<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1998
REGISTRATION NO. 333-53117
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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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INCONTROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 91-1501619
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
6675 - 185TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 861-9800
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KURT C. WHEELER
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
INCONTROL, INC.
6675 - 185TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 861-9800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
STEPHEN M. GRAHAM
ALAN C. SMITH
PERKINS COIE, LLP
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
(206) 583-8888
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, as amended, 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. [ ] __________
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JULY 20, 1998
PROSPECTUS
3,769,000 SHARES OF COMMON STOCK
OF
INCONTROL, INC.
This Prospectus relates to up to 3,769,000 shares (together with a
presently indeterminate number of additional shares, as described below, the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"), of
InControl, Inc. (the "Company"). The Shares may be offered by certain
stockholders of the Company (the "Selling Stockholders") from time to time in
transactions in the over-the-counter market through the Nasdaq National Market
("Nasdaq"), or on one or more other securities markets and exchanges, in
privately negotiated transactions, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices. The Selling Stockholders
may effect such transactions by selling the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they may
sell as principals, or both (which compensation as to a particular broker-dealer
may be in excess of customary commissions). See "Selling Stockholders" and "Plan
of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear all
expenses (other than selling commissions and fees and stock transfer taxes) in
connection with the registration and sale of the Shares being offered by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders and any broker-dealers who act in connection with the sale of the
Shares hereunder against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
On April 20, 1998, the Company sold 7,500 shares of its Series B
Convertible Preferred Stock, $.01 par value (the "Series B Stock") to the
Selling Stockholders in a private transaction. See "Description of the Series B
Stock." Pursuant to the terms of the Certificate of Designations of the Series B
Stock regarding payment of dividends, the Company may, from time to time, issue
additional shares of Series B Stock to the Selling Stockholders in payment of
dividends on the Series B Stock. See "Description of the Series B Stock --
Dividends."
The Shares being offered hereby by the Selling Stockholders may be
acquired, from time to time, upon conversion of the Series B Stock. The Shares
include such presently indeterminate number of additional shares of Common Stock
as may become issuable upon conversion of the Series B Stock and shares of
Series B Stock issued in payment of dividends thereon as a result of stock
splits, stock dividends or similar transactions in accordance with Rule 416
under the Securities Act. The actual number of shares of Common Stock issued or
issuable upon conversion of the Series B Stock is subject to adjustment
depending on factors which cannot be predicted by the Company at this time,
including, among others, the future market prices of the Common Stock, the
payment of dividends on the Series B Stock in additional shares of Series B
Stock. See "Description of the Series B Stock -- Conversion."
The Common Stock is quoted on Nasdaq under the symbol "INCL." On July 17,
1998, the closing sales price for the Common Stock as reported on Nasdaq was
$3.75 per share.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is July , 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Commission in Washington, D.C. (450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549) and at the Commission's Regional Offices in New York (7
World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). The
Company is an electronic filer and the Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the web site is "http://www.sec.gov." The Company's reports, proxy statements
and other information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") filed
with the Commission under the Securities Act with respect to the Shares offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the Commission's rules and regulations. For further information
with respect to the Company and the Shares offered hereby, reference is made to
the Registration Statement and the exhibits thereto. The statements in this
Prospectus are qualified in their entirety by reference to the contents of any
agreement or other document incorporated herein by reference, a copy of which is
filed as an exhibit to either the Registration Statement or other filings by the
Company with the Commission.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this Prospectus or incorporated by
reference are forward-looking. In particular, the statements herein regarding
the availability of adequate funding, progress in the Company's clinical trials,
the granting and timing of regulatory approval for the Company's primary
product, the METRIX System, the status of competitive treatments and products
for the treatment of atrial fibrillation, and the availability and adequacy of
third-party reimbursement for the Company's products are forward-looking
statements. Forward-looking statements represent management's current
expectations and are inherently uncertain. Investors are warned that the
Company's actual results may differ significantly from management's expectations
and, therefore, from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to, the
"Risk Factors" described herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon such
person's written or oral request, a copy of any and all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests should be directed to InControl,
Inc., 6675 - 185th Avenue N.E., Redmond, Washington 98052, Attention: Secretary,
telephone: (425) 861-9800.
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The following documents filed with the Commission by the Company are
incorporated by reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K, as amended by Form 10-K/A No.
1 and Form 10-K/A No. 2, for the year ended December 31, 1997;
(2) The Company's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A
No. 1 and Form 10-Q/A No. 2, for the quarter ended March 31, 1998;
(3) The Company's Current Report on Form 8-K, as amended by Form 8-K/A No.
1 and Form 8-K/A No. 2, dated April 20, 1998;
(4) The Company's Current Report on Form 8-K dated June 26, 1998;
(5) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as of September 8, 1994, including
any amendment or report filed for the purpose of updating such
description; and
(6) The description of the Company's rights contained in the Company's
Registration Statement on Form 8-A filed with the Commission on March
1, 1996, including any amendment or report filed for the purpose of
updating such description.
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed modified, superseded or replaced for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies, supersedes or replaces such statement. Any statement
so modified, superseded or replaced shall not be deemed, except as so modified,
superseded or replaced, to constitute a part of this Prospectus.
------------------------
The Company's principal executive offices are located at 6675 - 185th
Avenue N.E., Redmond, Washington 98052, telephone: (425) 861-9800.
DESCRIPTION OF THE SERIES B STOCK
Pursuant to two Subscription Agreements dated April 16, 1998 by and between
the Company and each of the Selling Stockholders named herein, the Company sold
7,500 shares of its Series B Stock. The shares of Series B Stock were issued and
sold to the Selling Stockholders pursuant to the provisions of Regulation D
promulgated by the Commission under the Securities Act. The aggregate offering
price of the Series B Stock was $7,500,000, based on a per share price of
$1,000.
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. The Company presently
anticipates that, through at least the first two years following the issuance
date, it will pay dividends in additional shares of Series B Stock.
