Prospectus Supplement dated April 21, 1997
to Prospectus dated February 3, 1997
VIDAMED, INC.
404,040 Shares of Common Stock
40,404 Warrants to Purchase Common Stock
VidaMed, Inc. ("VidaMed" or the "Company") is offering hereby 404,040
shares of its Common Stock, $.001 par value (the "Common Stock") and warrants to
purchase 40,404 shares of Common Stock. The offering price per share of Common
Stock is $6.6161 per share. The exercise price for the Warrants is $9.1890 per
share.
Sale of Securities
In February 1997, the Company entered into an equity financing
arrangement with a European investment bank under which the Company may, at its
option, sell to such investment bank up to $10.0 million of VidaMed Common Stock
in increments of up to $2.5 million. The Common Stock will be priced at a 10%
discount to the current market price at the time of sale, subject to adjustment
based on a formula linked to the market price of the Company's Common Stock
during the twenty-one (21) trading days following each sale. Concurrent with
each stock issuance, the Company will issue to the investment bank Warrants to
purchase one share of Common Stock for each 10 shares of Common Stock so
purchased. The exercise price for such Warrants will be equal to the adjusted
purchase price for the Common Stock multiplied by 1/0.9, with the resulting
product multiplied by 1.25. Such warrants will have a term of three years from
the date of issuance. In connection with this arrangement, the Company paid such
European investment bank a commitment fee of $100,000.
On March 12, 1997, the Company issued 286,123 shares of Common Stock
and warrants to purchase 28,613 shares of Common Stock under the
above-referenced equity financing arrangement. The 404,040 shares of Common
Stock and the warrants to purchase 40,404 shares of Common Stock offered hereby
represent the second issuance of securities by the Company under such financing
arrangement.
The Company has not entered into any underwriting arrangements with
respect to the shares of Common Stock or Warrants.
The Common Stock is quoted on the Nasdaq National Market under the
symbol VIDA. The Warrants are not quoted or listed on any securities exchange or
market, and the Company does not intend to apply for listing of the Warrants on
any securities exchange or market. Accordingly, no public market exists for the
Warrants and it is not expected that any such market will exist in the future.
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Certain Federal Income Tax Consequences
The following is a discussion of certain United States federal income
and estate tax consequences of the ownership and disposition of the Common Stock
applicable to Non-U.S. Holders of such Common Stock. In general, a "Non-U.S.
Holder" is any owner of Common Stock other than (i) a citizen or resident of the
United States, or certain United States expatriates, (ii) a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or of any state, or (iii) an estate or trust whose
income is includible in gross income for United States federal income tax
purposes regardless of its source. The discussion pertains only to Common Stock
held as a "capital asset" as defined in the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion is based on laws, regulations, rulings and
decisions in effect on the date hereof, all of which are subject to change. The
discussion does not address aspects of taxation other than federal income and
estate taxation and does not address all aspects of federal income and estate
taxation. The discussion is for general information only and does not consider
any specific facts or circumstances that may apply to a particular Non-U.S.
Holder. Accordingly, prospective investors are urged to consult their own tax
advisors regarding the United States federal, state, local and non-U.S. tax
consequences of acquiring, holding and disposing of shares of Common Stock.
Dividends
In general, dividends paid to a Non-U.S. Holder will be subject to
United States withholding tax at a 30% rate (or such lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (ii) if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder. Dividends effectively
connected with such trade or business or attributable to such permanent
establishment (provided a tax treaty applies) generally will not be subject to
withholding (if the Non-U.S. Holder files certain forms with the payor of the
dividend) and generally will be subject to United States federal income tax on a
net income basis at the applicable graduated rates. In addition, in the case of
a Non-U.S. Holder that is a corporation, a U.S. branch profits tax may be
imposed on such corporation's effectively connected earnings and profits (as
determined under the Code). The branch profits tax is imposed at a rate of 30%
(or such lower rate prescribed by an applicable tax treaty). To determine the
applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under the current
interpretation of existing Treasury regulations to be paid to a resident of that
country.
Treasury regulations proposed in 1984 which have not been finally
adopted, however, would require Non-U.S. Holders to file certain new forms to
obtain the benefit of any applicable tax treaty providing for a lower rate of
withholding tax on dividends. Such forms would contain the holder's name and
address and an official statement by the competent authority in the foreign
country (as designated in the applicable tax treaty) attesting to the holder's
status as a resident thereof.
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Sale of Common Stock
Generally, a Non-U.S. Holder will not be subject to United States
federal income tax on any gain upon the disposition of his Common Stock unless
(i) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes (which the Company does not believe that it is or is
likely to become), (ii) the gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States or, if a tax
treaty applies, attributable to a permanent establishment maintained by the
Non-U.S. Holder in the United States, or (iii) the Non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of the disposition, and either (a) the Non-U.S. Holder has a tax
home (as specially defined for U.S. federal income tax purposes) in the United
States and the gain from the disposition is not attributable to an office or
other fixed place of business maintained by the Non-U.S. Holder in a foreign
country or (b) the gain from the disposition is attributable to an office or
other fixed place of business maintained in the United States by the Non-U.S.
Holder.
Estate Tax
In general, Common Stock owned or treated as owned by an individual
Non-U.S. Holder will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable tax treaty provides
otherwise.
Backup Withholding and Information Reporting
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable tax
treaty. Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. United States backup withholding
tax (which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting or backup withholding requirements) will
generally not apply to dividends paid on Common Stock to a Non-U.S. Holder at an
address outside the United States.
