<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED UROSCIENCE, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3845 41-1786260
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
ADVANCED UROSCIENCE, INC.
1290 HAMMOND ROAD
ST. PAUL, MINNESOTA 55110
(612) 653-8512
(Address and telephone number of principal executive offices)
DEAN A. KLEIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADVANCED UROSCIENCE, INC.
1290 HAMMOND ROAD
ST. PAUL, MINNESOTA 55110
(612) 653-8512
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Dobson West, Esq. Elizabeth C. Hinck, Esq.
Melodie R. Rose, Esq. Dorsey & Whitney LLP
Fredrikson & Byron, P.A. 220 South Sixth Street
900 Second Avenue South, Suite 1100 Minneapolis, Minnesota 55402
Minneapolis, Minnesota 55402 (612) 340-2600
(612) 347-7000
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If this Form is filed to register additional securities of 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, please 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: /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock (no par value) 1,725,000 shares $10.00 $17,250,000 $5,949
</TABLE>
(1) Includes 225,000 shares purchasable by the Underwriters to cover
overallotments.
(2) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 28, 1996
PROSPECTUS
1,500,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Shares") are being
sold by Advanced UroScience, Inc. ("Advanced UroScience" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $9.00 and $10.00 per Share. See "Underwriting" for the factors
considered in determining the initial public offering price. Application has
been made to have the Common Stock approved on the Nasdaq National Market under
the symbol "AURO" pending completion of the Offering.
------------------------
THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 AND "DILUTION" ON PAGE 12.
---------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
(1) The Company has agreed to pay to John G. Kinnard and Company, Incorporated
and Pennsylvania Merchant Group Ltd, as representatives of the several
Underwriters (the "Representatives"), their accountable expenses in
connection with the Offering up to a maximum of $50,000. The Company has
also agreed to sell to the Representatives, for a nominal purchase price,
five-year warrants to purchase up to an aggregate of 150,000 shares of the
Common Stock, exercisable at 120% of the Price to Public. In addition, the
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $260,000
(including the Representatives' accountable expenses referenced in note 1
above). See "Underwriting."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional shares of Common Stock solely to cover overallotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The Shares are being offered by the several Underwriters subject to prior
sale, to withdrawal, cancellation or modification of the offer without notice,
to delivery to and acceptance by the Underwriters and to certain other
conditions. It is expected that delivery of the Shares will be made on or about
, 1996 in Minneapolis, Minnesota.
------------------------
JOHN G. KINNARD AND COMPANY, INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD
------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[ANATOMICAL DEPICTION OF ACYST IMPLANT PROCEDURE]
The Company's products have not been approved by the FDA and there can be
no assurance that the Company will receive approval from the FDA.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Acyst-TM- is a trademark of the Company. This Prospectus also includes trade
names, trademarks and registered trademarks of companies other than Advanced
UroScience.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION HEREIN
(I) HAS BEEN ADJUSTED TO REFLECT A 6-FOR-5 STOCK SPLIT EFFECTED ON MAY 1, 1996
AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVERALLOTMENT OPTION (225,000
SHARES), THE REPRESENTATIVES' WARRANT (150,000 SHARES) OR OUTSTANDING OPTIONS
AND WARRANTS (1,169,880 SHARES). SEE "DESCRIPTION OF SECURITIES" AND
"UNDERWRITING."
THE COMPANY
Advanced UroScience, Inc. ("Advanced UroScience" or the "Company") is
developing Acyst, an injectable bulking agent, for the treatment of stress
urinary incontinence due to intrinsic sphincter deficiency. Stress urinary
incontinence is generally defined as the involuntary loss of urine as a result
of activities that increase intra-abdominal pressure, such as coughing,
laughing, exercising or simply standing up. Acyst is a proprietary composition
of pyrolytic carbon-coated micro-beads suspended in a carrier gel. Acyst is
designed to be injected into the mucosal lining of the urethra at the neck of
the bladder through a specially designed needle. The injection procedure
involves inserting the needle through a standard cystoscope, allowing the
physician to view the bulking of the tissue and the resulting closure of the
bladder opening. This minimally invasive outpatient procedure can be
accomplished in approximately 30 minutes and is designed to immediately restore
the patient to urinary continence.
Advanced UroScience has recently commenced conducting human clinical trials
of Acyst at the Mayo Clinic in Rochester, Minnesota under an investigational
device exemption ("IDE") granted by the United States Food and Drug
Administration ("FDA"). The Company expects to use the data gathered in these
trials to support an application for premarket approval ("PMA") from the FDA.
The Company is also conducting human clinical trials outside of the United
States.
Advanced UroScience believes that Acyst offers significant advantages over
existing management and treatment options, including commercially available
injectable bulking agents for sufferers of stress urinary incontinence caused by
intrinsic sphincter deficiency. Unlike adult diapers and pads, which are methods
of managing the problem, Acyst is designed to treat and improve the condition.
Acyst is designed to provide results immediately after injection, unlike
behavioral therapy and pelvic muscle training exercises, which can take several
weeks or months before results are achieved and which require ongoing therapy.
Acyst was specifically designed to address the significant issues posed by
commercially available injectable bulking agents, namely, biocompatibility,
migration and absorption. Acyst utilizes nonabsorbable, nonmigratory,
biocompatible micro-beads designed to be permanent, thereby minimizing the
potential need for retreatment.
It is estimated that there are at least 13 million people with urinary
incontinence in the United States, of which 85% are women. Approximately 9
million of the people with urinary incontinence suffer from stress urinary
incontinence. The Company believes that a number of these people, specifically
those with intrinsic sphincter deficiency, could benefit from Acyst. Although
urinary incontinence is most prevalent in the elderly, it is also common among
women under the age of 60. It is expected that urinary incontinence will
continue to be a significant health care problem for the adult female and
elderly populations and will, in fact, increase as the growing population
continues to age.
The Company's current focus is to complete the human clinical trials of
Acyst and obtain approval to market from the FDA as well as approval to market
Acyst in countries outside of the United States. The Company's marketing
strategy will be to target the large number of women suffering from stress
urinary incontinence due to intrinsic sphincter deficiency by educating
physicians and other health care providers that treat these patients, the
patients themselves and the health care payers.
The Company was incorporated in Minnesota on July 27, 1994. Its executive
offices are located at 1290 Hammond Road, St. Paul, Minnesota 55110 and its
telephone number is (612) 653-8512.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................ 1,500,000 Shares
Common Stock outstanding after the
Offering.................................. 5,213,220 shares
Use of proceeds............................. To fund human clinical trials, research and
development, international sales and marketing
and for working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... AURO
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM INCEPTION
INCEPTION FIVE MONTHS ENDED (AUGUST 1,
(AUGUST 1, 1994) MAY 31, 1994)
TO YEAR ENDED -------------------- TO
DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996 MAY 31, 1996
----------------- ----------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development
expense....................... $ 33,500 $ 353,300 $ 109,000 $ 215,000 $ 601,900
General and administrative
expense....................... 73,700 164,800 48,600 309,700 548,200
Net loss........................ $ (108,900) $ (524,400) $(159,200) $(514,700) $(1,148,000)
----------------- ----------------- --------- --------- ---------------
----------------- ----------------- --------- --------- ---------------
Net loss per share.............. $ (0.03) $ (0.12) $ (.04) $ (.12) $ (.27)
----------------- ----------------- --------- --------- ---------------
----------------- ----------------- --------- --------- ---------------
Weighted average number of
common and common equivalent
shares outstanding............ 3,840,887 4,393,483 4,387,883 4,397,483 4,268,802
----------------- ----------------- --------- --------- ---------------
----------------- ----------------- --------- --------- ---------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
-----------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(1)
----------------- ----------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 415,200 $ 1,244,600 $ 14,094,600
Total assets..................................................... 534,400 1,506,200 14,356,200
Total liabilities................................................ 277,400 186,300 186,300
Total stockholders' equity....................................... 257,100 1,319,900 14,169,900
</TABLE>
- ------------------------------
(1) Adjusted to reflect the sale of the Shares offered hereby and the
application of the net proceeds therefrom, assuming a Price to Public of
$9.50 per Share.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL PURCHASERS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OF THE COMPANY.