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CONVERSION
The Series B Stock is convertible into Common Stock as follows (subject to
adjustments for stock splits, stock dividends, combinations, reclassifications
and similar events and to adjustments resulting from certain failures by the
Company to satisfy its obligations to the holders of the Series B Stock): (i)
until July 20, 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 21, 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 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.
Because the Series B Stock is convertible by the holders thereof at a
discount to the prevailing price of the Common Stock at the time of conversion,
any downturn in the price of the Company's Common Stock will increase the number
of common shares issuable to such holders upon conversion of the Series B Stock.
As a result, in the event of a subsequent upturn in the price of the Common
Stock, the opportunity for profits to such holders may be increased, depending
upon the extent of the upturn, by virtue of their corresponding acquisition of a
greater number of shares of Common Stock.
CONVERSION RESTRICTIONS
Pursuant to the terms of the Certificate of Designations, 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 Exchange Act (the "Beneficial
Ownership Restriction"). The Company is under no obligation to redeem shares of
Series B Stock which 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 20, 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
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holders of Series B Stock will be precluded from converting more than 1,500
shares (in the aggregate for all holders) 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):
<TABLE>
<CAPTION>
FROM JULY 21, 1998
CONVERSION OF 7,500 SHARES UNTIL JANUARY 15,
OF SERIES B STOCK UNTIL JULY 20, 1998(1) 1999(2) AFTER JANUARY 16, 1999(3)
-------------------------- ---------------------- ------------------ -------------------------
<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)
</TABLE>
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(1) Until July 20, 1998, each share of Series B Stock is convertible at a fixed
price per share of $7.91.
(2) From July 21, 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
21, 1998 until January 15, 1999, the applicable ceiling price is $7.6275
thereafter, the applicable ceiling price is $7.345.
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, 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 of which this Prospectus forms a part,
(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
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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.
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 the 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.
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RISK FACTORS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS
CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES, INTENTIONS AND STRATEGIES ABOUT THE
FUTURE. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES,"
"SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT THEIR ABSENCE DOES NOT
MEAN THE STATEMENT IS NOT FORWARD-LOOKING. THESE STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS, ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE. POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS, AS WELL AS THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE, BEFORE MAKING
A DECISION TO INVEST IN THE SHARES OFFERED HEREBY.
MARKET ACCEPTANCE; SUBSTANTIAL DEPENDENCE ON SINGLE PRODUCT
Regulatory approval is required in all important markets in which the
Company plans to sell the METRIX System. There can be no assurance, however,
that such approval will be obtained in a timely manner, if at all. Even if
regulatory approval is obtained in each market, there can be no assurance that
the METRIX System will gain market acceptance in any area. Moreover, in Europe,
market acceptance will depend upon the successful completion of various
post-regulatory approval protocols designed to demonstrate the clinical benefits
of the METRIX System, including improvements in patients' quality of life and
the cost-effectiveness of the therapy.
The METRIX System is a new invasive approach to the treatment of atrial
fibrillation ("AF"). Currently, the METRIX System may be marketed only in
Europe, and there are no other implantable devices to treat AF on the market
anywhere in the world. The timing and rate of adoption of new medical technology
cannot be predicted. Substantial clinical experience with the METRIX System will
be required to address patients' and physicians' concerns, including potential
ventricular proarrhythmia, potential shock discomfort and early recurrence of
atrial fibrillation, a condition involving the recurrence of AF within the first
two minutes following a successful cardioversion shock. There can be no
assurance that these concerns will be adequately addressed so as to permit the
successful commercialization of the METRIX System. Since the Company anticipates
that for the foreseeable future it will be substantially dependent on the
successful development and commercialization of the METRIX System and related
future products, failure of the Company to successfully develop and
commercialize the METRIX System and related future products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
HISTORY OF LOSSES; FUTURE LOSSES; ABILITY TO CONTINUE AS A GOING CONCERN
The design and development of an implantable medical device has required
the Company to make significant investments in research and development
activities since its incorporation in November 1990 and, as such, the Company
has accumulated a deficit of $138.8 million as of March 31, 1998. The Company
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reported net losses of $33.5 million, $36.8 million and $23.7 million for the
years ended December 31, 1997, 1996 and 1995, respectively. In addition, the
Company reported a $9.1 million loss in the quarter ended March 31, 1998. The
Company expects to incur substantial additional losses in the near future. The
Company's independent auditors have included an explanatory paragraph in their
report covering the December 31, 1997 consolidated financial statements, which
expresses substantial doubt about the Company's ability to continue as a going
concern. The Company expects that revenues from clinical trials and sales of the
Company's products will increase, which will moderate future deficit growth.
Future increases in expenses are expected to be primarily due to the Company's
continuing investment in research and development efforts, increases in clinical
trial activities, the maintenance of the European sales organization, the
expansion of domestic marketing and sales capabilities and increasing domestic
manufacturing activity. The amount and timing of the Company's future revenues
and, as a result, the amount and timing of the Company's future losses will be
affected by, among other things, the availability of adequate funding, the
progress and costs of preclinical studies and clinical trials, including the
recruitment of suitable patients, the timing of regulatory approvals, the rate
of market acceptance and adoption of the METRIX System and related future
products, the availability of third-party reimbursement for the Company's
products, the ability to obtain and defend patent and intellectual property
rights and to market the Company's products and the status of competing
products. There can be no assurance that the Company will ever achieve
profitability or generate product revenues sufficient to offset the Company's
losses.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL
The Company expects its cash needs to continue at their present levels in
future periods due to the Company's planned investment in research and
development, anticipated increases in spending on clinical studies and trial
activities and expansion of marketing, sales and manufacturing capabilities. The
Company's future capital requirements will depend on many factors, including the
progress and costs of preclinical studies and clinical trials, the recruitment
of suitable patients, the timing of regulatory approvals, the rate of market
acceptance and the adoption of the METRIX System and related future products,
the availability of third-party reimbursement for the Company's products, the
ability to obtain and defend patent and intellectual property rights and to
market the Company's products and the status of competing products.