The payment of proceeds from the disposition of Common Stock by or
through a foreign office of a foreign broker generally will not be subject to
backup withholding or information reporting. Information reporting (but not
backup withholding) will apply, however, to the payment of proceeds from the
disposition of Common Stock by or through the foreign office of (i) a United
States broker, (ii) a broker that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States, or
(iii) a broker that is a "controlled foreign corporation" for United States
federal income tax purposes, unless the broker has documentary evidence in its
records that the owner is a Non-U.S. Holder and certain other conditions are met
or the owner otherwise establishes an exemption. The payment of proceeds from
the disposition of Common Stock by or through a United States office of a broker
will be subject to both backup withholding and information reporting unless the
owner certifies under penalty of perjury that, among other things, it is a
Non-U.S. Holder or otherwise establishes an exemption.
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PROSPECTUS
VIDAMED, INC.
1,000,000 Shares of Common Stock
100,000 Warrants to Purchase Common Stock
VidaMed, Inc. (the "Company") may from time to time offer shares of its
common stock, par value $.001 per share (the "Common Shares") and warrants to
purchase shares of its common stock, par value $.001 per share (the "Warrants")
in amounts, at prices and on terms to be determined at the time of offering. The
Common Shares and the Warrants (collectively, the "Securities") may be offered
separately or together, in separate series in amounts, at prices and on terms to
be set forth in supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of the Common Shares, any public
offering price and (ii) in the case of the Warrants, the terms of issuance and
exercise and any public offering price.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The securities offered by this Prospectus may be sold by the Company from
time to time through agents or underwriters, or to dealers acting as principals,
or directly to purchasers in negotiated transactions, or any combination of
these methods of sale. Sales may be made at prevailing market prices or at fixed
prices determined at the time of each sale. See "Plan of Distribution" regarding
Prospectus Supplements to be appended to disclose compensation by the Company to
agents or underwriters that may be designated to participate in the offering of
the shares. The Company may indemnify any participating agent or underwriter
against certain liabilities, including liabilities under the Securities Act of
1933. Expenses of this offering, estimated at $120,000 (excluding compensation
to agents or underwriters), will be paid by the Company.
The Company's Common Shares are traded on the Nasdaq National Market System
under the symbol "VIDA."
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THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
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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.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is February 3, 1997
<PAGE>
AVAILABLE INFORMATION
As used in this Prospectus, unless the context otherwise requires, the
terms "VidaMed" and the "Company" mean VidaMed, Inc. and its subsidiaries. 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"). Reports, proxy statements and other
information filed with the Commission pursuant to the informational requirements
of the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
The Company's Common Stock is traded on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits thereto, referred to as
the "Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement,
copies of which may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission. Statements contained in this Prospectus as to
the contents of any contract or any other document filed, or incorporated by
reference, as an exhibit to the Registration Statement, are qualified in all
respects by such reference.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1996 heretofore filed by the
Company with the Commission pursuant to the Exchange Act, are hereby
incorporated by reference, except as superseded or modified herein.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and shall be part hereof from the date of filing of such
document.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to VidaMed, Inc. at its principal offices
located at 1380 Willow Road, Suite 101, Menlo Park, California 94025, telephone
(415) 328-8781, attention Investor Relations.
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Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute part of this
Prospectus.
VidaMed(R), the VidaMed logo and TUNA(TM) are trademarks of VidaMed,
Inc.
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THE COMPANY
VidaMed, Inc. (the "Company" or "VidaMed") was founded in July 1992 and
reincorporated in the State of Delaware in June 1995. VidaMed designs, develops,
manufactures and markets technologically and clinically advanced, cost effective
systems for urological applications. The Company's initial focus is upon the
treatment of benign prostatic hyperplasia ("BPH"). The Company's first product,
the patented TUNA System, is designed to offer a cost effective, minimally
invasive alternative therapy with compelling clinical advantages for BPH
treatment. The Company commenced manufacturing production and product sales in
1993. On October 8, 1996, the Company received 510(k) clearance from the United
States Food and Drug Administration ("FDA") to market the TUNA System
commercially in the United States for the treatment of BPH. In the United
States, the Company sells its products primarily through direct sales personnel
and a network of specialty urology product dealers. International sales are
primarily to distributors who resell to physicians and hospitals.
VidaMed has designed and developed the TUNA System to be the therapy of
choice for BPH over watchful waiting, drug therapy and current surgical
therapies. The TUNA System is designed to restore and improve urinary flow while
resulting in fewer complications and adverse effects, shorter recovery time and
greater cost effectiveness than other therapies for treating BPH. The Company
believes that the cost of treatment with TUNA will be less than the cost of many
other interventional BPH therapies because the procedure is designed to be
performed on an outpatient basis and to result in fewer complications.
The principal components of the TUNA system are (i) a single-use needle
ablation catheter that delivers RF energy to the prostate, (ii) a low power RF
energy generator and (iii) an optical device that allows direct viewing during
the procedure.
TUNA Catheter. The single-use TUNA catheter measures 22 French
(approximately seven millimeters) in diameter and contains laterally deployed
needles that extend at an approximately 90 degree angle. Each needle is encased
by a retractable shield which protects the urethra and is adjusted by the
urologist to selectively control the area of prostate tissue ablated during the
procedure. Controls on the catheter handle allow for independent advancement and
retraction of the needle and shields. Thermocouples located at the shield tip
and at the catheter tip record temperatures at the lesion site and in the
prostatic urethra. The catheter includes capabilities for irrigation and
aspiration, enhancing visualization for the physician and enabling drainage of
the bladder without removing and reinserting the catheter. In addition, these
capabilities allow the physician to more closely control urethral tissue
temperature during the procedure.
TUNA RF Generator. The TUNA RF energy generator is designed
specifically for use with the TUNA catheter. The RF generator has digital
displays indicating the temperature at each thermocouple, the RF power being
delivered to each needle, ablation time and electrical impedance. These
measurements are used by the physician to control tissue ablation. The generator
incorporates both automated and manual control modes. The generator has an
automatic shut-off activated by both temperature and impedance measurements to
ensure controlled tissue ablation.