EARLY STAGE OF CLINICAL TESTING; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL
Acyst is a new product and is in the early stages of clinical testing. To
date, the Company has conducted primarily animal research and has only recently
begun conducting human clinical trials designed to test the safety and efficacy
of Acyst. The Company cannot market Acyst in the United States unless and until
substantial human clinical trials are successfully completed and a PMA is
prepared by the Company and approved by the FDA. Similarly, prior to
commercialization in foreign jurisdictions, receipt of regulatory approvals from
the appropriate regulatory bodies in those jurisdictions will be required. There
can be no assurance that Acyst will be shown by clinical trials to be safe and
effective or that such clinical trials will be seen by the FDA or others as
conclusive. In addition, the Company's clinical trials may identify significant
obstacles to be overcome prior to obtaining regulatory approval. The process of
obtaining FDA approval and other regulatory approvals is lengthy, expensive and
uncertain, and there can be no assurance that Acyst will be approved for
marketing on a timely basis or at all in the United States or elsewhere. If
Acyst does not prove to be safe and effective in clinical trials to the
satisfaction of the FDA and other regulatory authorities or if the Company fails
to receive the necessary regulatory approvals on a timely basis or at all, the
Company's business, financial condition and results of operations will be
materially adversely affected. See "Business -- Development and Regulatory
Status" and "Business -- Regulatory Affairs."
DEPENDENCE ON SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future success is entirely dependent on the successful
commercialization and market acceptance of its single product, Acyst, the safety
and efficacy of which has not yet been demonstrated and the regulatory approval
of which has not been obtained in the United States or any foreign jurisdiction.
There can be no assurance that Acyst will achieve any significant degree of
market acceptance among physicians, health care payers or patients, even if the
safety and efficacy of Acyst is established and the necessary regulatory
approvals are obtained. Physicians may not elect to prescribe treatment using
Acyst unless adequate reimbursement from health care payers is available. Health
care payer acceptance of a treatment utilizing Acyst will require, among other
things, evidence of the cost effectiveness of this treatment as compared to
other treatment options. There can be no assurance as to whether and, if so, how
frequently patients will require additional injections of Acyst and whether any
such additional injections would be effective or would have a negative effect on
physician, payer or patient acceptance. Failure of Acyst to achieve significant
market acceptance among physicians, health care payers and/or patients would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain and maintain
patent protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of third parties. The Company has one
patent relating to Acyst and has filed one related Patent Cooperation Treaty
patent application. No assurances can be given that the scope of any patent
protection will prevent competitors, most of which have financial and other
resources substantially greater than the Company, from introducing products
competitive with Acyst, that the Company's patent will be held valid if
subsequently challenged, that others will not claim rights in or ownership of
the patent and other proprietary rights held by the Company, or that the
Company's product and processes will not infringe, or be alleged to infringe,
the proprietary rights of others. A number of patents have been issued to others
in the area of injectable bulking agents. Patenting medical devices involves
complex legal and factual questions, and there is no consistent policy regarding
the breadth of claims which issue pertaining to such technologies or which will
be held valid if subsequently challenged. The Company also relies upon
unpatented trade secrets to protect its proprietary technology. No assurance can
be given that others will not independently develop or otherwise acquire
5
<PAGE>
substantially equivalent techniques or gain access to and disclose the Company's
proprietary technology. Further, no assurance can be given that the Company can
ultimately protect meaningful rights to such unpatented proprietary technology.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. The Company has been notified of the existence of patents
relating to other injectable bulking agents. The Company and its patent counsel
have reviewed these patents. Based on this review, the Company believes that it
is not infringing such patents. However, there can be no assurance that the
holders of these other patents will not pursue litigation against the Company.
In addition, litigation may be necessary to enforce any patents issued to the
Company, protect trade secrets or proprietary information owned by the Company
against claimed infringement of the rights of others or determine the scope and
validity of the proprietary rights of others. The defense and prosecution of
patent litigation or other legal or administrative proceedings related to
patents is both costly and time-consuming, regardless of the outcome. An adverse
outcome in any litigation could subject the Company to significant liabilities
to third parties, require disputed rights to be licensed from others or require
the Company to cease making, using or selling any products. There can be no
assurance that any licenses required under any patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. In
addition to being costly, protracted litigation to defend or prosecute
intellectual property could result in the Company being unable to commercialize
Acyst on a timely basis or at all. See "Business -- Patents and Proprietary
Rights."
HIGHLY COMPETITIVE INDUSTRY
Competition in the urinary incontinence management and treatment products
market is intense. The Company's ability to compete in this market will depend
primarily upon physician, patient and health care payer acceptance of Acyst as a
safe, effective and cost effective treatment for stress urinary incontinence due
to intrinsic sphincter deficiency. The Company's ability to compete in this
market will also depend on product pricing and the consistency of its product
quality and delivery. Other factors within and outside the Company's control
include its product development and innovation capabilities, its ability to
obtain required regulatory approvals, its ability to protect its proprietary
technology, its manufacturing and marketing capabilities and its ability to
attract and retain skilled employees.
The medical condition that can be treated using the Company's product also
may be managed or treated using a variety of alternative products or techniques,
including adult diapers and absorbent pads, behavior therapy and pelvic muscle
exercise, drugs, surgery, implantable devices, other injectable bulking agents,
and other medical devices. There is no assurance that the Company's product will
be able to replace such alternative products or techniques or that advancements
in these alternative products or techniques will not make the Company's product
obsolete. In addition, the Company believes that some of its competitors that do
not currently have injectable bulking agents are attempting to develop
injectable bulking agents that will compete directly with Acyst. Many of the
Company's existing and potential competitors have substantially greater capital
resources, name recognition and well-known and well-established product lines.
These competitors may also have greater expertise than the Company in research
and development, manufacturing, marketing and sales and regulatory affairs.
There is no assurance that the Company will be able to successfully compete
against such competitors and potential competitors. See "Business --
Competition."
EXTENSIVE UNITED STATES AND INTERNATIONAL REGULATORY AFFAIRS
The Company's product, product development activities and manufacturing
processes are subject to extensive and rigorous regulation by the FDA and by
comparable agencies in foreign countries. In the United States, the FDA
regulates the introduction of medical devices as well as manufacturing,
labeling, distribution, sale, marketing, advertising, promotion and
recordkeeping procedures for such products. To introduce its product in Europe,
the Company must comply with the medical device directive of the European
Community which defines the safety, design and manufacturing requirements for
medical products. Typically a full quality assurance system complying with and
certified to international quality standards is required to conform with the
medical device directive. Other foreign jurisdictions have extensive regulatory
requirements for the introduction of medical devices in those jurisdictions. The
process of obtaining
6
<PAGE>
marketing approval for new medical products from the FDA and complying with
international quality standards in foreign countries can be costly and time
consuming, and there can be no assurance that the requisite approvals or
certifications will be granted for Acyst or any future products on a timely
basis or at all, or that such regulatory reviews will not involve delays that
would adversely affect the Company's ability to commercialize Acyst.
Even if regulatory approval to market a product is obtained from the FDA,
this approval may entail limitations on the indicated uses of the product.
Marketing approval can also be withdrawn by the FDA due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following
initial approval. The Company may be required to make further filings with the
FDA under certain circumstances, such as the addition of product claims or
product reformulation. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. FDA regulations depend heavily on administrative
interpretation, and there can be no assurance that future interpretation made by
the FDA or other regulatory bodies, with possible retroactive effect, will not
adversely affect the Company. The FDA and various state agencies inspect the
Company and its facilities from time to time to determine whether the Company is
in compliance with regulations relating to medical device manufacturing
companies, including regulations concerning manufacturing, testing, quality
control and product labeling practices. A determination that the Company is in
material violation of such regulations could lead to the imposition of civil
penalties, including fines, product recalls, product seizures, or, in extreme
cases, criminal sanctions. See "Business -- Regulatory Affairs."
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
The success of the Company will be dependent upon, among other things, the
extent to which satisfactory reimbursement for Acyst and the injection procedure
can be obtained from health care payers for physicians performing the implant
procedure. In the United States and many foreign countries, third-party
reimbursement is currently generally available for surgical procedures for
urinary incontinence, but there is no uniform policy for such reimbursements.
The availability of third-party reimbursement for Acyst or competitors' products
or surgical procedures and continuing efforts to reduce the costs of health care
by decreasing reimbursement rates may affect the pricing of Acyst or the
relative cost to the consumer. The Company is not able to predict the effect
that the availability or unavailability of third-party reimbursement for Acyst
may have on its commercialization abroad or in the United States. Third party
reimbursement will be dependent upon decisions by the Health Care Financing
Administration ("HCFA") for Medicare, individual managed care organizations,
private insurers, foreign governmental health programs and other payers. Failure
to establish sufficient reimbursement from health care payers or adverse changes
in governmental and private third party payers' policies toward reimbursement
for Acyst and its injection procedure could materially adversely affect the
Company's business, financial condition and results of operations. See "Business
- -- Third-Party Reimbursement."
