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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
AMENDMENT NO. 3
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
APRIL 20, 1998
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Date of Report
(Date of earliest event
reported)
INCONTROL, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-24540 91-150619
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(State or Other (Commission File No.) (IRS Employer
Jurisdiction Identification No.)
of Incorporation)
6675 - 185TH AVENUE, N.E., REDMOND, WASHINGTON 98052
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(Address of principal executive offices, including Zip Code)
(206) 861-9800
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK
On April 20, 1998, InControl, Inc. (the "Company") sold and issued 7,500
shares (the "Series B Shares") of newly created Series B Convertible Preferred
Stock (the "Series B Stock") to two institutional investors (the "Series B
Investors"). The Series B Shares were issued and sold pursuant to the
provisions of Regulation D promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"). The aggregate offering price of the Series B Shares was
$7,500,000, based on a per share price of $1,000.
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DESCRIPTION OF THE SERIES B STOCK
The following description of the Series B Stock is a summary, does not
purport to be complete or to give a complete description of the rights and
preferences of the Series B Stock, and is subject in all respects to the
applicable provisions of law, and to the Certificate of Designations of the
Series B Stock (the "Certificate of Designations"), which is filed hereto as
Exhibit 3.1, and is incorporated herein by reference.
DIVIDENDS
The shares of Series B Stock accrue dividends of $50 per annum per share,
payable quarterly in cash or in additional shares of Series B Stock, at the
option of the Company. The Company's Board of Directors will determine, at the
Board of Directors meeting immediately prior to each quarterly dividend payment
date, whether to pay dividends on the outstanding shares of Series B Stock in
cash or in additional shares of Series B Stock.
CONVERSION
The Series B Stock is convertible into Common Stock of the Company, $.01
par value per share (the "Common Stock") as follows (subject to adjustments for
stock splits, stock dividends, combinations, reclassifications and similar
events and to adjustments resulting from a "Registration Event", as described
below ): (i) until July 19, 1998, each share of Series B Stock is convertible at
a price per share (based upon the $1,000 value of each share of Series B Stock)
of $7.91; (ii) from July 20, 1998 until January 15, 1999, each share of Series B
Stock, together with accrued and unpaid dividends, is convertible at a price per
share equal to the lesser of (a) 92.5% of the average of the two lowest sale
prices of the Common Stock during the 12 trading days immediately prior to the
conversion and (b) $7.6275 and (iii) thereafter, each share of Series B
Preferred Stock, together with accrued and unpaid dividends, is convertible at a
price per share equal to the lesser of (a) 87.5% of the average of the two
lowest sale prices of the Common Stock during the 15 trading days immediately
prior to the conversion and (b) $7.345. For purposes of determining the
conversion price for the Series B Stock, the price for the Company's Common
Stock will be determined from the first applicable among the following: (i) a
national securities exchange on which the shares of Common Stock are listed
which constitutes the principal securities market for the Common Stock, (ii)
Nasdaq, if Nasdaq constitutes the principal securities market for the Common
Stock or (iii) the Nasdaq SmallCap Market, if the Nasdaq SmallCap Market
constitutes the principal market for the Common Stock.
Upon the occurrence of the events listed below ("Registration Events"), the
price at which the Series B Stock is convertible into shares of Common Stock
will be further discounted on a permanent basis by one twelfth of one percent
per day for each day on which such event continues. A Registration Event is
deemed to occur if (i) the Registration Statement is not effective on or before
July 19, 1998; (ii) the Company fails to file the Registration Statement on or
before May 20, 1998; (iii) the Company fails to submit a request for
acceleration of the effective date of the Registration Statement within three
business days after learning that the Commission has no further comments on the
Registration Statement or (iv) the Registration Statement ceases to be available
for use by the Selling Stockholders for any reason (including, without
limitation, by reason of a Commission stop order, a material omission or
misstatement in the Registration Statement or the information contained in the
Registration Statement having become outdated), provided that, in certain
circumstances, the Company may suspend the use of the Registration Statement for
an aggregate of 30 days without triggering a Registration Event.