TUNA Optics. The TUNA optical device allows precise positioning of the
catheter between the verumontanum and the bladder neck during the procedure
using direct vision control. The optical device is reusable after sterilization
and is equipped with a three-way exchange adapter, which allows the unit to be
used with endoscopic light sources manufactured by other companies.
The TUNA procedure desiccates prostatic tissue, leading to improved
urinary flow, and can be performed in approximately 30 to 45 minutes with local
anesthesia, which may be supplemented by intravenous sedation. The TUNA catheter
is inserted into the patient's urethra, and the two shielded needle electrodes
are then advanced into
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one of the two lateral lobes of the prostate. Controlled RF energy delivered by
the needle electrodes heats targeted portions of the prostate lobe to
temperatures of 90 to 100 degrees centigrade, creating a localized area of
desiccated tissue measuring approximately one to two centimeters in diameter,
while the shields protect the urethra from thermal damage. Once a lesion of
sufficient size has been created, the urologist retracts the needles and places
the catheter at the next site to be ablated and repeats the process. Typically,
two treatments in each lateral prostate lobe are performed depending upon the
size of the prostate. If the patient is unable to urinate due to temporary
swelling or irritation of the urethra, a catheter will be inserted into the
patient's urethra. This catheter, if inserted, is typically left in place for
one to two days.
The Company believes that the design of the TUNA system offers
significant advantages over other BPH therapies. Because the TUNA system shields
the urethra and delivers controlled RF energy directly into the interior of the
prostate, the procedure protects the prostatic urethra and reduces the risk of
unintended thermal damage to surrounding structures. In other procedures where
this control does not exist, the prostatic urethra and other structures can be
damaged or destroyed, causing significant patient discomfort and complications.
Clinical trials of the TUNA system indicate that TUNA results in fewer of the
complications associated with TURP, including impotence, retrograde ejaculation
and incontinence. The Company believes that the cost of the TUNA procedure in
the United States, including physician charges, will be significantly less than
the cost of TURP. Based on information received from its distributors, the
Company believes that the TUNA RF generator is sold at prices ranging from
$20,000 to $35,000, which is less than the general surgical lasers required to
perform laser procedures and the ultrasound and microwave devices required for
other surgical procedures.
The Company believes TUNA will also provide patients, physicians and
health care payors with a clinically and economically superior alternative to
ongoing drug therapy and watchful waiting. To date, the symptomatic relief
experienced by patients in the Company's clinical trials suggests that TUNA may
provide greater relief than drug therapy or watchful waiting. The Company
believes that if the relief provided by TUNA proves to be sufficiently long
lasting, TUNA may prove to be economically superior to the noninvasive
approaches. To date, the Company's available two-year clinical follow-up data
for TUNA patients do not suggest the need for retreatment within this time
frame. However, there can be no assurance as to whether and how frequently TUNA
patients will require retreatment.
RECENT DEVELOPMENTS
On October 8, 1996, the Company received 510(k) clearance from the FDA
to market the TUNA System for the treatment of BPH commercially in the United
States. The FDA's clearance of the TUNA System was based on studies of the TUNA
System's safety and clinical efficacy which were conducted in the United States.
As a result of the 510(k) clearance, the Company commenced commercial sales in
October 1996 and expanded its dealer network.
RISK FACTORS
An investment in the Securities being offered by this Prospectus
involves a high degree of risk. The following factors, in addition to those
discussed elsewhere in this Prospectus, should be carefully considered in
evaluating the Company and its business prospects before purchasing Securities
offered by this Prospectus.
Limited Operating History; History of Losses and Expectation of Future
Losses; Fluctuations in Operating Results. The Company has a limited history of
operations. Since its inception in July 1992, the Company has been primarily
engaged in research and development of the TUNA system. The Company has
experienced significant operating losses since inception and, as of September
30, 1996, had an accumulated deficit of $48.8
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million. The development and commercialization by the Company of the TUNA system
and other new products, if any, will require substantial product development,
clinical, regulatory, marketing and other expenditures. The Company expects its
operating losses to continue for at least the next 12 to 18 months as it
continues to expend substantial resources in funding clinical trials in support
of regulatory and reimbursement approvals, expansion of marketing and sales
activities and research and development. There can be no assurance that the TUNA
system will be successfully commercialized or that the Company will achieve
significant revenues from either international or domestic sales. In addition,
there can be no assurance that the Company will achieve or sustain profitability
in the future. Results of operations may fluctuate significantly from quarter to
quarter and will depend upon numerous factors, including actions relating to
regulatory and reimbursement matters, progress of clinical trials, the extent to
which the TUNA system gains market acceptance, varying pricing promotions and
volume discounts to distributors, introduction of alternative therapies for BPH
and competition.
Uncertainty of Market Acceptance. TUNA represents a new therapy for
BPH, and there can be no assurance that the TUNA system will gain any
significant degree of market acceptance among physicians, patients and health
care payors, even if necessary international and United States reimbursement
approvals are obtained. Physicians will not recommend the TUNA procedure unless
they conclude, based on clinical data and other factors, that it is an
attractive alternative to other methods of BPH treatment, including more
established methods such as TURP and drug therapy. In particular, physicians may
elect not to recommend the TUNA procedure until such time, if any, as the
duration of the relief provided by the procedure has been established. Broad use
of the TUNA system will require the training of numerous physicians, and the
time required to complete such training could result in a delay or dampening of
market acceptance. Even if the clinical efficacy of the TUNA procedure is
established, physicians may elect not to recommend the procedure unless
acceptable reimbursement from health care payors is available. Health care payor
acceptance of the TUNA procedure will require evidence of the cost effectiveness
of TUNA as compared to other BPH therapies, which will depend in large part on
the duration of the relief provided by the TUNA procedure. A thorough analysis
of multi-year patient follow-up data will be necessary to assess the durability
of the relief provided by TUNA therapy. Patient acceptance of the procedure will
depend in part on physician recommendations as well as other factors, including
the degree of invasiveness and rate and severity of complications associated
with the procedure as compared to other therapies.