DEPENDENCE ON SUPPLIERS
Certain of the primary raw materials and components for the manufacture of
Acyst, such as the micro-beads and a material needed for the gel carrier, are
available only from single sources. In the event that the Company is unable to
obtain these materials or components from its current suppliers on acceptable
terms and is required to replace its current raw materials or components with
alternatives, additional testing may be required in order for Acyst to receive
regulatory approval. Interruptions in supplies of raw materials or components
may occur as a result of business risks particular to such suppliers or the
failure of the Company and any such supplier to maintain satisfactory terms.
Suppliers of the Company's raw materials and components may decide for reasons
beyond the control of the Company, such as concerns about potential medical
product liability risk in general, to cease supplying such materials for use in
medical devices generally. Any interruption in the supply of raw materials or
components currently used by the Company or the use of any alternatives could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Manufacturing."
7
<PAGE>
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES;
PROFITABILITY UNCERTAIN
The Company is a development stage company that since its inception in
August 1994 has been primarily engaged in research, development and testing of
Acyst. The Company has experienced significant operating losses since inception
and, as of May 31, 1996, had an accumulated deficit of approximately $1,417,400.
In addition, the development and commercialization by the Company of Acyst and
other new products, if any, will require substantial product development
expenditures for the foreseeable future. The Company expects its operating
losses to increase over the foreseeable future and there can be no assurance
that the Company will be profitable in the future or that the net proceeds of
the Offering, together with the Company's existing capital resources and any
funds provided by future operations, will be sufficient to fund the Company's
needs, or that other sources of funding will be available. The Company's ability
to generate revenues from operations and achieve profitability is dependent upon
successful completion of clinical trials, regulatory approval and
commercialization of Acyst and the Company's successful transition from a
development stage company to a fully operating company. See "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements.
NEED FOR ADDITIONAL CAPITAL
The Company plans to continue to expend substantial funds on research and
product development, pursuit of regulatory approvals, expansion of its
manufacturing facilities and marketing and distribution of its product. The
Company also intends to invest in additional equipment in order to establish
sufficient manufacturing capabilities to supply commercial volumes of Acyst.
There can be no assurance that the net proceeds of the Offering, together with
the Company's existing capital resources and any funds generated from future
operations, will be sufficient to finance the Company's operations or that other
sources of equity or debt funding will be available. The Company does not have a
bank line of credit or other arrangement to obtain any needed additional
financing, and there can be no assurance that any required financing will be
available on acceptable terms or at all. Any additional equity financings may be
dilutive to purchasers in the Offering, and debt financing, if available, may
involve restrictive covenants. Insufficient funds may require the Company to
delay, scale back or eliminate some or all of its efforts to commercialize Acyst
or prevent such commercial introduction altogether. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LIMITED MARKETING AND SALES EXPERIENCE
The Company has not sold any products. The Company currently has limited
sales and marketing capabilities. There can be no assurance that the Company can
build an effective sales force, attract and retain its own qualified marketing
and sales group or otherwise design and implement an effective marketing and
sales strategy for Acyst or any future product developed by the Company. See
"Business -- Marketing Strategy."
LIMITED MANUFACTURING EXPERIENCE
To date the Company has not commenced manufacturing commercial quantities of
Acyst and has manufactured only limited quantities of Acyst. To be successful,
the Company must manufacture Acyst in compliance with regulatory requirements,
in a timely manner and in sufficient quantities while maintaining product
quality and acceptable manufacturing costs. There can be no assurance that the
Company will be able to manufacture commercial quantities of Acyst with the
consistent high quality and low cost required for the Company to become
profitable. See "Business -- Manufacturing."
RISK OF PRODUCT LIABILITY; NO ASSURANCE INSURANCE IS ADEQUATE
The medical products industry is subject to substantial litigation, and the
Company faces an inherent business risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in adverse
effects to a patient. There can be no assurance that the Company's existing
insurance coverage limits are adequate to protect the Company from any
liabilities which it might incur in connection with the clinical trials of Acyst
or the initial commercialization of Acyst. There can be no assurance that
liability claims will not exceed coverage limits. Such insurance is expensive
and in the future may not be
8
<PAGE>
available on acceptable terms, if at all. Consequently, a product liability
claim or other claim with respect to uninsured liabilities or in excess of
insured liabilities could have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Business --
Product Liability."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management personnel. The Company generally does not
have employment agreements with nor maintain key person life insurance on its
key personnel. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled managerial,
engineering, operations and marketing personnel, who are in great demand.
Failure to attract and retain key personnel could have a material adverse effect
on the Company's results of operations. See "Management."
RISKS RELATED TO INTERNATIONAL SALES
The Company intends to sell Acyst and any future products to customers
outside of the United States. International sales and operations may be limited
or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs or
difficulties in staffing and managing international operations. Foreign
regulatory agencies often establish product standards different from those in
the United States and any inability to obtain foreign regulatory approvals on a
timely basis or at all could have an adverse effect on the Company's
international business and its financial condition and results of operations.
Additionally, the Company's business, financial condition and results of
operations may be adversely affected by fluctuations in currency exchange rates
as well as increases in duty rates and difficulties in obtaining export
licenses. There can be no assurance that the Company will be able to
successfully commercialize Acyst or any future product in any foreign market.
See "Business -- Marketing Strategy."
CONTROL BY MANAGEMENT
Upon completion of the Offering, the Company's executive officers and
directors will beneficially own approximately 56.1% of the issued and
outstanding shares of Common Stock. As a result of such ownership, such
shareholders as a group may have the ability to elect or remove all members of
the Board of Directors and thereby control the affairs and management of the
Company and may have the power to approve most actions requiring shareholder
approval. Such a level of ownership can have the effect of delaying, deferring
or preventing a change in control of the Company and can adversely affect the
voting and other rights of the other holders of Common Stock. See "Principal
Shareholders."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price for the Shares will be determined by negotiation between the
Company and the Representatives and may bear no relationship to the market price
of the Shares subsequent to the Offering. Following the Offering, the market
price for the Common Stock may be highly volatile depending on various factors,
including the general economy, stock market conditions, announcements by the
Company, its distributors or competitors, and fluctuations in the Company's
operating results. See "Underwriting."
ADVERSE EFFECT OF FUTURE SALES OF COMMON STOCK
The availability for sale of certain shares of Common Stock held by
shareholders of the Company after the Offering could adversely affect the market
price of the Common Stock. Of the 5,213,220 shares of Common Stock to be
outstanding following the Offering, 1,500,000 will be freely tradeable without
restrictions or additional registration under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 3,713,220 shares will be available
for resale under Rule 144 after the expiration of applicable holding periods.
Holders of 3,176,100 of the outstanding shares have agreed not to offer, sell or
otherwise dispose of any of their shares for a period of 180 days after the
effective date of the Offering, without the
9
<PAGE>
prior written consent of John G. Kinnard and Company, Incorporated. Sales of a
substantial amount of the currently outstanding shares of Common Stock in the
public market may adversely affect the market price of the Common Stock. See
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS AND CLASS A PREFERRED STOCK
The effect of certain provisions of the Minnesota Business Corporation Act
and the ability of the Board of Directors of the Company to issue Class A
Preferred Stock without shareholder approval may have the effect of delaying or
preventing a change in control or merger of the Company, which could operate to
the detriment of other shareholders. Further, the anti-takeover effects of the
issuance of Class A Preferred Stock may deny shareholders the receipt of a
premium on their Common Stock and may also have a depressive effect on the
market price. See "Description of Securities."
IMMEDIATE, SUBSTANTIAL DILUTION TO PURCHASERS IN THE OFFERING
Purchasers of the Shares offered hereby will incur immediate and substantial
dilution in the net tangible book value of their purchased Shares (approximately
$6.79 per Share assuming an offering price of $9.50 per share). Investors may
also experience additional dilution as a result of the exercise of outstanding
stock options and warrants. See "Dilution."
NO DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying such dividends for the foreseeable future. See "Dividend
Policy."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 Shares
offered to the public hereby at an assumed initial public offering price of
$9.50 per Share are estimated to be $12,850,000 ($14,816,500 if the
Underwriters' overallotment option is exercised in full) after deducting the
underwriting discount and estimated expenses of the Offering payable by the
Company. The Company currently intends to apply approximately $5,000,000 of
these proceeds to conduct human clinical trials, $2,000,000 to fund research and
development efforts and $1,000,000 for international sales and marketing
activities. The remaining proceeds and any additional proceeds received upon the
exercise of the overallotment option or the Representatives' Warrants are
intended to be used for working capital and general corporate purposes.