Because the Series B Stock is convertible by the holders thereof at a
discount to the prevailing market price of the Common Stock at the time of
conversion (if such price is below the applicable fixed conversion price), any
downturn in the price of the Company's Common Stock will, subject to the
conversion restrictions discussed above, increase the number of shares of
Common Stock issuable to such holders upon conversion of the Series B Stock. As
a result, if a holder converts Series B Stock when the Common Stock trades at
such lower prices and holds the shares of Common Stock acquired upon such
conversion, in the event of a subsequent upturn in the price of the Common
Stock and sale of such shares of Common Stock, profits to such holder of the
Series B Stock would be increased by virtue of such holders' acquisition of a
greater number of shares of Common Stock.
Investors in the marketplace, including holders of Series B Stock, may
engage in short selling transactions from time to time which may adversely
affect the market price of the Company's Common Stock. However, unlike other
investors in the marketplace, the holders of the Series B Stock may replace
shares which they sell short with shares issued upon conversion of the Series B
Stock. Because the conversion rate for the Series B Stock fluctuates, the
holders of the Series B Stock may be able to engage in short selling
transactions at market prices that are higher than the applicable conversion
price at the time of such sales, obtaining immediate profits not available to
investors who do not hold shares of the Series B Stock. The ability of a holder
of Series B Stock to convert Series B Stock for such purpose is subject to the
conversion restrictions described above.
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CONVERSION RESTRICTIONS
Pursuant to the terms of the Certificate of Designations of the Series B
Stock, the Series B Stock is convertible by each holder thereof only to the
extent that the number of shares of Common Stock then owned by such holder and
its related persons (not including shares underlying unconverted shares of
Series B Stock) would not exceed 4.9% of the then outstanding shares of Common
Stock as determined in accordance with Sections 13(d) and 16 of the Securities
Exchange Act of 1934, as amended (the "Beneficial Ownership Restriction").
The Company is under no obligation to redeem shares of Series B Stock that are
not convertible by reason of the Beneficial Ownership Restriction.
As a result of Nasdaq rules requiring stockholder approval for the
issuance of certain securities, the number of shares of Common Stock issuable
upon conversion of the shares of Series B Stock is limited to a maximum share
amount equal to 20% of the number of shares of Common Stock outstanding at the
time of issuance of the Series B Stock, which equals 3,769,000 shares (or such
greater number as is permitted by the rules of Nasdaq) (the "Maximum Share
Amount"), unless the stockholders of the Company approve the issuance of a
greater number of shares (as required by Nasdaq) or Nasdaq waives the
requirement of stockholder approval. If at any time after July 19, 1998, the
number of shares issuable upon conversion of the Series B Stock (based upon the
conversion price formula discussed above) exceeds the Maximum Share Amount, the
holders of the Series B Stock may compel the Company to redeem that portion (on
a pro rata basis) of their shares as would not have been convertible because of
the Maximum Share Amount restriction. If requested by the holders of Series B
Stock, unless the Company obtains stockholder approval for the issuance of a
greater number of shares, the Company must redeem the inconvertible portion of
the shares of Series B Stock at a price equal to the greater of (i) 115% of the
purchase price and any accrued but unpaid dividends and (ii) the price that is
equal to the number of shares issuable upon conversion of the Series B Stock,
multiplied by the average of the closing bid price of the Common Stock for the
previous five trading days.
If the Company's stock price remains below $4.00 per share for a period of
10 consecutive trading days, the holders of Series B Stock will be precluded
from converting shares of Series B Stock for a period of 30 days. Thereafter,
so long as the price of the Company's Common Stock remains below $4.00 per
share, the holders of Series B Stock will be precluded from converting more
than 1,500 shares of Series B Stock per month.