Uncertainty Relating to Third Party Reimbursement. The Company's
success will be dependent upon, among other things, its ability to obtain
satisfactory reimbursement from health care payors for the TUNA procedure. In
the United States and in international markets, third party reimbursement is
generally available for existing therapies used for treatment of BPH. In the
United States, third party reimbursement for the TUNA procedure will be
dependent upon decisions by the Health Care Financing Administration ("HCFA")
for Medicare, as well as by individual health maintenance organizations, private
insurers and other payors.
Reimbursement systems in international markets vary significantly by
country. Many international markets have governmentally managed health care
systems that govern reimbursement for new devices and procedures. In most
markets, there are private insurance systems as well as governmentally managed
systems.
Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the TUNA system will be required to obtain
reimbursement. Availability of reimbursement will depend not only on the
clinical efficacy and direct cost of the TUNA procedure, but also on the
duration of the relief provided by the procedure. There can be no assurance that
reimbursement for the Company's products will be available in the United States
or in international markets under either governmental or private reimbursement
systems, or that physicians will support reimbursement for TUNA procedures.
Furthermore, the Company could be adversely affected by changes in reimbursement
policies of governmental or private health care payors. Failure by physicians,
hospitals and other users of the Company's products to obtain sufficient
reimbursement from health care payors or adverse changes in
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governmental and private third party payors' policies toward reimbursement for
procedures employing the Company's products would have a material adverse effect
on the Company's business, financial condition and results of operations.
Risk of Inadequate Funding. The Company plans to continue to expend
substantial funds for clinical trials in support of regulatory and reimbursement
approvals, expansion of sales and marketing activities, research and development
and establishment of commercial scale manufacturing capability. The Company may
be required to expend greater than anticipated funds if unforeseen difficulties
arise in the course of clinical trials of the TUNA system, in connection with
obtaining necessary regulatory and reimbursement approvals or in other aspects
of the Company's business. Although the Company believes that the proceeds of
the offering of the Securities together with its existing cash reserves and cash
generated from the future sale of products will be sufficient to meet the
Company's operating and capital requirements during the next 12 to 24 months,
there can be no assurance that the Company will not require additional financing
within this time frame. The Company's future liquidity and capital requirements
will depend upon numerous factors, including progress of clinical trials,
actions relating to regulatory and reimbursement matters, and the extent to
which the TUNA system gains market acceptance. Any additional financing, if
required, may not be available on satisfactory terms or at all. Future equity
financings may result in dilution to the holders of the Company's Common Stock.
Possible Volatility of Stock Price. The stock market has from time to
time experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In addition, the market price of the shares of Common Stock is likely to
be highly volatile. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new products by the
Company or its competitors, FDA and international regulatory actions, actions
with respect to reimbursement matters, developments with respect to patents or
proprietary rights, public concern as to the safety of products developed by the
Company or others, changes in health care policy in the United States and
internationally, changes in stock market analyst recommendations regarding the
Company, other medical device companies or the medical device industry generally
and general market conditions may have a significant effect on the market price
of the Common Stock.
Competition and Technological Advances. Competition in the market for
treatment of BPH is intense and is expected to increase. The Company believes
its principal competition will come from invasive therapies, such as TURP, and
noninvasive courses of action, such as drug therapy and watchful waiting. The
Company may encounter competition from emerging therapies in attracting clinical
investigators as well as prospective clinical trial patients. Most of the
Company's competitors have significantly greater financial, technical, research,
marketing, sales, distribution and other resources than the Company. There can
be no assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective or commercially
attractive than any which are being developed by the Company. Such developments
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Any product developed by the Company that gains regulatory approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and regulatory approval processes, gain
reimbursement acceptance and supply commercial quantities of the product to the
market are expected to be important competitive factors. The Company expects
that competition in the BPH field will also be based, among other things, on the
ability of the therapy to provide safe, effective and lasting treatment, cost
effectiveness of the therapy, physician, health care payor and patient
acceptance of the procedure, patent position, marketing and sales capability,
and third party reimbursement policies.
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Government Regulation. The Company's TUNA system is regulated in the
United States as a medical device by the FDA under the Federal Food, Drug, and
Cosmetic Act ("FDC Act"). Pursuant to the FDC Act, the FDA regulates the
manufacture, distribution and production of medical devices in the United
States. Noncompliance with applicable requirements can result in fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant approval for
devices, and criminal prosecution. Medical devices are classified into one of
three classes, class I, II or III, on the basis of the controls necessary to
reasonably ensure their safety and effectiveness. The safety and effectiveness
can be assured for class I devices through general controls (e.g., labeling,
premarket notification and adherence to GMPs) and for class II devices through
the use of special controls (e.g., performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have not been found substantially
equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
must generally obtain FDA clearance through either a 510(k) notification or a
premarket approval ("PMA"). A 510(k) clearance will be granted if the submitted
data establishes that the proposed device is "substantially equivalent" to a
legally marketed class I or II medical device, or to a class III medical device
for which the FDA has not called for a PMA. The FDA has recently been requiring
a more rigorous demonstration of substantial equivalence than in the past. It
generally takes from three to nine months from submission to obtain a 510(k)
clearance, but it may take longer. The FDA may determine that the proposed
device is not substantially equivalent, or that additional data is needed before
a substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional data, could delay the
market introduction of new products that fall into this category and could have
a materially adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will obtain
510(k) clearance within the above time frames, if at all, for any device for
which it files a future 510(k) notification. Furthermore, there can be no
assurance that the Company will not be required to submit a PMA application for
any device which it may develop in the future. For any of the Company's products
that are cleared through the 510(k) process, including the Company's TUNA
System, modifications or enhancements that could significantly affect safety or
efficacy will require new 510(k) submissions.