Pending utilization of the net proceeds of the Offering, the Company plans
to invest such net proceeds in short-term money market investments and/or
short-term investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain any earnings for use in the operation
and expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. See "Description of Securities."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996 and as adjusted to reflect the sale by the Company of the 1,500,000
Shares offered to the public hereby at an assumed Price to Public of $9.50 per
Share. See "Use of Proceeds."
<TABLE>
<CAPTION>
MAY 31, 1996
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholders' equity:
Class A Preferred Stock, no par value; 2,000,000 shares authorized; no
shares issued and outstanding......................................... $ -- $ --
Common Stock, no par value; 20,000,000 shares authorized; 3,713,220
shares issued and outstanding; 5,213,220 shares issued and
outstanding, as adjusted.............................................. 2,527,300 15,377,300
Contributed capital..................................................... 210,000 210,000
Deficit accumulated during the development stage........................ (1,417,400) (1,417,400)
------------- -------------
Total stockholders' equity............................................ $ 1,319,900 $ 14,169,900
------------- -------------
------------- -------------
</TABLE>
11
<PAGE>
DILUTION
The following gives effect to the issuance of the 1,500,000 Shares offered
hereby at an assumed Price to Public of $9.50 per Share, but does not give
effect to any exercise of outstanding options and warrants to purchase an
aggregate of 1,169,880 shares of Common Stock. The net tangible book value of
the Company's Common Stock at May 31, 1996 was $1,290,800 or $.35 per share.
"Net tangible book value" represents the tangible assets less total liabilities
of the Company, and "net tangible book value per share" was determined by
dividing the net tangible book value of the Company by the number of shares of
Common Stock outstanding on May 31, 1996. See "Capitalization." "Net tangible
book value dilution" represents the difference between the Price to Public per
Share and the net tangible book value per share after the Offering. Without
taking into account any changes in the Company's net tangible book value per
share after May 31, 1996, other than to give effect to the sale of the Shares
offered hereby at an assumed price of $9.50 per Share (net of the underwriting
discount and estimated expenses of the Offering), the net tangible book value of
the Company at May 31, 1996 would have been $14,140,800 or $2.71 per Share. This
represents an immediate increase in net tangible book value to the existing
shareholders of $2.36 per Share and an immediate net tangible book value
dilution to purchasers of the Shares of $6.79 per share, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed Price to Public per Share............................. $ 9.50
Net tangible book value per share at May 31, 1996........... $ .35
Increase per share attributable to new investors............ 2.36
---------
Net tangible book value per share after the Offering.......... 2.71
---------
Net tangible book value dilution per Share to new investors... $ 6.79
---------
---------
</TABLE>
The following table summarizes the difference between the number of shares
of Common Stock purchased from the Company by officers, directors and principal
shareholders, by other current shareholders and by new investors in the
Offering, the total consideration paid to the Company and the average price paid
per share. The table assumes that none of the 1,500,000 Shares offered hereby
are purchased in the Offering by existing shareholders. To the extent existing
shareholders purchase in the Offering, their percentage ownership, total
consideration and average consideration per share will be greater than is shown.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Officers, directors and principal shareholders... 3,134,100 60.1% $ 1,598,100 9.5% $ .51
Other current shareholders....................... 579,120 11.1% 940,125 5.6% $ 1.62
New investors.................................... 1,500,000 28.8% 14,250,000 84.9% $ 9.50
---------- ----- ------------- -----
Total........................................ 5,213,220 100.0% $ 16,788,225 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
12
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the period from
inception (August 1, 1994) through December 31, 1994, and as of and for the
fiscal year ended December 31, 1995 have been derived from the financial
statements of the Company which have been audited by McGladrey & Pullen, LLP,
independent auditors, whose report appears elsewhere in this Prospectus. The
financial data as of May 31, 1995 and 1996 and for the five month periods ended
May 31, 1995 and 1996 and for the period from inception (August 1, 1994) through
May 31, 1996 have been derived from the Company's unaudited financial
statements. The unaudited financial statements reflect, in the opinion of
management, all adjustments of a normal recurring nature necessary for a fair
presentation of financial position and results of operations. The results for
the five months ended May 31, 1996 are not necessarily indicative of the results
to be expected for the entire year. The selected financial data should be read
in conjunction with Management's Discussion and Analysis of Results of
Operations and Financial Condition and the Financial Statements and Notes
thereto, all of which are contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(AUGUST 1, FIVE MONTHS ENDED INCEPTION
1994) TO YEAR ENDED MAY 31, (AUGUST 1,
DECEMBER 31, DECEMBER 31, -------------------------- 1994) TO MAY
1994 1995 1995 1996 31, 1996
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development expense....... $ 33,500 $ 353,300 $ 109,000 $ 215,000 $ 601,900
General and administrative expense..... 73,700 164,800 48,600 309,700 548,200
Net loss............................... $ (108,900) $ (524,400) $ (159,200) $ (514,700) $ (1,148,000)
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Net loss per share..................... $ (0.03) $ (0.12) $ (.04) $ (.12) $ (.27)
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Weighted average number of common and
common equivalent shares
outstanding.......................... 3,840,887 4,393,483 4,387,883 4,397,483 4,268,802
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
---------------------- ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 367,500 $ 415,200 $ 231,800 $ 1,244,600
Total assets................................................. 453,500 534,400 285,300 1,506,200
Total liabilities............................................ 247,900 277,400 218,900 186,300
Total stockholders' equity................................... 205,600 257,100 66,400 1,319,900
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a development stage enterprise. Since its inception in August
1994, the Company has been engaged in the research, development and testing of
Acyst. The Company acquired this technology from Brennen Medical, whose
principal shareholders are majority shareholders of the Company. To date the
Company has generated no revenues and has been unprofitable since inception. As
of May 31, 1996, the Company has an accumulated deficit of $1,417,400 and
expects that its operating losses will continue and increase due to significant
expenditures for clinical trials, regulatory matters, expansion of marketing and
sales activities and scale-up of commercial manufacturing capabilities. See
"Certain Transactions."
The Company was granted an IDE by the FDA and recently began human clinical
trials of Acyst. There can be no assurance that these clinical trials will be
successful, that the Company will receive FDA or other regulatory approval, that
Acyst will ever be successfully commercialized or achieve market acceptance,
that the Company will ever have significant sales, or that the Company will ever
achieve profitability. See "Risk Factors."
RESULTS OF OPERATIONS
FIVE MONTHS ENDED MAY 31, 1996 COMPARED TO FIVE MONTHS ENDED MAY 31, 1995
Research and development expense includes costs associated with the
development and preclinical testing related to Acyst. Research and development
expenses were $215,000 in the 1996 period and $109,000 in the 1995 period. This
increase was primarily a result of additional personnel, increased preclinical
testing costs and outside consulting expenses. The preclinical testing costs
consist largely of payments to investigators and product costs for the
preclinical work.
General and administrative expenses were $309,700 in the 1996 period and
$48,600 in the 1995 period. The increase was due to higher levels of
compensation, a $160,000 non-cash charge related to stock option grants, and
added personnel, as well as general insurance, professional fees and travel to
support increased operating activities.
Interest expense was $4,700 for the 1996 period and $6,700 for the 1995
period. Interest expense relates to interest incurred on a note payable to a
related party. This note payable was paid in full in May 1996.
Interest income was $14,800 for the 1996 period and $5,000 for the 1995
period. Interest income represents interest earned by the Company on its cash
balances. The increase between periods was due to a higher average cash balance,
resulting from proceeds received through sales of Common Stock, net of operating
expenses.
Net loss was $514,700 for the 1996 period and $159,200 for the 1995 period.
As discussed herein, the increase was primarily due to overall increases in
research and development and general and administrative expenses required to
support increased operating activities.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO PERIOD FROM INCEPTION (AUGUST 1,
1994) TO DECEMBER 31, 1994
Research and development expenses were $353,300 for fiscal 1995 and $33,500
for the five month period from inception to December 31, 1994. This increase was
due to the combined effect of a full year of operations and the start of
significant preclinical testing and consulting expenditures. The preclinical
testing costs consisted largely of payments to investigators and product costs
for the preclinical work.
General and administrative expenses were $164,800 in fiscal 1995 and $73,700
for the five month period from inception to December 31, 1994. This increase was
due to the combined effect of a full year of operations and overall increases in
costs due to increased activities. These costs primarily include compensation,
office support costs, and professional fees.
