Flexible Financing Agreement
between Cygnus, Inc. and Cripple
Creek Securities, LLC, incorporated
by reference to Item 10.109 of the
Registrant's Form 10-Q filed on
April 26, 2000
1.4 Amendment No. 3 to Structured Equity
Line Flexible Financing Agreement
between Cygnus, Inc. and Cripple
Creek Securities, LLC, incorporated
by reference to Exhibit 10.110 of
the Registrant's Form 10-Q filed on
July 28, 2000.
1.5* Amendment No. 4 to Structured Equity
Line Flexible Financing Agreement
between Cygnus, Inc. and Cripple
Creek Securities, LLC.
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.
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.*
</TABLE>
*Previously filed
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,
II-2
<PAGE>
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.
(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.
(5) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted for 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-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 Amendment to
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 22, 2000.
CYGNUS, INC.
By /s/ JOHN C HODGMAN
-----------------------------------------------
John C Hodgman
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment
to Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Title Date
---- ----- ----
/s/ JOHN C HODGMAN Chairman of the Board of Directors, December 22, 2000
------------------------------------ President, and Chief Executive Officer
John C Hodgman (Principal Executive Officer)
* Chief Financial Officer and Senior December 22, 2000
------------------------------------ Vice President, Finance (Principal
Craig W. Carlson Accounting Officer)
* Director December 22, 2000
------------------------------------
Frank T. Cary
* Vice Chairman of the Board of Directors December 22, 2000
------------------------------------
Andre F. Marion
* Director December 22, 2000
------------------------------------
Richard G. Rogers
* Director December 22, 2000
------------------------------------
Walter B. Wriston
*BY: /s/ JOHN C HODGMAN
------------------------------------
ATTORNEY IN FACT
</TABLE>
II-4
<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).
</TABLE>