Sales of medical devices outside the United States are subject to
regulatory requirements that vary widely from country to country. The time
required to obtain approval for sale in a foreign country may be longer or
shorter than that required for FDA approval, and the requirements may differ.
VidaMed has received regulatory approvals where required for commercial sale of
the TUNA system in all major international markets, except Japan. In May 1994
the Company's United Kingdom facility passed inspection by the United Kingdom
Department of Health and received GMP certification. In June 1994, the Company
received a report of compliance for the TUNA system from the British Standards
Institute ("BSI") and in August 1994 the Company received a certificate of
compliance with IEC 601-1 and IEC 601-2 regulations from TUV Product Services.
TUV and BSI certifications, which are issued by organizations analogous to
Underwriters Laboratories in the United States, are focused on device safety and
adherence of the device to published electronic or mechanical specifications. In
February 1995, the Company received ISO 9002 certification for its manufacturing
facility in the United Kingdom. ISO 9002 certification is based on adherence to
established standards in the areas of quality assurance and manufacturing
process control. These certifications allow the Company to affix the CE mark to
the TUNA system, permitting the Company to commercially market and sell the TUNA
system in all countries of the European Economic Area. In order to maintain
these approvals, the Company is subject to periodic inspections. Additional
product approvals from foreign regulatory authorities may be required for
international sale of the Company's general electrosurgical device for which an
FDA 510(k) notification has been filed. Failure to comply with applicable
regulatory requirements can result in loss of previously received approvals and
other sanctions and could have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company's distributor in Japan, Century Medical, will be
responsible for management of clinical trials and obtaining regulatory approval
for the TUNA system, and such approval will therefore be outside the Company's
control. Accordingly, there can be no assurance as to when or whether such
approval will be received.
Limited Manufacturing Experience; Scale-Up Risk; Product Recall Risk.
VidaMed purchases components used in the TUNA system from various suppliers and
relies on single sources for several components. Delays associated with any
future component shortages, particularly as the Company scales up its
manufacturing activities in support of commercial sales, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company currently manufactures the TUNA system in limited
quantities at its United Kingdom facility. However, the Company has limited
experience in manufacturing its products in commercial quantities. Manufacturers
often encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and lack of qualified personnel. Difficulties encountered by VidaMed in
manufacturing scale-up could have a material adverse effect on its business,
financial condition and results of operations. In mid-1994, the Company
experienced problems at its United Kingdom facility with respect to mechanical
aspects of the TUNA catheter's needle assembly. As a result, a substantial
portion of catheters in the field were returned for rework. The Company has
modified its manufacturing process to rectify these problems and has completed
product rework. However, there can be no assurance that future manufacturing
difficulties or product recalls, either of which could have a material adverse
effect on the Company's business, financial condition and results of operations,
will not occur.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
FDA including recordkeeping requirements and reporting of adverse experience
with the use of the device. The Company's manufacturing facilities are subject
to periodic inspection by FDA, certain state agencies and foreign regulatory
agencies. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business. There can be no assurance that the
Company will not be required to incur significant costs to comply with laws and
regulations in the future or that laws or regulations will not have a material
adverse effect upon the Company's business.
Uncertainty Regarding Patents and Protection of Proprietary Technology.
The Company has been issued 25 United States patents covering a method of
prostate ablation using the TUNA System and the design of the TUNA System. The
Company currently has approximately 25 patent applications on file in the United
States and over 80 corresponding patent applications on file in various foreign
countries. In addition, the Company holds licenses to certain technology used in
the TUNA System. There can be no assurance that the Company's issued United
States patents, or any patents which may be issued as a result of the Company's
applications, will offer any degree of protection. There can be no assurance
that any of the Company's patents or patent applications will not be challenged,
invalidated or circumvented in the future. In addition, there can be no
assurance that competitors, many of which have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets.
Intellectual Property Litigation Risks. The Company is aware that EP
Technologies, Inc. ("EPT") and the University of California ("UC") have filed a
United States patent application in the field of ablation of body tissue. These
parties have also requested the United States Patent and Trademark Office
("USPTO") to declare an interference with a third party's issued United States
patent relating to the ablation of heart tissue and with two United States
patent applications of VidaMed on which notices of allowances have been
received.
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Interference proceedings are declared by the USPTO for the purpose of
determining which of the parties in the interference was the first to invent the
subject matter of the interference. There can be no assurance that the USPTO
will not declare an interference involving VidaMed or that, if declared, such
interference will not be determined adversely to the Company. If an interference
proceeding were determined adversely to the Company, the Company's patent claims
that are the subject of the interference would not be issued and the patent
claims issued to the prevailing party could cover aspects of the Company's
products and activities. In addition, there can be no assurance that the USPTO
will not use the prevailing party's application to reject the allowed claims of
the Company. The enforcement of any such patent claims against VidaMed could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. The Company is aware of patents held
by other participants in the BPH market, and there can be no assurance that the
Company will not in the future become subject to patent infringement claims and
litigation or USPTO interference proceedings, including an interference relating
to the EPT/UC application. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. 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
the proprietary rights of others. The Company, Mr. Edwards, who was a founder of
the Company and its former Chief Executive Officer, and a co-founder and former
director of VidaMed settled, in September 1995, a dispute with EPT relating to,
among other things, certain inventions of Mr. Edwards. Pursuant to the
settlement, mutual releases were granted.
Any litigation or interference proceedings could result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through proprietary
information agreements with employees, consultants and other parties. The
Company's proprietary information agreements with its employees and consultants
contain industry standard provisions requiring such individuals to assign to the
Company without additional consideration any inventions conceived or reduced to
practice by them while employed or retained by the Company, subject to customary
exceptions. There can be no assurance that proprietary information agreements
with employees, consultants and others will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known to or independently developed by competitors.