Interest expense was $16,000 for fiscal 1995 and $3,300 for the five month
period from inception 1994. Interest expense relates solely to interest incurred
on a note payable to a related party.
14
<PAGE>
Interest income was $9,700 in fiscal 1995 and $1,600 for the five month
period from inception to December 31, 1994. Interest income represents interest
earned on the Company's cash balances. The average cash balance was higher in
fiscal 1995 due to proceeds received from the sales of Common Stock, net of
operating expenses.
Net loss was $524,400 for fiscal 1995 and $108,900 for the five month period
from inception to December 31, 1994. As discussed, this was due to the effect of
a full year of operations and overall increases in research and development and
general and administrative expenses required to support higher levels of
activity.
As a result of the net losses in 1995 and 1994, the Company has net
operating loss ("NOL") carryforwards of $628,000 at December 31, 1995, which
will expire at various dates through 2010. These NOL carryforwards may be
subject to certain annual limitations, resulting from additional sales of equity
securities and other changes in ownership. Such events could limit the eventual
tax utilization of these NOL carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily through
the private sales of common stock. Through May 31, 1996, the Company had
received approximately $2.5 million in net proceeds through the private sales of
common stock. As of May 31, 1996, the Company had used cash of $812,300 to fund
operations, $65,100 to purchase equipment and intangible assets, $300,000 for
principal payments to Brennen Medical, Inc., a related party, for a note payable
under an asset purchase agreement, and had cash of $1,349,900 and working
capital of $1,244,600. See "Certain Transactions."
The Company expects to continue to incur substantial expense in support of
additional research and development activities, clinical trials, manufacturing
start up, establishment of a sales and marketing organization and ongoing
administrative activities. Although the Company believes that the net proceeds
from the Offering and its existing cash will be adequate to meet its cash needs
for at least 18 months, there can be no assurance that the Company will not
require additional financing within this time frame. In the event the Company
requires additional financing to support its operating requirements or for other
purposes, it may seek to raise such additional financing through public or
private equity financing or from other sources, and/or modify the timing of its
scheduled clinical trials and research and development activities. There can be
no assurance that financing from the Offering or any additional financing will
be available at all or that, if available, such financing would be obtainable on
terms favorable to the Company. See "Risk Factors -- Need for Additional
Capital" and "Use of Proceeds."
INFLATION
Historically, inflation has not had a material impact on the Company. The
cost of the Company's products is influenced by the cost of raw materials and
labor. There can be no assurance that the Company will be able to pass on
increased costs to its customers in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which establishes a fair-value-based method for financial
accounting and reporting for stock-based employee compensation plans. However,
the new standard allows compensation to continue to be measured by using the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, but requires
expanded disclosures. SFAS No. 123 is effective in fiscal year 1996. The Company
has elected to continue to apply the intrinsic value-based method of accounting
for stock options.
15
<PAGE>
BUSINESS
GENERAL
Advanced UroScience is developing Acyst, an injectable bulking agent, for
the treatment of stress urinary incontinence due to intrinsic sphincter
deficiency. Stress urinary incontinence is generally defined as the involuntary
loss of urine as a result of activities that increase intra-abdominal pressure,
such as coughing, laughing, exercising or simply standing up. Acyst is a
proprietary composition of pyrolytic carbon-coated micro-beads suspended in a
carrier gel. Acyst is designed to be injected into the mucosal lining of the
urethra at the neck of the bladder through a specially designed needle. The
injection procedure involves inserting the needle through a standard cystoscope,
allowing the physician to view the bulking of the tissue and the resulting
closure of the bladder opening. This minimally invasive outpatient procedure can
be accomplished in approximately 30 minutes and is designed to immediately
restore the patient to urinary continence.
Advanced UroScience has recently commenced human clinical trials of Acyst at
the Mayo Clinic in Rochester, Minnesota under an IDE granted by the FDA. The
Company expects to use the data gathered in these trials to support an
application for a PMA from the FDA. The Company is also conducting human
clinical trials outside of the United States.
Advanced UroScience believes that Acyst offers significant advantages over
existing management and treatment options and commercially available injectable
bulking agents for sufferers of stress urinary incontinence caused by intrinsic
sphincter deficiency. Unlike adult diapers and pads, which are methods of
managing the problem, Acyst is designed to treat and improve the condition.
Acyst is designed to provide results immediately after injection, unlike
behavioral therapy and pelvic muscle training exercises, which can take several
weeks or months before results are achieved and require ongoing therapy. Acyst
was specifically designed to address the significant issues posed by
commercially available injectable bulking agents, namely, biocompatability,
migration and absorption. Acyst utilizes nonabsorbable, nonmigratory,
biocompatible micro-beads designed to be permanent, thereby minimizing the
potential need for retreatment.
It is estimated that there are at least 13 million people with urinary
incontinence in the United States, of which 85% are women. Approximately 9
million of the people with urinary incontinence suffer from stress urinary
incontinence. The Company believes that a number of these people, specifically
those with intrinsic sphincter deficiency, could benefit from Acyst. Although
urinary incontinence is most prevalent in the elderly, it is also common among
women under the age of 60. It is expected that urinary incontinence will
continue to be a significant health care problem for the adult female and
elderly populations and will, in fact, increase as the growing population
continues to age.
The Company's current focus is to complete the human clinical trials of
Acyst and obtain approval to market from the FDA as well as approval to market
Acyst in countries outside of the United States. The Company's marketing
strategy will be to target the large number of women suffering from stress
urinary incontinence due to intrinsic sphincter deficiency by educating
physicians and other health care providers that treat these patients, the
patients themselves and the health care payers.
URINARY INCONTINENCE
There are significant economic and social costs associated with urinary
incontinence. According to a 1996 publication from the United States Department
of Health and Human Services, direct costs associated with urinary incontinence
were estimated to exceed $15 billion annually. The perceived stigma associated
with urinary system dysfunction discourages sufferers from seeking treatment and
tends to hinder public awareness of the wide spread incidence of these
disorders. For the patients who are affected, the problems can be tremendous.
Patients suffering from urinary incontinence may withdraw from social
interaction with others, including friends and family, causing a degree of
emotional trauma to all concerned.
TYPES AND CAUSES OF URINARY INCONTINENCE
In the normal urinary tract, continence, or appropriate storage of urine, is
maintained by a complex interplay of anatomic structures. The urinary sphincter
is a muscle at the base of the bladder which surrounds the bladder neck and
urethra (the tube through which the urine flows when the bladder empties)
16
<PAGE>
and aids the bladder in maintaining continence. In a normal system, the bladder
neck and urinary sphincter work in a coordinated fashion to act as a valve. The
various body components are under muscle control to maintain continence.
A malfunction in any part of the urinary tract system can result in urinary
incontinence. A broad range of conditions and disorders are believed to cause
urinary incontinence, including birth defects, injuries to the pelvic region or
to the spinal cord, neurological diseases and degenerative changes associated
with aging. The three major types of urinary incontinence are stress, urge and
mixed (a mixture of stress and urge) urinary incontinence.
Stress urinary incontinence refers to the involuntary loss of urine during
coughing, laughing, sneezing, jogging or any other physical activity which
causes a sufficient increase in intra-abdominal pressure. Stress urinary
incontinence is the most common type of urinary incontinence in women under the
age of 60. This condition varies in severity from those women who leak urine as
a result of certain sudden movements or physical activities to those who leak
urine simply upon standing up. It is generally believed that stress urinary
incontinence is caused by one of two conditions or a combination of them: (i)
hypermobility, a lack of anatomic stability caused primarily by weak tissue
around the bladder neck, which results in the abnormal movement of the bladder
neck and urethra in response to sufficient intra-abdominal pressure or exertion;
or (ii) intrinsic sphincter deficiency, the inability of the urinary sphincter
valve muscle to contract and sufficiently close the bladder neck. The Company's
product is designed to specifically treat stress urinary incontinence due to
intrinsic sphincter deficiency.
Urge urinary incontinence refers to the involuntary loss of urine due to an
unwanted bladder contraction which is associated with a strong, uncontrollable
desire to urinate, often referred to as urgency. Causes of urge urinary
incontinence include an overactive bladder muscle, neurologic abnormalities,
such as those caused by a stroke, and urethral instability or abnormal
relaxation patterns.
NUMBER OF PEOPLE AFFECTED
The Agency for Health Care Policy and Research, an affiliate of the United
States Department of Health and Human Services reports that there are at least
13 million people with urinary incontinence in the United States, although exact
figures are difficult to obtain as a result of the believed under-reporting due
to the stigma associated with the condition. It is expected that urinary
incontinence will continue to be a significant health care problem in the adult
female, elderly and institutionalized populations and will increase as the
population continues to age.