The following table sets forth (i) the maximum and minimum number of
shares of Common Stock issuable upon conversion of the outstanding shares of
Series B Stock pursuant to the conversion terms provided in the Certificate of
Designations and described above and (ii) the number of shares of Common Stock
issuable upon conversion of the Series B Stock pursuant to the conversion terms
of the Certificate of Designations described above (assuming that the average
of the two lowest sale prices of the Common Stock during the applicable
measurement period immediately prior to the conversion is equal to each of the
prices set forth in the left column of the table and that no additional shares
of Series B Stock are issued in payment of dividends on the Series B Stock):
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<TABLE>
<CAPTION>
Conversion of 7,500 Until From July 21, 1998 After
shares of Series B Stock July 20, 1998(1) until January 15, 1999(2) January 16, 1999(3)
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<S> <C> <C> <C>
Maximum Number of Shares 948,167 shares 3,769,000 shares(4) 3,769,000 shares(4)
Shares at $2.50 948,167 shares 3,243,243 shares 3,428,571 shares
Shares at $5.00 948,167 shares 1,621,622 shares 1,714,286 shares
Minimum Number of Shares 948,167 shares 983,284 shares(5) 1,021,103 shares(5)
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(1) Until July 19, 1998, each share of Series B Stock is convertible at a fixed price per share
of $7.91.
(2) From July 20, 1998 until January 15, 1999, each share of Series B Stock is convertible at a
price per share equal to the lesser of (a) 92.5% of the average of the two lowest sale
prices of the Common Stock during the 12 trading days immediately prior to the conversion
and (b) $7.6275.
(3) After January 15, 1999, each share of Series B Stock is convertible at a price per share
equal to the lesser of (a) 87.5% of the average of the two lowest sale prices of the
Common Stock during the 15 trading days immediately prior to the conversion and (b) $7.345.
(4) As a result of the Maximum Share Amount restriction, the maximum number of shares of
Common Stock issuable upon conversion of the Series B Stock is 3,769,000, unless the
stockholders of the Company approve the issuance of a greater number of shares (as required
by Nasdaq) or Nasdaq waives the requirement of Stockholder approval.
(5) Based on the applicable ceiling price at the time of conversion. From July 20, 1998 until
January 15, 1999, the applicable ceiling price is $7.6275; thereafter, the applicable
ceiling price is $7.345.
</TABLE>
OPTIONAL REDEMPTION
Upon the occurrence of any of the events listed below ("Optional Redemption
Events"), the holders of the Series B Stock may compel the Company to redeem
all or any portion of the Series B Stock at a price equal to the greater of (i)
115% of the purchase price and any accrued but unpaid dividends and (ii)
the price that is equal to the number of shares issuable upon conversion of the
Series B Stock, multiplied by the average of the closing bid prices of the
Common Stock for the previous five trading days. Optional Redemption Events are
(i) the delisting of the Common Stock from any national securities exchange,
the Nasdaq or the Nasdaq SmallCap Market or the absence for five consecutive
trading days of a closing bid price for the Common Stock on any one of such
markets, (ii) the inability for 30 or more days of the Selling Stockholders to
sell the shares pursuant to the Registration Statement on Form S-3 that the
Company has filed with the SEC, (iii) the default by the Company of any
material obligation to the holders of Series B Stock under the Subscription
Agreements and the documents related thereto or the Certificate of Designations
or the taking of any action without the consent of the holders of Series B
Stock that materially and adversely affects their rights, or (iv) certain
business combinations entered into by the Company.
The Company may, at its option and at any time, redeem all or a portion of
the outstanding shares of Series B Stock at a price per share equal to the
greater of: (i) 115% of the purchase price and any accrued but unpaid dividends
and (ii) the price that is equal to the number of shares of Common Stock
issuable upon conversion of the Series B Stock, multiplied by the average of the
closing bid prices of the Common Stock for the previous five trading days. In
addition, if at any time prior to April 4, 2001, the price of the Company's
Common Stock exceeds $7.91 per share, or at any time later than April 4, 2001,
the Company may redeem all (but not less than all) of the outstanding shares of
Series B Stock at a price per share equal to $1,000 plus any accrued but unpaid
dividends and interest.
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VOTING AND LIQUIDATION
Holders of Series B Stock have no voting rights. In the event of the
dissolution, liquidation or winding up of the Company, the holders of Series
B Stock are entitled to receive out of the assets of the Company an amount per
share equal to $1,000 plus any accrued but unpaid dividends and interest.