To date, the Company has raised $73.9 million, net of issuance costs,
through the sale of Common Stock and convertible preferred stock in private
placements. In addition, the Company has raised $75.9 million, net of issuance
costs, through its initial and subsequent public offerings. In April 1998, the
Company raised $7.5 million through the sale of 7,500 shares of the Series B
Stock in a private transaction. The Company raised an additional $2.5 million
through the sale of 400,000 shares of Common Stock in a private transaction. As
a result of its failure to maintain certain minimum levels of cash, the Company
has defaulted under certain of its capital lease arrangements. As a result, the
Company has entered into a letter of credit agreement with the lessor pursuant
to which the Company has agreed to maintain an irrevocable letter of credit in
the face amount of $500,000 for the purpose of securing its obligations under
the lease. At the present time, the Company believes it is unlikely the lessor
will foreclose under the leases or accelerate rental payments and has received
verbal assurances to that effect. However, if funding continues to be
insufficient in the future, notwithstanding the letter of credit agreement, the
lessor may accelerate the payments due under these capital lease arrangements.
Accordingly, the Company has classified $1.6 million of the amounts payable
under these lease arrangements as a current liability in its consolidated
financial statements included in its Quarterly Report on Form 10-Q, as amended
by Form 10-Q/A No. 1 and Form 10-Q/A No. 2. If the lessor were to foreclose
under the leases or accelerate rental payments, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company estimates that, at its planned rate of spending, its existing
cash, cash equivalents, securities available-for-sale, and interest income
thereon, including the $10 million in capital that was raised in April 1998,
will be sufficient to meet its capital requirements into the third quarter of
1998. There can be no assurance that the underlying assumed levels of revenue
and expense will prove to be accurate. Whether or not these assumptions prove to
be accurate, the Company will need to raise substantial additional capital in
1998 to fund operations. The Company intends to seek additional funding through
public or private financing,
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<PAGE> 10
including equity financing. Adequate funds for these purposes, whether obtained
through financial markets or from other sources, may not be available when
needed or may not be available on terms favorable to the Company, if at all. If
additional funds are raised by issuing equity securities, dilution to existing
shareholders will result. If funding is insufficient at any time in the future,
the Company will be forced to delay, reduce or eliminate some or all of its
research and development activities, clinical studies and trials and
manufacturing and administrative programs, dispose of assets or technology, or
cease operations.
MANDATORY REDEMPTION OF SERIES B STOCK
The number of shares of Common Stock issuable upon conversion of the Series
B Stock is limited to the Maximum Share Amount. If at any time after July 20,
1998, the number of shares issuable upon conversion of the Series B Stock
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, the Company must redeem 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 market price of the Common Stock falls below the level
necessary to allow full conversion of the Series B Stock (depending upon the
applicable conversion percentage), the Company may be required to redeem shares
of Series B Stock at a premium or seek stockholder approval for the issuance of
a greater number of shares. Any such redemption of shares of Series B Stock
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Description of the Series B Stock."
DEPENDENCE ON REIMBURSEMENT
Successful sales of the METRIX System in the United States and Europe will
depend on the availability of reimbursement from third-party payors such as
government and private insurance plans. There is significant uncertainty
concerning third-party reimbursement of investigational and newly approved
healthcare products, and there can be no assurance that third-party
reimbursement will be made available for the METRIX System or that any
third-party reimbursement that is obtained will be adequate. Government and
other third-party payors are increasingly scrutinizing patient indications for
medical device therapy and limiting coverage. In Europe, post-regulatory
approval study protocols are required before a device will be eligible for
reimbursement through the various national and local health care financing
authorities. There can be no assurance that these European study protocols will
be completed successfully or that reimbursement will be available in a timely
manner, if at all. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for the METRIX System, the
Company's business and financial condition would be materially adversely
affected.
EXTENSIVE GOVERNMENTAL REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
The Company is subject to significant regulation by authorities in the
United States and Europe regarding the approval of devices and the subsequent
marketing, manufacture and distribution of approved devices.
In the United States, the Company's products have and will continue to
undergo clinical testing followed by an extensive Food and Drug Administration
("FDA") approval process. At the end of the first quarter of 1998, the METRIX
System was in clinical trials in the United States in 25 centers, the number
approved by the FDA. The Company currently has 37 patients enrolled in those
trials, with approval to implant up to a maximum of 170 METRIX atrial
defibrillators. There can be no assurance that the clinical trials will
demonstrate that the METRIX System is safe and effective, or that the Company
will receive FDA approval in a timely manner, if at all. The time required to
complete the U.S. trials is dependent on the rate of patient recruitment, the
performance of the device during the trials and the number of times therapy is
applied to patients enrolled in the study. In addition, delays or rejections may
be encountered based on changes in FDA policy that occur during the development
and approval process. FDA approvals may also be limited, which could limit the
patient population to which the Company's products may be marketed and
distributed. Delays,
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<PAGE> 11
setbacks or approval limitations related to any of the factors listed above may
have a material adverse effect on the Company's business and financial
condition.
After completing the clinical trials, the Company must submit a Pre-Market
Approval ("PMA") application that is supported by extensive data, including
preclinical and clinical trial data, relating to the safety and effectiveness of
the device. As part of the PMA application process the Company will be required
to submit a full description of its facilities, manufacturing methods and
manufacturing controls. The Company must also fully describe the METRIX System
and the System's components in the PMA application. The Company will then be
required to undergo an initial audit, including a facility inspection, to ensure
that the Company is in compliance with the FDA's Quality System Requirements
regulations (formerly known as Good Manufacturing Practices) and the Medical
Device Reporting regulations and other regulations under the Federal Food, Drug
and Cosmetic Act ("FDC Act") and FDA regulations. There can be no assurance that
the Company will be able to comply with such regulations in a timely fashion,
particularly given the Company's limited manufacturing experience.