Rights to Founder's Inventions Limited to Urology. The proprietary
information agreement between the Company and Stuart D. Edwards, one of the
Company's founders, obligates Mr. Edwards to assign to the Company his
inventions and related intellectual property only in the field of urology. Mr.
Edwards has assigned to Rita Medical Systems, Inc. ("RITA") his inventions in
the cancer field. Mr. Edwards has conceived of, and may continue to conceive of,
various medical device product concepts for other fields outside of urology,
including certain concepts
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in the gynecology field that have been licensed to an unrelated party. Such
party also has an option to purchase all future technology developed by Mr.
Edwards in the gynecology field. Product concepts outside of urology developed
by Mr. Edwards will not be owned by or commercialized through VidaMed.
Risks Relating to RITA. The Company has entered into a cross license
agreement with RITA, formerly ZoMed International, Inc. Under the cross license,
RITA has the right to use VidaMed technology in the cancer field and VidaMed has
the right to use RITA technology in the treatment of urological diseases and
disorders. The cross license between VidaMed and RITA allows both companies to
develop products for treatment of prostate cancer and cancers of the lower
urinary tract, and VidaMed and RITA may therefore become competitors in this
field.
Product Liability Risk; Limited Insurance Coverage. The business of the
Company entails the risk of product liability claims. Although the Company has
not experienced any product liability claims to date, any such claims could have
an adverse impact on the Company. The Company maintains product liability
insurance and evaluates its insurance requirements on an ongoing basis. There
can be no assurance that product liability claims will not exceed such insurance
coverage limits or that such insurance will be available on commercially
reasonable terms or at all.
Effect of Certain Charter, Bylaw and Other Provisions. Certain
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders, eliminate the right of stockholders to act
by written consent without a meeting and eliminate cumulative voting in the
election of directors. These provisions may make it more difficult for
stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company.
No Public Market for the Warrants; Arbitrary Determination of Purchase
Price; Price Volatility. Prior to the offering of the Securities, there has been
no public market for the Warrants, and there can be no assurance that an active
trading market will develop in any of the Warrants after any offering thereof.
The Company does not intend to apply for the listing of the Warrants on any
exchange. The exercise price and terms of the Warrants may be determined
arbitrarily by negotiations between the Company and any purchaser thereof.
Factors considered in such negotiations, in addition to prevailing market
conditions, may include the history and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, its capital structure and certain other factors as were deemed
relevant. Therefore, the exercise price and terms of the Warrants may not
necessarily bear any relationship to established valuation criteria and
therefore may not be indicative of prices that may prevail at any time or from
time to time in a public market for the Warrants.
Legal Restrictions on Sales of Shares Underlying the Warrants. The
Warrants will not be exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company has undertaken to
use its best efforts to have all the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the exercise date
and to maintain a current prospectus relating thereto until the expiration of
the Warrants, there can be no assurance that it will be able to do so. The
Warrants may be deprived of value if a current prospectus covering the shares of
Common Stock issuable upon the exercise of the Warrants is not kept effective.
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for
any offering of Securities, the Company intends to use the net proceeds for
general corporate purposes.
Pending use of the proceeds in the Company's business, the funds will
be invested in short-term investment grade interest bearing instruments.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, $.001 par value per share, and 5,000,000 shares of
Preferred Stock, $.001 par value per share. As of January 9, 1997, 10,928,630
shares of Common Stock were outstanding, held of record by approximately 263
stockholders. No shares of the Preferred Stock were outstanding as of December
31, 1996, although 30,000 shares of the Preferred Stock had been designated
Series A Participating Preferred stock, $.001 par value. In addition, each
outstanding share of Common Stock represented the Preferred Share Purchase Right
related thereto.
Preferred Shares Purchase Rights
The Company's Board of Directors has declared a dividend of one right
(a "Right") to purchase one one-thousandth share of the Company's Series A
Participating Preferred Stock ("Series A Preferred") for each outstanding share
of Common Stock ("Common Shares") of the Company. The dividend will be payable
on January 31, 1997 (the "Record Date") to stockholders of record as of the
close of business on that date. Each Right will entitle the registered holder to
purchase from the Company one one-thousandth of a share of Series A Preferred at
an exercise price of $50.00 (the "Purchase Price"), subject to adjustment.
The following summary of the principal terms of the Rights is a general
description only and is subject to the detailed terms and conditions of the
Rights Agreement to be entered into by the Company and American Securities
Transfer, Inc., as Rights Agent (the "Rights Agent").
Rights Evidenced by Common Share Certificates. The Rights will not be
exercisable until the Distribution Date (defined below). Until the Distribution
Date, certificates for the Rights ("Rights Certificates") will not be sent to
stockholders; instead, the Rights will attach to and trade only together with
the Common Shares. Accordingly, Common Share certificates outstanding on the
Record Date will evidence the Rights related thereto, and Common Share
certificates issued after the Record Date will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or the earlier
redemption or expiration of the Rights), the surrender or transfer of any
certificates for Common Shares outstanding as of the Record Date, even without
the notation or a copy of the Summary of Rights being attached thereto, will
also constitute the transfer of the Rights associated with the Common Shares
represented by such certificate.
Distribution Date. The Rights will separate from the Common Shares,
Rights Certificates will be issued and the Rights will become exercisable upon
the earlier of: (i) 10 days (or such later date as may be determined by a
majority of the Board of Directors, excluding directors affiliated with the
Acquiring Person, as defined below (the "Continuing Directors")) following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding Common Shares; and (ii)
10 business days (or such later date as may be determined by a majority of the
Continuing Directors) following the commencement of, or announcement of an
intention to make, a tender offer or
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exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding Common Shares.
The earlier of such dates is referred to as the "Distribution Date."