REGISTRATION RIGHTS AGREEMENT
Pursuant to Registration Rights Agreements between the Company and the
Series B Investors, the Company is required, by May 20, 1998, to file a
registration statement on Form S-3 for the public resale of the Common Stock
issuable upon conversion of Series B Stock. These Registration Rights Agreements
are attached hereto as Exhibits 4.1 and 4.2. The rights and preferences of the
Series B Stock are set forth in the Certificate of Designations attached hereto
as Exhibit 3.1.
AMENDMENT TO RIGHTS AGREEMENT
In connection with the sale of the Series B Shares, the Company amended
the Rights Agreement, dated February 27, 1996, between the Company and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (the "Rights
Agreement"), to provide that holders of Series B Stock shall not be deemed to be
the Beneficial Owner (as defined in the Rights Agreement) of the shares of
Common Stock issuable upon conversion of Series B Stock until Series B Stock is
converted into shares of Common Stock. The amendment to the Rights Agreement is
attached hereto as Exhibit 4.3.
ADDITIONAL SHARES OF CONVERTIBLE PREFERRED STOCK
In connection with the sale and issuance of the Series B Shares, the
Company and one of the Series B Investors entered into a letter agreement (the
"Letter Agreement"), pursuant to which such Series B Investor, at the option of
the Company, will purchase up to $7.5 million of shares of Series C Convertible
Preferred Stock, which shall have substantially the same rights and preferences
as the Series B Stock and be sold and issued on substantially the same terms as
the sale and issuance of the Series B Shares. The obligations of such Series B
Investor under the Letter Agreement are subject to certain conditions as set
forth in the Letter Agreement. The Letter Agreement is attached hereto as
Exhibit 10.1.
ISSUANCE OF COMMON STOCK
Also, on April 20, 1998, the Company sold and issued 400,000 shares of
Common Stock (the "Common Shares") to three institutional investors. The Common
Shares were issued and sold pursuant to the provisions of Regulation D
promulgated by the SEC under the Securities Act. The aggregate purchase price of
the Common
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Shares was $2,500,000, based on a per share price of $6.25. Under the
Stock Purchase Agreement pursuant to which the Common Shares were sold, the
Company is obligated to file a registration statement on Form S-3 for the public
resale of the Common Shares. The Stock Purchase Agreement is attached hereto as
Exhibit 4.4.
USE OF PROCEEDS
The net proceeds from the two private placements will be used by the
Company to fund the continuation of operating activities.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
(c) Exhibits
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3.1 Certificate of Designations of Series B
Convertible Preferred Stock.*
4.1 Registration Rights Agreement between InControl,
Inc. and Advantage Fund II Ltd., dated April 16,
1998.*
4.2 Registration Rights Agreement between InControl,
Inc. and Koch Industries, Inc., dated April 16,
1998.*
4.3 First Amendment of Rights Agreement, dated April
17, 1998.*
4.4 Stock Purchase Agreement between InControl, Inc.
and the investors named therein, dated April 20,
1998.*
10.1 Letter Agreement between Advantage Fund II Ltd.
and InControl, Inc., dated April 16, 1998.*
</TABLE>
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* Previously filed
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INCONTROL, INC.
Dated: August 7, 1998 By /s/ PHILIP A. OKESON
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Philip A. Okeson
Treasurer and Secretary
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EXHIBIT INDEX
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<CAPTION>
Exhibit Number Description
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<S> <C>
3.1 Certificate of Designations of Series B Convertible
Preferred Stock.*
4.1 Registration Rights Agreement between InControl, Inc. and
Advantage Fund II Ltd., dated April 16, 1998.*
4.2 Registration Rights Agreement between InControl, Inc.
and Koch Industries, Inc., dated April 16, 1998.*
4.3 First Amendment of Rights Agreement, dated April 17,
1998.*
4.4 Stock Purchase Agreement between InControl, Inc. and
the investors named therein, dated April 20, 1998.*
10.1 Letter Agreement between Advantage Fund II Ltd. and
InControl, Inc., dated April 16, 1998.*
</TABLE>
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* Previously filed.