Of the estimated 13 million people with urinary incontinence, the Company
believes that approximately 9 million suffer from stress urinary incontinence
due to either hypermobility or intrinsic sphincter deficiency, or some
combination thereof. If Acyst gains marketing approval from the FDA, it is
likely that it will be labelled only for use in cases of stress urinary
incontinence due to intrinsic sphincter deficiency.
LIMITATIONS OF EXISTING URINARY INCONTINENCE MANAGEMENT AND TREATMENT OPTIONS
Urinary incontinence is currently managed and treated in a variety of ways.
In many cases the problem is simply managed through the use of adult diapers and
absorbent pads. Physicians currently treat urinary incontinence by following a
program that corresponds to the severity of the condition and the physician's
familiarity with the available management and treatment options discussed below.
DIAPERS AND ABSORBENT PADS. Most cases of urinary incontinence are not
treated but rather are managed through the use of adult diapers or absorbent
pads. The cost of these diapers and pads can be substantial and is usually not
covered by medical insurance, creating a continuous financial burden for the
patient. This management technique requires frequent changing of diapers and
pads to control odor and can be an embarrassment to the patient. However,
patients do have the convenience and privacy of purchasing these products
without seeing a physician. Industry sources suggest retail sales of adult
diapers and absorbent pads exceed $1 billion annually.
BEHAVIORAL THERAPY AND PELVIC MUSCLE TRAINING EXERCISES. Behavioral therapy
and related techniques include bladder and habit training, pelvic muscle
exercises (known as Kegel exercises), biofeedback and
17
<PAGE>
electrical stimulation. These exercises first teach the patient to be aware of
the group of muscles in the perineal area and to contract them in a way that
builds muscle tone around the bladder neck. These exercises can be enhanced by
the use of vaginal cones, egg shaped devices with the same shape and volume but
with progressively more weight. The patient is asked to retain the vaginal cone
by contracting the uro-genital diaphragm, which strengthens the muscles around
the bladder. Pelvic floor electrical stimulation devices can be used to augment
other pelvic muscle rehabilitation therapies. An electrical current is delivered
to the patient which stimulates the bladder muscles to contract thereby
strengthening them to achieve better bladder control. Adverse reactions are
minimal but include pain and discomfort.
These relatively non-invasive therapies could attract patients who would
otherwise not seek treatment. Although some patients will be cured and some will
improve, these treatments may be time consuming, take several weeks or months
before results are evident, present uncertain outcomes and must be adhered to
regularly. Further, if the pelvic exercises are done incorrectly, the urinary
incontinence can worsen.
VAGINAL AND URETHRAL INSERTS. Vaginal inserts are another form of
management for stress urinary incontinence that are less invasive than surgery.
Vaginal inserts are roughly the size and shape of contraceptive diaphragms and
are used to obstruct the bladder neck and urethra by applying pressure through
the neighboring vaginal cavity. While often helpful, these devices are seldom
completely effective in preventing leakage as it is difficult to fit a patient
properly and apply enough pressure to eliminate the leakage of urine without
causing pain. Other potential adverse side effects include vaginal discharge and
tissue erosion. Urethral inserts act as an expandable stopper to block the flow
of urine when inserted in the urethra. These products are not commercially
available in the United States, although they are currently undergoing human
clinical trials. Potential adverse side effects include urinary tract
infections, pain and tissue reactions.
PHARMACEUTICALS. Drug treatment is used to control multiple types of
urinary incontinence, including stress urinary incontinence due to intrinsic
sphincter deficiency. These drugs tend to fall into one of two categories; those
that affect the contraction of the muscle tissue of the bladder (urge urinary
incontinence) and those that improve the quality of the mucosal lining of the
bladder neck and urethra (stress urinary incontinence). The incidence of cure is
low and the potential side effects include urinary retention, nausea, dizziness,
blurred vision and the possibility of unwanted interactions with other drugs.
INDWELLING (FOLEY) CATHETERS. Variations of the indwelling, or Foley,
catheter are the main products used to control urinary incontinence in a medical
environment. Their use involves passing a catheter into the bladder via the
urethra and either clamping the end of the catheter at the exit point from the
body, or connecting the catheter to an external urine collection bag. Aside from
the constant physical and emotional discomfort experienced by patients, the
direct path from the exterior to the bladder provides a conduit for bacteria,
and often results in bladder infections.
SLING PROCEDURES. The sling procedure involves elevating and stabilizing
the urethra and the bladder neck to treat hypermobility. In the sling procedure,
either an autologous (patient tissue) or synthetic piece of material is placed
under the urethral-bladder junction pulling it forward in a way that reinforces
and strengthens the sphincter. The surgical approach can be either through the
abdomen, the vagina or a combination of both. Surgeries of this nature are
delicate and complicated procedures in which the outcome depends on a number of
factors, including the degree of the pathology and the operating physician's
experience. Since this procedure is invasive, the potential for severe
complications exists. Though attempts have been made to minimize the
invasiveness of this procedure, the trauma is often significant and the cost of
the procedure high.
ARTIFICIAL SPHINCTERS. The implantable artificial sphincter is a miniature,
hydraulic medical device that requires an inflatable cuff be placed around the
urethra. The artificial sphincter requires a major surgical procedure and
hospitalization with the associated discomfort and high expense. Initial
complications are mainly associated with urethral or bladder injury during
implantation. Delayed complications include mechanical problems such as pump
malfunctioning, fluid leak or tubing kinks, infection and tissue atrophy.
INJECTABLE BULKING AGENTS. Bulking procedures involve the injection of the
bulking agent in the mucosal lining of the neck of the bladder, thereby closing
the bladder neck, allowing the patient to regain urinary
18
<PAGE>
control. Bulking procedures are gaining acceptance as a method of treating
certain types of stress urinary incontinence. The 1996 Clinical Practice
Guidelines published by the United States Department of Health and Human
Services recommend periurethral bulking agents as first line treatment for men
with intrinsic sphincter deficiency and for women with intrinsic sphincter
deficiency who do not have co-existing hypermobility.
Bulking procedures have several advantages over other management and
treatment options for urinary incontinence due to intrinsic sphincter
deficiency. Adult diapers and absorbent pads can only manage the condition, but
bulking procedures are designed to return the patient to urinary control. Unlike
behavioral therapy and pelvic muscle training exercises, bulking procedures are
designed to provide immediate results and are not dependent on the patient
complying with an ongoing exercise regimen that requires the patient's active
participation in the therapy. Bulking procedures are designed to avoid many of
the potential side effects of vaginal and urethral inserts, pharmaceutical
treatments, catheters and invasive surgical procedures. In addition, because the
bulking procedure can be accomplished on an outpatient basis, this procedure can
significantly reduce the costs associated with surgery.
The Company believes that, to be successful, an injectable bulking agent
must be biocompatible, must not migrate away from the injection site, must not
be absorbed by the body and must be cost effective. There are two major types of
commercially available injectable bulking agents, those of biological derivation
and those, like Acyst, that are based on synthetic materials.
Biologically derived bulking agents are absorbed by the body over time
thereby typically returning the patient to urinary incontinence. While this type
of bulking agent can prove initially successful, additional treatments with the
additional inconvenience and cost may be required to maintain the patient's
urinary control. The major product in this category is made from a form of
processed bovine collagen. Additionally, some practitioners are harvesting the
patient's own fat and re-injecting it at the bladder neck. This procedure has
the additional disadvantage of increasing the complexity and invasiveness of the
patient's procedure.
The Company is aware of two synthetic bulking materials currently being used
for soft tissue augmentation in the urinary tract. The first of these is a
teflon paste, which consists of particles of polytetrafluoroethylene ("PTFE"),
glycerin and polysorbate. The particles of PTFE are generally in a size range of
1 to 100mm. The smaller particles in this size range have been associated with
migration in the body which has raised questions of safety. Periurethral
inflammatory reactions have been associated with the use of PTFE particles as
bulking agents.
Another synthetic product uses a combination of solid silicone particles and
polyvinylpyrrolidone ("PVP") gel. This product has not been approved for
marketing in the United States by the FDA. The use of silicone may be
controversial in the United States due to the unresolved issues relating to
silicone gel breast implants. Also, the product does have some particles that
are below a size threshold of 80mm where migration is believed to occur.