Issuance of Rights Certificates; Expiration of Rights. As soon as
practicable following the Distribution Date, separate Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights from and after the Distribution Date. All Common Shares
issued prior to the Distribution Date will be issued with Rights. Common Shares
issued after the Distribution Date may be issued with Rights if such shares are
issued (i) upon the conversion of outstanding convertible debentures or any
other convertible securities issued after adoption of the Rights Agreement or
(ii) pursuant to the exercise of stock options or under employee benefit plans
or arrangements unless such issuance would result in (or create a risk that)
such options, plans or arrangements would not qualify for otherwise available
special tax treatment. Except as otherwise determined by the Board of Directors,
no other Common Shares issued after the Distribution Date will be issued with
Rights. The Rights will expire on the earliest of (i) November 7, 2006 (the
"Final Expiration Date"), (ii) redemption or exchange of the Rights as described
below, or (iii) consummation of an acquisition of the Company satisfying certain
conditions by a person who acquired shares pursuant to a Permitted Offer as
described below.
Initial Exercise of the Rights. Following the Distribution Date, and
until one of the further events described below, holders of the Rights will be
entitled to receive, upon exercise and the payment of $50.00 per Right, one
one-thousandth share of the Series A Preferred. In the event that the Company
does not have sufficient Series A Preferred available for all Rights to be
exercised, or the Board decides that such action is necessary and not contrary
to the interests of Rights holders, the Company may instead substitute cash,
assets or other securities for the Series A Preferred for which the Rights would
have been exercisable under this provision or as described below.
Right to Buy Company Common Shares. Unless the Rights are earlier
redeemed, in the event that an Acquiring Person becomes the beneficial owner of
20% or more of the Company's Common Shares then outstanding (other than pursuant
to a Permitted Offer), then each holder of a Right which has not theretofore
been exercised (other than Rights beneficially owned by the Acquiring Person,
which will thereafter be void) will thereafter have the right to receive, upon
exercise, Common Shares having a value equal to two times the Purchase Price.
Rights are not exercisable following the occurrence of an event as described
above until such time as the Rights are no longer redeemable by the Company as
set forth below.
Right to Buy Acquiring Company Stock. Unless the Rights are earlier
redeemed, in the event that, after the Shares Acquisition Date (as defined
below), (i) the Company is acquired in a merger or other business combination
transaction, or (ii) the Company consummates a merger or other business
combination transaction in which the Company is the continuing or surviving
corporation, or (iii) 50% or more of the Company's assets or earning power are
sold, each holder of a Right which has not theretofore been exercised (other
than Rights beneficially owned by the Acquiring Person, which will thereafter be
void) will thereafter have the right to receive, upon exercise, shares of common
stock of (i) the corporation acquiring the Company or (ii) the Company or (iii)
the purchaser of 50% or more of the Company's assets or earning power,
respectively, such shares in each case having a value equal to two times the
Purchase Price (unless the transaction satisfies certain conditions and is
consummated with a person who acquired shares pursuant to a Permitted Offer, in
which case the Rights will expire).
Permitted Offer. A Permitted Offer means a tender offer for all
outstanding Common Shares that has been determined by a majority of the
Continuing Directors to be fair and otherwise in the best interests of the
Company and its stockholders. Where the Board of Directors has determined that a
tender offer constitutes a Permitted Offer, the Rights will not become
exercisable to purchase Common Shares or shares of the acquiring company (as the
case may be) at the discounted price described above.
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Exchange Provision. At any time after the acquisition by an Acquiring
Person of 20% or more of the Company's outstanding Common Shares and prior to
the acquisition by such Acquiring Person of 50% or more of the Company's
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by the Acquiring Person), in whole or in
part, at an exchange ratio of one Common Share per Right.
Redemption. At any time on or prior to the close of business on the
earlier of (i) the 10th day following the acquisition by an Acquiring Person of
20% or more of the Company's outstanding Common Shares (the "Shares Acquisition
Date") or such later date as may be determined by a majority of the Continuing
Directors and publicly announced by the Company, or (ii) the Final Expiration
Date of the Rights, the Company may redeem the Rights in whole, but not in part,
at a price of $.01 per Right.
Adjustments to Prevent Dilution. The Purchase Price payable, the number
of Rights, and the number of Series A Preferred or Common Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time in connection with the dilutive issuances by the
Company as set forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase Price.
Cash Paid Instead of Issuing Fractional Shares. No fractional portion
less than integral multiples of one Common Share will be issued upon exercise of
a Right and in lieu thereof, an adjustment in cash will be made based on the
market price of the Common Shares on the last trading date prior to the date of
exercise.
No Stockholders' Rights Prior to Exercise. Until a Right is exercised,
the holder thereof, as such, will have no rights as a stockholder of the Company
(other than any rights resulting from such holder's ownership of Common Shares),
including, without limitation, the right to vote or to receive dividends.
Amendment of Rights Agreement. The provisions of the Rights Agreement
may be supplemented or amended by the Board of Directors in any manner prior to
the close of business on the date of the acquisition by an Acquiring Person of
20% or more of the Company's outstanding Common Shares without the approval of
Rights holders. After the Distribution Date, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.
Rights and Preferences of the Series A Preferred. Series A Preferred
purchasable upon exercise of the Rights will not be redeemable. Each share of
Series A Preferred will be entitled to an aggregate dividend of 1,000 times the
dividend declared per Common Share. In the event of liquidation, the holders of
the Series A Preferred will be entitled to a minimum preferential liquidation
payment equal to $50,000 per share. Each share of Series A Preferred will have
1,000 votes, voting together with the Common Shares. In the event of any merger,
consolidation or other transaction in which the Common Shares are changed or
exchanged, each share of Series A Preferred will be entitled to receive 1,000
times the amount received per Common Share. These rights are protected by
customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
the shares of Series A Preferred, the value of the one one-thousandth interest
in a share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
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Certain Anti-takeover Effects. The Rights approved by the Board are
designed to protect and maximize the value of the outstanding equity interests
in the Company in the event of an unsolicited attempt by an acquiror to take
over the Company in a manner or on terms not approved by the Board of Directors.