Once a PMA application is filed, the FDA may accept it and call for an
advisory panel recommendation or may reject it for insufficient data. Such a
rejection could have significant negative consequences for the Company,
including forcing more costly studies, adversely impacting the market acceptance
of the METRIX System and forcing a possible product recall. After the PMA is
reviewed by the advisory panel, the FDA may approve or reject the product. This
process is lengthy and unpredictable. If the METRIX System PMA application is
approved and the Company markets the METRIX System, the Company will be required
to register with the FDA and to submit device listing information for products
in commercial distribution. The Company and its facilities will then be
periodically re-inspected by the FDA for compliance with the FDC Act and FDA
regulations, including those described above. Labeling and promotional
activities will be subject to scrutiny by the FDA and, in certain circumstances,
by the Federal Trade Commission.
If the FDA determines during the initial audit or during any subsequent
audit that the Company is not in compliance, the FDA has the authority to take
actions that it deems appropriate for any infractions. Such penalties include,
but are not limited to, monetary fines, product recalls, withdrawal of product
approvals, "cease distribution" orders for both domestic and international
products, product seizure and the slowing or stopping of future product approval
processes. In addition, the FDA may institute civil or criminal legal
proceedings against the Company or its officers. Any such action by the FDA
could result in the disruption of the Company's operations for an indeterminate
time, which may have a material adverse effect on the Company's business and
financial condition.
In Europe, the Company has received the needed certifications required in
order to declare compliance with the European Active Implantable Device
Directive ("AIMDD") and affix the conformite europeenne ("CE") mark to the
METRIX System components. While the CE mark allows the Company to distribute and
market the METRIX System throughout the European Community ("EC"), the Company
will need to complete studies regarding the cost benefits of the therapy before
it will be eligible to receive reimbursement approvals from the medical
reimbursing authorities in various EC member countries. There can be no
assurance that such approvals from the reimbursing authorities will be obtained
in a timely manner, if at all. Failure to obtain such approvals could
significantly delay or prevent the adoption of the METRIX System in Europe and
thereby have a material adverse effect on the Company's business and financial
condition.
As part of the CE mark approval process the Company was required to obtain
certifications of its quality system under the AIMDD from TUV Product Services
of Munich, Germany (the "Notified Body"), an organization accredited to provide
such quality system certification. The Notified Body will perform periodic
audits to ascertain whether the Company has maintained its quality system and is
in compliance with the certification requirements under the AIMDD. If
certification is revoked, the Company may be prevented from distributing its
product in the EC. In addition, if an individual EC country's regulatory
authority deems the METRIX System to be "unsafe" for any reason, the Company may
find it impossible to distribute its product throughout the EC. A
de-certification of the Company's quality system or an "unsafe" determination by
any regulatory authority would have a material adverse effect on the Company's
business and financial condition.
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<PAGE> 12
SIGNIFICANT COMPETITION
The METRIX System is a new technology that must compete with the
established treatments for AF: pharmaceuticals, external electrical
cardioversion, atrioventricular node ablation accompanied by pacemaker
implantation and open-heart surgical ablation. Furthermore, although currently
no implantable device is being marketed to treat AF (with the exception of the
METRIX atrial defibrillator in Europe), certain manufacturers of implantable
ventricular defibrillators and pacemakers are developing dual-chamber
defibrillator systems that will be used to treat patients with both ventricular
and atrial arrhythmias and may be marketed to patients who have only AF. One
such dual chamber defibrillator system has started clinical trials in Europe.
Some of the Company's competitors are also researching other approaches to the
treatment of AF, including endocardial ablation and preventative pacing
techniques. In addition, other companies and research organizations, academic
institutions and governmental agencies may be pursuing alternative approaches
for the treatment of AF. These entities may market products to treat AF either
on their own or through collaborative efforts. The Company believes that the
primary competitive factors in the market for the treatment of symptomatic AF
are therapeutic efficacy, safety and patient acceptance. Many of the Company's
competitors have substantially greater financial and other resources, larger
research and development staffs and more experience and capabilities in
conducting research and development activities, testing products in clinical
trials, obtaining regulatory approvals and manufacturing, marketing and
distributing products than the Company. The Company's competitors may develop
new technologies and products that are available for sale prior to the METRIX
System or that are more effective than the METRIX System. In addition,
competitive products may be manufactured and marketed more successfully than the
METRIX System. Such developments could render the METRIX System less competitive
or obsolete and could have a material adverse effect on the Company's business
and financial condition. In addition, the Company intends for its future
products to include bradycardia pacing technology. Any such products are likely
to face direct competition from more established medical device companies with
financial and other resources significantly greater than those of the Company.
DEPENDENCE ON SOLE SOURCES OF SUPPLY
The Company relies on outside vendors to manufacture certain major
components used in the METRIX System. For efficiency reasons the Company does
not at the present time maintain supply contracts with most of these outside
vendors. A number of significant components, such as hybrid circuits, batteries,
integrated circuits, capacitors and transformers, are supplied by sole source
vendors. For certain of these components, there are relatively few alternative
sources of supply, and establishing additional or replacement suppliers for such
components, particularly hybrid circuits and batteries, cannot be accomplished
quickly. In addition, each supplier and each component must be qualified with
the FDA, and the time required for such qualification may be lengthy. The
establishment of additional or replacement sources of supply would require the
Company to certify the new suppliers, which, in the case of certain components,
would cause a delay in the Company's ability to manufacture its products. The
Company actively maintains its relationships with its suppliers and presently
has no reason to believe that its sources of supply are in danger of disruption.
However, if the Company's supply sources were disrupted and the Company was
unable to obtain acceptable components in a timely manner or find and maintain
suitable replacement suppliers, such a disruption would have a material adverse
effect on the Company's ability to manufacture the METRIX System and therefore
on its business and financial condition.
INDUSTRY HISTORY OF PATENT LITIGATION; DEPENDENCE ON PATENTS AND PROPRIETARY
RIGHTS
The segment of the medical device industry that includes implantable
defibrillator systems has been characterized by extensive litigation regarding
patents and other intellectual property rights. Litigation may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to determine the enforceability, scope and validity of
proprietary rights of others. Such litigation may result in substantial expense
to the Company and significant diversion of effort by the Company's technical
and management personnel. An adverse determination in any such litigation could
subject the Company to significant liability to third parties or require the
Company to seek licenses from third parties.