THE ADVANCED UROSCIENCE SOLUTION
Acyst is designed to provide the advantages of bulking procedures over the
other methods of managing and treating stress urinary incontinence due to
intrinsic sphincter deficiency while avoiding the drawbacks associated with the
commercially available injectable bulking agents. Like other injectable bulking
agents, Acyst is injected under the mucosal lining of the urethra to add bulk to
the tissue and close the opening in the urethra leading from the bladder,
thereby minimizing or eliminating involuntary urinary drainage in patients who
suffer from urinary incontinence.
Acyst is a proprietary composition of solid micro-beads coated with
pyrolytic carbon, which is the bulk-enhancing material, and a gel carrier
substance, which suspends the micro-beads, thus allowing the micro-beads to be
introduced through a needle to the injection site. The micro-beads are made of a
substrate material coated with pyrolytic carbon, giving them biocompatible
properties. The biocompatible nature of pyrolytic carbon coating has been
demonstrated through its extensive use in the heart valve industry since the
late 1960s. The synthetic nature and physical size of the solid micro-beads of
Acyst were selected by the
19
<PAGE>
Company to avoid absorption by the body, migration from the injection site and
the potential for chronic inflammatory tissue response. The micro-bead size
range chosen (251 to 300mm) is at a minimum more than three times the particle
size known to migrate in the body.
Acyst is packaged in a sterile syringe and is designed to be injected
through a specially designed needle that is inserted down a standard cystoscope.
During the injection process, the physician views the bladder neck through a
standard cystoscope and advances the needle under the mucosal lining of the
bladder neck. The injection site is viewed while injecting the material to
observe the expansion of the mucosal lining which results in increased volume or
bulk at the bladder neck. Typically a total of three or four milliliters of
Acyst will be injected in two or three sites at the bladder neck until the sides
of the bladder neck have closed due to the increase in bulk, allowing the
patient to regain control of urine flow.
This minimally invasive procedure in an outpatient setting is consistent
with newly established clinical practice guidelines for the treatment of urinary
incontinence that call for minimally invasive therapies to be attempted first.
The time required for implantation in patients is approximately 30 minutes and
is accomplished without surgical incision. It is anticipated that following the
procedure, the patient is likely to experience immediate results.
When Acyst is initially injected, the carrier gel acts as a transport medium
for the pyrolytic carbon coated micro-beads. Over a short period of time, the
body encapsulates the micro-beads with its own collagen, which results in
bulking.
The Company believes Acyst will have several significant advantages over the
commercially available injectable bulking agents:
BIOCOMPATIBLE. The pyrolytic carbon coated micro-beads used in Acyst
were chosen for their demonstrated, long-term biocompatibility. Pyrolytic
carbon coating has been used by the heart valve industry since the late
1960s. Additionally, the size of the micro-beads was chosen to improve
biocompatibility by reducing the potential for chronic inflammatory tissue
response.
NO ABSORPTION. Since the micro-beads are synthetic, they will not be
absorbed by the body, thus minimizing the potential need for retreatment.
NO MIGRATION. The size of the micro-beads was specifically chosen to
prevent them from migrating away from the injection site. As a result, the
bulking remains in place.
COST EFFECTIVE. The injection of Acyst can be done using a minimally
invasive surgical procedure in an outpatient setting and may provide relief
almost immediately. As a result, the Company believes Acyst to be a cost
effective treatment option for the patient.
DEVELOPMENT AND REGULATORY STATUS
Phase 1 clinical trials, designed to determine the safety and efficacy of
Acyst, recently commenced at the Mayo Clinic in Rochester, Minnesota, under an
IDE granted by the FDA. The Company is also conducting clinical trials outside
of the United States. It is anticipated that a total of 50 patients will be
injected with Acyst during the United States and foreign clinical trials.
The data gathered from Phase 1 clinical trials will be used to establish the
exact protocol for the final phase, Phase 2, clinical trials in the United
States. The Phase 2 clinical trials are designed to obtain data to support the
PMA that must be obtained from the FDA before Acyst can be marketed in the
United States. The Company anticipates that at least 200 patients will be
enrolled in approximately 10 sites throughout the United States. These patients
will be followed for two years after treatment to completely assess the safety
and efficacy of Acyst. The Company will make periodic reports to the FDA
concerning this phase of the clinical testing. There can be no assurance,
however, that the Company will ever receive marketing approval for Acyst from
the FDA. See "Risk Factors -- Early Stage of Clinical Testing; Uncertainty of
Regulatory Approval."
20
<PAGE>
MARKETING STRATEGY
Advanced UroScience's Acyst is designed to treat stress urinary incontinence
due to intrinsic sphincter deficiency. The majority of people that suffer from
this condition are women. As a result, the Company will focus its marketing
effort on the physicians and other health care professionals that treat women,
including gynecology, urology, geriatrics and the developing specialty of
uro-gynecology.
The Company's strategy is to conduct an educational campaign to raise the
awareness of both physicians and patients of the availability of Acyst and its
potential advantages over the existing methods of treatment. The Company will
approach the physicians directly with a direct sales force in the United States
and a network of distributors outside of the United States.
To establish credibility for Acyst, it will be necessary to build a team of
respected medical consultants who conduct clinical evaluations and statistical
studies reflecting the benefits of the product. Further, they will be encouraged
to publish the results of their work in medical journals and act as
spokespersons for the Company at medical meetings and seminars once the product
has been given regulatory approval. Advanced UroScience also intends to maintain
a presence at appropriate medical conventions, meetings and seminars to inform
the physicians and other appropriate health care professionals of the existence
and uses for Acyst, giving information on the injection procedure and generating
sales leads.
The Company expects to begin marketing its product internationally before
the formal introduction in the United States. The Company has obtained a limited
number of export licenses and is seeking regulatory approvals to permit
international sales of Acyst. It is the intent of the Company to set up a sales
network of foreign distributors to provide access to customers in the
international marketplace. Following receipt of the requisite FDA approvals, the
Company anticipates utilizing a direct sales force to market Acyst in the United
States.
The Company has not yet established pricing for Acyst. The Company intends
to price the treatment at a level that will position Acyst at prevailing market
prices for other injectable bulking agents per treatment, currently estimated to
be approximately $1,100. The Company believes that this pricing could offer
considerable total savings over alternative treatment and management regimens
since the product is designed to eliminate the ongoing expense of adult diapers,
absorbent pads or additional treatments. The average selling price outside the
United States is expected to be less due to the reimbursement rates of various
national health plans and the Company's intention to use distributors.
RESEARCH AND DEVELOPMENT
To date, the Company has been engaged primarily in the research, development
and testing of Acyst. Since inception, the Company has incurred approximately
$601,900 in research and development expense. The Company believes that it is in
the final stages of its product development of Acyst, although it is continuing
to develop technology internally and with the assistance of outside research
expertise to optimize the materials and performance of Acyst and to further
develop its manufacturing processes. Management has allocated $5,000,000 of the
net proceeds of the Offering to conduct the requisite clinical trials of Acyst.
The Company hopes to develop concepts for new products and new product
applications, including the possible use of the injectable bulking agent for
other bulking applications. Of the net proceeds of the Offering, $2,000,000 has
been allocated for such research and development efforts.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are important to the Company's
business. Advanced UroScience uses patents and other techniques to protect its
proprietary technology. The Company's policy is to file patent applications to
protect technology, inventions and improvements that it believes are important
to its business. On September 19, 1995, a United States patent covering certain
aspects of Acyst was issued to the Company. The Company has filed one
corresponding Patent Cooperation Treaty application. However, there can be no
assurance that the Company's product will not be copied by competitors or that
claims will not be made that the Company's product infringes upon patents or
proprietary rights owned by others.
21
<PAGE>
The Company also relies heavily upon trade secrets, know-how and continuing
technological innovation to develop a competitive position. The Company seeks to
maintain the confidentiality of its proprietary technology that may not be
covered by patent protection by requiring employees who work with proprietary
information to sign a confidentiality agreement and by limiting access by
parties outside the Company to such confidential information. There can be no
assurance, however, that these measures will prevent the unauthorized disclosure
or use of this information, or that others will not be able to independently
develop such information. Moreover, as is the case with any intellectual
property rights, enforcement by the Company of its legal rights can be lengthy
and costly, with no guarantee of success. See "Risk Factors -- Dependence on
Patents and Proprietary Rights."
COMPETITION
Competition in the urinary incontinence management and treatment products
market is intense. The Company's ability to compete in this market will depend
primarily upon physician, patient and health care payer acceptance of Acyst as a
safe, effective and cost effective treatment for stress urinary incontinence.