Takeover attempts frequently include coercive tactics to deprive the Company's
Board of Directors and its stockholders of any real opportunity to determine the
destiny of the Company or to evaluate and protect the long-term value of the
Company. The Rights are not intended to prevent a takeover of the Company. The
Rights may be redeemed by the Company at $.01 per Right within ten days (or such
later date as may be determined by a majority of the Continuing Directors) after
the accumulation of 20% or more of the Company's shares by a single acquiror or
group. Accordingly, the Rights should not interfere with any merger or business
combination approved by the Board of Directors.
Issuance of the Rights does not in any way weaken the financial
strength of the Company or interfere with its business plans. The issuance of
the Rights themselves has no dilutive effect, will not affect reported earnings
per share, should not be taxable to the Company or to its stockholders, and will
not change the way in which the Company's shares are presently traded. The
Company's Board of Directors believes that the Rights represent a sound and
reasonable means of addressing the complex issues of corporate policy created by
the current takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.
Common Stock Warrants
The following summary description of the Warrants sets forth certain
general terms and provisions of the Warrants to which any Prospectus Supplement
may relate, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Common Stock Purchase
Warrant.
Exercise Price and Terms. Each Warrant will entitle the registered
holder thereof to purchase, for a fixed time period commencing on the date of
issuance, a fixed number of shares of Common Stock at a fixed price per share,
subject to adjustment in accordance with the anti-dilution and other provisions
referred to below. The holder of any Warrant will be able to exercise such
Warrant by surrendering the certificate representing the Warrant to American
Securities Transfer, Inc., (the "Warrant Agent"), with the subscription form
thereon properly completed and executed, together with payment of the exercise
price. The Warrants may be exercised at any time in whole or in part at the
applicable exercise price until expiration of the Warrants. No fractional shares
will be issued upon the exercise of the Warrants.
The exercise price of the Warrants may bear no relationship to any
objective criterion of value and should in no event be regarded as an indication
of any future market price of the Common Stock.
Adjustments. The exercise price and the number of shares of Common
Stock purchasable upon the exercise of the Warrants will be subject to
adjustment upon the occurrence of certain events, including stock splits,
reverse stock splits or combinations of the Common Stock, or sale by the Company
of shares of its Common Stock or other securities convertible into Common Stock
at a price below the fair market value of the Common Stock. Additionally, an
adjustment may be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company in
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order to enable warrantholders to acquire the kind and number of shares of stock
or other securities or property receivable in such event by a holder of the
number of shares of Common Stock that might otherwise have been purchased upon
the exercise of the Warrant.
Transfer, Exchange and Exercise. The Warrants will be in registered
form and may be presented to the Warrant Agent for transfer, exchange or
exercise at any time on or prior to their expiration date, at which time the
Warrants will become wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue and the Company does not intend to apply for the listing of the
Warrants on any exchange.
Warrantholder Not a Stockholder. The Warrants will not confer upon
holders any voting, dividend or other rights as stockholders of the Company.
Modification of Warrant. Modification of the Warrants, including the
modification of the number of shares of Common Stock purchasable upon the
exercise of any Warrant, the exercise price and the expiration date with respect
to any Warrant, will require the consent of the holders of a majority of the
Warrants.
The Warrants will not be exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company has undertaken to use its best efforts to have all the shares of Common
Stock issuable upon exercise of the Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Warrants, there can be no assurance that it will be
able to do so.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters,
and also may sell Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell securities to or through dealers and such dealers may
receive compensation in the form of
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discounts, concessions, or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement.
Any Common Shares sold pursuant to a Prospectus Supplement are expected
to be listed on the Nasdaq National Market. Unless otherwise specified in the
related Prospectus Supplement, each series of Warrants will be a new issue with
no established trading market. The Company may elect to list any series of
Warrants on an exchange, but is not obligated to do so. It is possible that one
or more underwriters may make a market in a series of Warrants, but will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market of any Securities.
Under agreements the Company may enter into, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company in the ordinary course of
business.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
VidaMed by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this Prospectus, certain members of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, beneficially own
approximately 4,464 shares of the Company's Common Stock. J. Casey McGlynn,
Secretary of the Company, and Christopher D. Mitchell, Assistant Secretary of
the Company, are members of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
EXPERTS
The Consolidated Financial Statements of VidaMed, Inc. incorporated by
reference in VidaMed, Inc.'s Annual Report (Form 10-K) for the fiscal year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon incorporated by reference 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.
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No dealer, salesperson or other person has been authorized in
connection with any offering made hereby to give any information or to make any
representations other than those contained in or incorporated by reference in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities offered hereby, nor do they constitute an offer to
sell or a solicitation of any offer to buy any of the securities offered hereby
to any person in any jurisdiction in which such offer or solicitation would be
unlawful or to any person to whom it is unlawful. Neither the delivery of this
Prospectus nor any offer or sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company or that the information contained herein is correct as of any time
subsequent to the date hereof.
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TABLE OF CONTENTS
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Page
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Available Information ..................................................... 2
Information Incorporated by Reference ..................................... 2
The Company................................................................ 4
Recent Developments........................................................ 5
Risk Factors............................................................... 5
Use of Proceeds............................................................ 12
Description of Securities.................................................. 12
Plan of Distribution....................................................... 16
Legal Matters.............................................................. 17
Experts.................................................................... 17
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Vida Med, Inc.
1,000,000 Shares of Common Stock
100,000 Warrants to Purchase
Common Stock
====================
PROSPECTUS
====================
February 3, 1997