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<PAGE> 13
Although patent and intellectual property disputes in the medical device
industry have often been settled through licensing or similar arrangements,
costs associated with such arrangements may be substantial and could include
ongoing royalties. Moreover, there can be no assurance that necessary licenses
would be available to the Company on satisfactory terms, if at all. If such
licenses could not be obtained on acceptable terms, the Company could be
prevented from marketing certain devices in the METRIX System family or future
related products. Accordingly, an adverse determination in such litigation could
have a material adverse effect on the Company's business and financial
condition. The Company's success will depend in part on its ability to obtain
and maintain patent protection for its technologies. There can be no assurance
that issued patents or pending applications will not be challenged or
circumvented by competitors, or that the rights granted thereunder will provide
competitive advantages to the Company.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE
The METRIX System has never been manufactured on a commercial scale and
there can be no assurance that it can be manufactured at a cost or in quantities
necessary to make it commercially viable. There can be no assurance that the
Company's reliance on others for the manufacture of its components will not
result in problems with product supply. Interruptions in the availability of
components would delay or prevent the development and commercialization of the
METRIX System. The Company expects to expand its domestic manufacturing capacity
and its European and domestic marketing and sales capabilities. There can be no
assurance that the Company will be able to recruit and retain skilled sales,
marketing and manufacturing management, direct salespersons or distributors, or
that the Company's expansion efforts will be successful. In markets where the
Company has entered or enters into distribution arrangements for the sale of the
METRIX System, the Company will depend on the efforts of third parties. There
can be no assurance that such efforts will be successful.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain members of its scientific and
professional staff, the loss of whose services might impede the achievement of
its research and development or strategic objectives. At the present time, the
Company does not have long-term employment agreements with, and does not carry
key person life insurance on, any of its scientific and professional personnel.
Competition among medical device companies for highly skilled and uniquely
experienced scientific and professional personnel is intense. To help retain its
key personnel, the Company offers a salary and benefits structure that is
competitive with its local geographic market, as well as the medical device
industry nationwide. The Company offers a broad-based stock option plan through
which all employees of the Company are granted stock options upon hire, and key
employees are periodically granted additional stock options. The Company has
recently initiated a stock option repricing program, whereby all employees with
underwater options are offered the opportunity to exchange their underwater
options for a lesser number of options with an exercise price at current market
value. The number of new options to which each employee is entitled is
determined by multiplying the number of options being exchanged by the ratio of
the new exercise price to the old exercise price.
The Company's currently limited financial resources may compromise its
ability to compete effectively for skilled personnel. The Company's anticipated
growth and expansion in areas and activities requiring additional expertise,
such as marketing and sales, clinical trials and manufacturing, are expected to
place significant increased demands on the Company's resources. These demands
are expected to require the addition of new professional personnel and the
development of additional expertise by existing personnel. The failure to
recruit such personnel, loss of such existing personnel or failure to develop
such expertise would have a material adverse effect on the Company's business
and financial condition. There can be no assurance that the Company will be able
to retain or recruit needed scientific and professional expertise, particularly
given the Company's currently limited financial resources.
PRODUCT LIABILITY AND PRODUCT RECALL
The testing, manufacture, marketing and sale of medical devices entail the
inherent risk of liability claims or product recalls. Although the Company has
not been subject to liability claims or product recalls to date,
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<PAGE> 14
there can be no assurances that the Company will not be subject to liability
claims or product recalls for products that have already been distributed or on
products to be distributed in the future. Although the Company maintains product
liability insurance in the United States and in other countries in which the
Company intends to conduct business, including clinical trials and product
marketing and sales, there can be no assurance that such coverage is adequate or
will continue to be available. Product liability insurance is expensive and in
the future may not be available on acceptable terms, if at all. In addition, the
Company has agreed to indemnify certain of its component suppliers for certain
potential product liability. A successful product liability claim or product
recall could inhibit or prevent commercialization of the METRIX System, or cause
a significant financial burden on the Company, or both, and could have a
material adverse effect on the Company's business and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of the Common Stock in the public market or the
prospect of such sales could materially and adversely affect the market price of
the Common Stock. As of July 17, 1998, the Company had outstanding 19,265,381
shares of Common Stock, 7,588 shares of Series B Stock convertible into certain
of the shares offered hereby and warrants to purchase 102,901 shares of Common
Stock. The number of shares of Common Stock issuable upon conversion of the
Series B Stock changes depending upon the lowest sale prices of the Common Stock
during the applicable measurement period immediately preceding the date of
conversion. Pursuant to the terms of the Certificate of Designations, the number
of shares of Common Stock issuable upon conversion of the Series B Stock is
limited to 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 for stockholder approval. See "Description of the
Series B Stock -- Conversion." In addition, as of June 30, 1998, the Company had
granted options to purchase 3,345,476 shares of Common Stock under its 1990
Restated Stock Option Plan, 1994 Stock Option Plan for Nonemployee Directors and
1996 Stock Option Plan for Nonemployee Directors (collectively, the "Stock
Option Plans"). Almost all of the Company's outstanding shares of Common Stock
may be sold without substantial restrictions. Moreover, the Company has filed
with the Commission another registration statement on Form S-3, as amended by
Form S-3/A No. 1 and Form S-3/A No. 2, which registers for resale an aggregate
of 400,000 shares of Common Stock sold in a private placement. All of the shares
purchased under the Stock Option Plans are available for sale in the public
market, subject in some cases to volume and other limitations.
Sales in the public market of substantial amounts of Common Stock,
including sales of Common Stock issued upon conversion of the Series B Stock, or
the perception that such sales could occur, could depress prevailing market
prices for the Common Stock. The conversion terms of the Series B Stock, which
allow holders of the Series B Stock to convert their shares of Series B Stock
into shares of Common Stock at a discount to the current market price of the
Common Stock, and then immediately resell such shares at market prices, are
likely to result in downward pressure on the price of the Common Stock, making
it difficult for a sustained rise in the price of the Common Stock to occur, if
such a rise occurs at all.
The existence of the private warrants and any other options or warrants may
prove to be a hindrance to future equity financing by the Company. Further, the
holders of such warrants and options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
The Company's revenues from international sales of the METRIX System
(primarily in Europe) were 77.2%, 71.6% and 100.0% of total revenues for the
years ended December 31, 1997, 1996 and 1995, respectively, and the Company
currently derives a significant percentage of its revenue from the European
sales of the METRIX System. While the Company anticipates that, as the METRIX
System progresses in clinical trials in the United States, a greater portion of
its future revenues will be derived from the sale of the METRIX System in the
United States, it is possible that European sales of the METRIX System may
continue to account for a significant percentage of the Company's total
revenues. A number of risks are
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inherent in international operations and transactions. The Company's business
and its representatives, agents and distributors are subject to laws and
regulations of the countries in which they operate or the Company's products are
sold. International sales and operations may be limited or disrupted by the
imposition of government controls, the level of reimbursement available for use
of the METRIX System, export license requirements, political instability, trade
restrictions, changes in tariffs and difficulties in staffing, coordinating and
managing international operations. As long as the Company's revenues continue to
depend substantially on international sales, they may be adversely affected by
fluctuations in foreign currency exchange rates as well as constraints on the
Company's ability to maintain or increase prices. The Company has not hedged
against foreign currency exchange rate risks to date. The Company may in the
future seek to implement hedging techniques with respect to foreign currency
transactions. There can be no assurance, however, that such hedging techniques
would successfully protect against foreign currency exchange losses or against
other international sales risks such as exchange limitations, price controls or
other foreign currency restrictions. Any of the foregoing would have a material
adverse effect on the Company's business, financial condition and results of
operations.
VOLATILITY OF STOCK PRICE
Since the Company's initial public offering in September 1994, the price of
the Common Stock has ranged from $2.06 to $18.50 per share. Factors such as the
results of clinical trials by the Company or its competitors, concern as to the
safety or efficacy of products of the Company or its competitors, announcements
of technological innovations or new products by the Company or its competitors,
governmental regulation, healthcare legislation, developments in patent or other
proprietary rights of the Company or its competitors and fluctuations in the
Company's results of operations will have a significant impact on the price of
the Common Stock. Conversion and sale of large amounts of the Series B Stock, or
the perception that such sales could occur, also would have a material adverse
effect on the price of the Common Stock. See "Shares Eligible for Future Sale."
NASDAQ LISTING REQUIREMENTS
The Common Stock is quoted on the Nasdaq National Market System. The
maintenance criteria for continued quotation on the Nasdaq National Market
System include, among other criteria, (i) net tangible assets of $4.0 million,
(ii) a minimum bid price per share of $1.00, (iii) a public float of 750,000
shares with market value of $5.0 million, (iv) 400 round lot shareholders and
(v) two market makers. If the Company is unable to obtain substantial additional
capital in 1998, it may be unable to maintain net tangible assets of $4.0
million. See "Need for Substantial Additional Capital." The remaining
maintenance criteria, including the minimum bid price of the Common Stock, the
volume and value of its public float, the number of holders of the Common Stock
and the number of market makers in the Common Stock, all are dependent upon
numerous market factors not within the Company's control. Although the Company
presently meets the above maintenance criteria, there can be no assurance that
it will continue to do so.
Failure of the Company to continue to meet such maintenance criteria could
result in the Common Stock losing its Nasdaq National Market System designation.
The Nasdaq National Market System provides brokers and others with immediate
access to the best bid and ask prices and other information about the Common
Stock during each trading day. If the Company were to lose its Nasdaq National
Market System designation, real-time price information for the Common Stock
might cease to be available. As a result, an investor might find it more
difficult to dispose of, or to obtain more accurate quotations as to the price
of, the Common Stock.
If the Company were to lose its Nasdaq National Market System designation,
the Company would seek to have its securities listed on the Nasdaq SmallCap
Market or another securities exchange, subject to the Company's ability to
satisfy the eligibility criteria for such exchange. If the Company were unable
to meet the Nasdaq SmallCap Market maintenance criteria, trading, if any, in the
Common Stock might continue to be conducted in non-Nasdaq over-the-counter
markets. The Common Stock would then be subject to the risk that it could become
characterized as a low-priced or "penny stock" which characterization could have
a material adverse effect on the Common Stock's market liquidity. See "Penny
Stock Regulation." In addition,
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if the Company was delisted from the Nasdaq National Market and was unable to
obtain listing with the Nasdaq SmallCap Market, holders of the Series B Stock
could compel the Company to redeem all or any portion of the Series B Stock at a
price equal to 115% of the purchase price and any accrued but unpaid dividends.
See "Description of the Series B Stock -- Optional Redemption." Any such
redemption of shares of Series B Stock could have a material adverse effect on
the Company's business, financial condition and results of operations.
PENNY STOCK REGULATION
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Commission. Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq Stock Market system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Common Stock becomes subject to the penny stock rules,
investors may find it more difficult to sell their Common Stock.
SELLING STOCKHOLDERS
The following table provides certain information regarding the Selling
Stockholders and the number of Shares being offered by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES THAT MAY BE SOLD AFTER OFFERING
-------------------------- ------------------------ --------------------------
PERCENTAGE PERCENTAGE
OF COMMON OF COMMON PERCENTAGE
STOCK STOCK OF COMMON
OUTSTANDING OUTSTANDING STOCK
NAME AND ADDRESS AMOUNT(1) (1)(2) AMOUNT(1) (1)(2) AMOUNT(3) OUTSTANDING
---------------- ----------- ------------ --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Advantage Fund II Ltd. ........ 944,004 4.9% 2,261,400 11.7% -0- -0-
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Koch Industries, Inc........... 944,004 4.9% 1,507,600 7.8% -0- -0-
4111 East 37th Street North
Wichita, Kansas 67220
</TABLE>
- ---------------
(1) On April 20, 1998, Advantage Fund II, Ltd. and Koch Industries, Inc.
acquired 4,500 and 3,000 shares, respectively, of the Series B Stock in a
private transaction. Pursuant to the terms of the Certificate of
Designations of the Series B Stock regarding payment of dividends, the
Company may, from time to time, issue additional shares of Series B Stock to
the Selling Stockholders in payment of dividends on the Series B Stock. The
number of shares of Common Stock shown as beneficially owned by the Selling
Stockholders represents the maximum number of shares that the Selling
Stockholder could beneficially own at any one time based on the number of
shares of Common Stock outstanding as of July 17, 1998. Pursuant to the
terms of the Certificate of Designations of the Series B Stock, the Series B
Stock is convertible by the holder thereof only to the extent that (i) the
number of shares of Common Stock then beneficially 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
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<PAGE> 17
determined in accordance with Sections 13(d) and 16 of the Exchange Act.
Accordingly, the number of shares of Common Stock ultimately acquired by the
Selling Stockholders through conversion of the Series B Stock and sold
hereby may exceed the actual number of shares of Common Stock that the
Selling Stockholder could own beneficially at any one time through its
ownership of Series B Stock. In no event will the Company issue more than
the Maximum Share Amount upon conversion of the Series B Stock, unless the
stockholders of the Company approve the issuance of additional shares or the
requirement for stockholder approval is waived by Nasdaq.
Based on the average of the two lowest sale prices of the Common Stock
during the 12 trading days immediately preceding the filing date of
Amendment No. 2 to the Registration Statement of which this Prospectus forms
a part and assuming that (i) the Company pays dividends on the Series B
Stock in additional shares of Series B Stock for two years from the date of
issuance, (ii) the Selling Stockholders do not convert any shares of Series
B Stock for two years from the date of issuance, and (iii) the Series B
Stock and the maximum number of dividend shares issuable during such
two-year period were converted in full on the foregoing filing date, the
number of shares issuable upon conversion of the Series B Stock would exceed
the Maximum Share Amount. The number of shares of Common Stock shown as
shares that may be sold by the Selling Stockholders represents each Selling
Stockholder's pro rata portion of the Maximum Share Amount.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the Exchange
Act and based upon 19,265,381 shares of Common Stock outstanding as of July
17, 1998, treating as outstanding the number of shares issuable upon the
assumed conversion by the named Selling Stockholder of the full amount of
such Selling Stockholder's Series B Stock, but not assuming the conversion
of the Series B Stock of any other Selling Stockholder.
(3) Assumes the sale of all the Shares offered by each of the Selling
Stockholders.
Neither of the Selling Stockholders has had any material relationship with
the Company, or any of its affiliates, within the past three years.
The Selling Stockholders have represented to the Company that they
purchased the Shares for their own account for investment only and not with a
view towards the public sale or distribution thereof, except pursuant to sales
registered under the Securities Act or exemptions therefrom. In recognition of
the fact that the Selling Stockholders, even though purchasing the Shares for
investment, may wish to be legally permitted to sell their Shares when they deem
appropriate, the Company agreed with the Selling Stockholders to file with the
Commission under the Securities Act the Registration Statement with respect to
the resale of the Shares from time to time in transactions described under "Plan
of Distribution" below, and has agreed to prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep the
Registration Statement effective until the Shares are no longer required to be
registered for the sale thereof by the Selling Stockholders.
PLAN OF DISTRIBUTION
All of the Shares offered hereby may be sold from time to time by the
Selling Stockholders, or by their pledgees, donees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Stockholders may
be effected from time to time in transactions in the over-the-counter market
through Nasdaq, or on one or more other securities markets and exchanges, in
privately negotiated transactions, or through a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices relating to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect the above-mentioned
transactions by selling the Shares to or through broker-dealers; including block
trades in which brokers or dealers will attempt to sell the Shares to or through
broker-dealers and block trades in which brokers or dealers will attempt to sell
the Shares as agent but may position and resell the block as principal to
facilitate the transaction, or in one or more underwritten offerings on a firm
commitment or best efforts basis. In addition, any of the Shares that qualify
for sale pursuant to Rule 144 promulgated under the Securities Act may be sold
in transactions complying with such Rule 144, rather than pursuant to this
Prospectus.
16
<PAGE> 18
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Any broker-dealers who act in connection with the sale of the Shares
hereunder may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by them and profit on any
resale of the Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act. None of the proceeds from the sale of the
Shares by the Selling Stockholders will be received by the Company. The Company
has agreed to bear all expenses (other than selling commissions and fees and
stock transfer taxes) in connection with the registration and sale of the Shares
being offered by the Selling Stockholders. The Company has agreed to indemnify
the Selling Stockholders and broker-dealers who act in connection with the sale
of the Shares hereunder against certain liabilities, including liabilities under
the Securities Act.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offering will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the Shares may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom such underwriters or
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular underwriter or broker-dealer might be in
excess of customary commissions). The Selling Stockholders will be responsible
for all brokerage commissions and other amounts payable with respect to any sale
of Shares with respect to such Selling Stockholders and any legal, accounting or
other expenses incurred.
From time to time, one or more of the Selling Stockholders may transfer,
pledge, hypothecate, donate, assign or grant a security interest in some or all
of the Shares owned by them to lenders or others, and each such person will be
deemed to be a "Selling Stockholder" for purposes of this Prospectus. The number
of Selling Stockholders' Shares beneficially owned by those Selling Stockholders
who so transfer, pledge, donate or assign Selling Stockholders' Shares will
decrease as and when they take such actions. The plan of distribution for
Selling Stockholders' Shares sold hereunder will otherwise remain unchanged,
except that the transferees, pledgees, donees or other successors will be
Selling Stockholders hereunder.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the position they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. In addition, a Selling Stockholder may,
from time to time, sell short the Common Stock of the Company, and in such
instances, this Prospectus may be delivered in connection with such short sales
and the Shares offered hereby may be used to cover such short sales. A Selling
Stockholder may also enter into options or other transactions with
broker-dealers that involve the delivery of the Common Stock to the
broker-dealers, who may then resell or otherwise transfer such Common Stock. A
Selling Stockholder may also loan or pledge the Common Stock to a broker-dealer
and the broker-dealer may sell the Common Stock so loaned or, upon a default,
may sell or otherwise transfer the pledged Common Stock.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (five business
days if the Company's public float is less than $25 million or its average daily
trading volume is less than $100,000) prior to such person's participation in
the distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation, Regulation M,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by such Selling Stockholder.
There can be no assurance that the Selling Stockholders will sell any or
all of the Shares offered by them hereunder.
17
<PAGE> 19
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Perkins Coie, Seattle, Washington.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended December 31, 1997, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a going
concern as described in Note 1 to the consolidated financial statements)
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
18
<PAGE> 20
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Forward-Looking Statements............ 2
Incorporation of Certain Documents by
Reference........................... 2
Description of the Series B Stock..... 3
Risk Factors.......................... 7
Selling Stockholders.................. 15
Plan of Distribution.................. 16
Legal Matters......................... 18
Experts............................... 18
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
INCONTROL, INC.
3,769,000 SHARES OF
COMMON STOCK
------------------------
PROSPECTUS
------------------------
JULY , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of the registrant in
connection with the issuance and distribution of the securities being registered
(all amounts are estimated except the Securities and Exchange Commission
registration fee). Selling commissions and fees and stock transfer taxes are
payable individually by the Selling Stockholders.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 5,891
Blue sky filing fees and expenses........................... 5,000
Legal fees and expenses..................................... 50,000
Accountants' fees and expenses.............................. 3,000
Miscellaneous expenses...................................... 1,109
-------
Total............................................. $65,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, i.e.,
a "derivative action") if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that (i) indemnification
only extends to expenses (including attorneys' fees) incurred in connection with
the defense or settlement of such actions and (ii) the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, bylaws, disinterested director vote, stockholder vote or
otherwise.
Section 10 of the registrant's Amended and Restated Bylaws (the "Bylaws")
requires indemnification to the fullest extent permitted under Delaware law as
from time to time in effect. Subject to any restrictions imposed by Delaware
law, the Bylaws provide an unconditional right to indemnification for all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by any person in connection with any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was serving as a
director or officer of the registrant or that, being or having been a director
or officer or an employee of the registrant, such person is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including an employee benefit plan. The Bylaws also provide that the registrant
may, by action of its Board of Directors, provide indemnification to its
employees and agents with the same scope and effect as the foregoing
indemnification of directors and officers.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit.
II-1
<PAGE> 22
Article 10 of the registrant's Restated Certificate of Incorporation
provides that, to the fullest extent that the DGCL, as it now exists or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director of the registrant shall not be liable to the registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any amendment to or repeal of such Article 10 shall not adversely
affect any right or protection of a director of the registrant for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
The registrant has entered into an Indemnification Agreement with each of
its executive officers and directors in which the registrant agrees to hold
harmless and indemnify the officer or director to the fullest extent permitted
by Delaware law. Under these Indemnification Agreements, the officer or director
is not indemnified for any action, suit, claim or proceeding instituted by or at
the direction of the officer or director unless such action, suit, claim or
proceeding is or was authorized by the registrant's Board of Directors or unless
the action is to enforce the provisions of the Indemnification Agreement.
No indemnity pursuant to the Indemnification Agreements shall be provided
by the registrant on account of any suit in which a final unappealable judgment
is rendered against an executive officer or director for an accounting of
profits made from the purchase or sale of the registrant's securities by the
executive officer or director in violation of the provisions of Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or for
damages that have been paid directly to the executive officer or director by an
insurance carrier under a directors' and officers' liability insurance policy
maintained by the registrant.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Designations of Series B Convertible
Preferred Stock (filed as Exhibit 3.1 to the registrant's
Current Report on Form 8-K dated April 20, 1998 and
incorporated herein by reference).*
4.1 Registration Rights Agreement between InControl, Inc. and
Advantage Fund II Ltd., dated April 16, 1998 (filed as
Exhibit 4.1 to the registrant's Current Report on Form 8-K
dated April 20, 1998 and incorporated herein by reference).*
4.2 Registration Rights Agreement between InControl, Inc. and
Koch Industries, Inc. dated April 16, 1998 (filed as Exhibit
4.2 to the registrant's Current Report on Form 8-K dated
April 20, 1998 and incorporated herein by reference).*
5.1 Opinion of Perkins Coie, counsel to the registrant,
regarding the legality of the Shares.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Perkins Coie (contained in Exhibit 5.1).*
24.1 Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (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
II-2
<PAGE> 23
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.
(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 that 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 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to 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 in the initial bona fide
offering thereof.
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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
II-3
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Redmond, State of Washington, on the
20th day of July, 1998.
INCONTROL, INC.
/s/ KURT C. WHEELER
--------------------------------------
Kurt C. Wheeler
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 20th day of July, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KURT C. WHEELER Chairman, President and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
Kurt C. Wheeler
* PHILIP A. OKESON Treasurer and Secretary (Principal Financial
- --------------------------------------------- and Accounting Officer)
Philip A. Okeson
* ALAN D. FRAZIER Director
- ---------------------------------------------
Alan D. Frazier
* DONALD C. HARRISON Director
- ---------------------------------------------
Donald C. Harrison
* MARK B. KNUDSON Director
- ---------------------------------------------
Mark B. Knudson
* MICHAEL J. LEVINTHAL Director
- ---------------------------------------------
Michael J. Levinthal
*By: /s/ KURT C. WHEELER
- ---------------------------------------------
Kurt C. Wheeler
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to reference to our firm under the caption "Experts" in Amendment No.
2 to the Registration Statement (Form S-3) and related Prospectus of InControl,
Inc. for the registration of 3,769,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 29, 1998, with
respect to the consolidated financial statements of InControl, Inc. included in
its Annual Report (Form 10-K/A) for the year ended December 31, 1997, filed with
the Securities and Exchange Commission.
ERNST & YOUNG LLP
Seattle, Washington
July 19, 1998