The Company's ability to compete in this market will also depend on the
consistency of its product quality and delivery and product pricing. Other
factors within and outside the Company's control include its product development
and innovation capabilities, its ability to obtain required regulatory
approvals, its ability to protect its proprietary technology, its manufacturing
and marketing capabilities and its ability to attract and retain skilled
employees.
Advanced UroScience views its competition on the basis of management of the
condition versus treatment of the condition. Management of the condition is
achieved through the use of adult diapers and absorbent pads. Current major
competitors who compete in this market include Kimberly-Clark Corp. and Procter
& Gamble Co. In the treatment portion of the market current major competitors
are Empi, Inc. with its electrical pelvic floor stimulators, Abbott
Laboratories, Warners Wellcome, Hoechst Marion Roussell for the pharmaceutical
treatment; C. R. Bard, Inc., Kendall Co., Mentor Corp., ConvaTec Ltd. and Baxter
International for catheter/urine collection bag drainage systems; American
Medical Systems, Inc., a division of Pfizer, Boston Scientific and Johnson &
Johnson for the sling procedures and artificial sphincter implants; and C. R.
Bard, Inc., Mentor Corp. and Uroplasty, Inc. for injectable bulking agents. The
Company believes that some of its current competitors and others that do not
have injectable bulking products are also seeking to develop competing bulking
agents.
Many of the Company's competitors and potential competitors have
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company. It is possible that other
large health care and consumer products companies may enter this industry in the
future. Furthermore, smaller companies, academic institutions, governmental
agencies and other public and private research organizations will continue to
conduct research, seek patent protection and establish arrangements for
commercializing products. Such products may compete directly with any products
which may be offered by the Company. Finally, competitors in the medical device
industry have in the past and may in the future employ litigation to gain a
competitive advantage.
REGULATORY AFFAIRS
Government regulation in the United States and in foreign countries are
significant factors in the Company's business. Under the 1976 amendments to the
Federal Food, Drug and Cosmetic Act (the "FDC Act") and regulations promulgated
thereunder, manufacturers of medical devices must comply with certain
regulations governing the testing, manufacture, packaging and marketing of
medical devices. Under the FDC Act, as amended, medical devices are classified
by the FDA into one of three classes, depending upon the degree of regulation
the FDA deems necessary to assure the safety and efficacy of the devices. Class
I devices are subject to only general controls, while Class II devices must
comply with certain specified performance standards, in addition to the general
controls. Class III medical devices (consisting of life support/life sustaining,
diagnostic or implanted devices) must receive premarket approval by the FDA
prior to their commercial distribution in the United States. The industry norm
for successful passage through the process for a Class III device is three to
seven years.
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<PAGE>
Acyst is considered a Class III device. As such, the FDA, with independent
protocol review and approval by participating medical institutions, must approve
the Company's application for an IDE, permitting clinical evaluations of
products on human subjects under controlled experimental conditions. The Company
recently commenced Phase 1 clinical trials at the Mayo Clinic in Rochester,
Minnesota under an IDE granted by the FDA. See "Business -- Development and
Regulatory Status."
The countries of the European Community ("EC") are moving towards common
regulatory requirements. By June 1998, all medical devices sold in those
countries must conform to the medical device directive of the EC. The directive
is designed to eliminate barriers to trade within that community. Until such
time as all devices conform to the medical device directive, many devices will
stay on the market in those countries through conformity with the applicable
national laws. There is, then, a parallel path for device manufacturers at this
time. The Company plans to evaluate both pathways, conformity with the EC
directive and national certification, in each of its key markets to determine
the most efficient method to market its products. Approval under the new EC
regime will permit manufacturers to affix a "CE" mark to their products, making
them eligible to be sold in all the countries of the EC.
THIRD-PARTY REIMBURSEMENT
Third-party payers such as private insurance companies, self-insured
employers, health maintenance organizations and governmental payers under
Medicare and Medicaid programs are an important source of reimbursement, but
there is no uniform policy on reimbursement among third-party payers. The Health
Care Financing Administration ("HCFA"), which sets rates for Medicare, has
stated that Medicare Part B will cover certain endoscopic injections of implant
material for urinary incontinence due to intrinsic sphincter deficiency. The
Company's Acyst may meet current criteria for reimbursement. Potential changes
in reimbursement could drive prices down and may adversely affect the Company's
reimbursement rates.
Reimbursement authorities can also be considered customers of Advanced
UroScience. They are customers since often the payer will have to authorize
treatment prior to it being reimbursed. The Company will be proactive in
influencing both the Medicare/HCFA national programs and individual private
insurance firms. One aspect of doing this is to build "outcomes assessment" into
the clinical evaluation of the product. Outcomes assessment involves looking at
all the factors that are a part of a particular care regime and comparing the
results of that regime to others. In this way, the cost and relative efficacy of
a mode of treatment is evaluated not only independent of other treatments, but
in comparison to other standards.
PRODUCT LIABILITY
The medical products industry is subject to substantial litigation, and the
Company faces an inherent business risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in adverse
effects to a patient. There can be no assurance that the Company's existing
insurance coverage limits are adequate to protect the Company from any
liabilities which it might incur in connection with the clinical trials of Acyst
or the initial commercialization of Acyst. There can be no assurance that
liability claims will not exceed coverage limits. Such insurance is expensive
and in the future may not be available on acceptable terms, if at all.
Consequently, a product liability claim or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business, financial condition and results of operations of the
Company. The Company currently maintains a product liability insurance policy in
the aggregate amount of $5,000,000.
MANUFACTURING
The Company will manufacture Acyst at its facilities from components and raw
materials obtained from outside suppliers. The Company will purchase the
micro-beads from qualified suppliers and send them to an outside vendor to be
coated with pyrolytic carbon. The Company will purchase the raw materials for
the carrier gel and formulate the carrier gel itself. The manufacturing process
will involve the Company mixing the beads with the carrier gel and filling
standard syringes with this mixture. The filled syringes will be packaged and
sent to an outside vendor for sterilization and returned to the Company for
final inspection.
Certain of the primary raw materials and components for the manufacture of
Acyst, such as the micro-beads and the material needed for the gel carrier, are
currently available to the Company from single
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sources. In the event that the Company is unable to obtain these materials or
components from its current suppliers on acceptable terms and is required to
replace its current raw materials or components with alternatives, additional
testing may be required in order for Acyst to receive regulatory approval. The
Company has no supply agreements with any of its identified vendors, although
the Company has entered into a business relationship agreement regarding one of
the main ingredients for the carrier gel. See "Risk Factors -- Dependence on
Suppliers."
The Company intends to conduct all of its manufacturing activities in a
class 1,000 clean room in accordance with Good Manufacturing Practices as
required by the FDA and/or ISO 9000 certification.
FACILITIES, EQUIPMENT AND PERSONNEL
Presently, the Company occupies office and laboratory space in a facility
located in St. Paul, Minnesota. The Company leases this space under a two-year
lease agreement, which began on May 1, 1996 and terminates on May 1, 1998. Lease
payments are made monthly at a rate of $3,000 per month. Presently, the Company
has six full-time employees and one part-time employee and expects to hire
additional staff as needed.
LITIGATION
The Company is not involved in any material litigation.
24
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The directors, executive officers and key personnel of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------------------
<S> <C> <C>
Timothy P. Lawin (1) 35 Chairman of the Board of Directors and Chief Financial Officer
Dean A. Klein 42 President and Chief Executive Officer
Daniel A. White 44 Vice President -- Sales and Marketing
Thomas M. Jaeger 39 Director of Finance
Michael Czura 43 Director of Manufacturing
Richard G. Holcomb 46 Director of Regulatory Affairs
Bruce A. Lawin (2) 62 Director
Mark G. Nosbush (1)(2) 47 Director
Paul E. Colombo (2) 35 Director
James M. Knoblach (1) 38 Director
Harry E. Wells, III 54 Director
</TABLE>
- ------------------------
(1) Compensation Committee
(2) Audit Committee
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Executive officers
of the Company are appointed by and serve at the discretion of the Board of
Directors. The Compensation Committee provides recommendations concerning
salaries and incentive compensation for employees of the Company and the Audit
Committee will review the results and scope of the audit and other services
provided by the Company's independent public accountants.
TIMOTHY P. LAWIN has served as the Chairman of the Board of Directors and
Chief Financial Officer of the Company since its inception. Mr. Lawin, the
founder of the Company, originally developed Acyst within Brennen Medical, Inc.,
a company specializing in wound care management, where he has served as Chief
Executive Officer and Chairman of the Board since its formation in 1993. From
1984 to 1993 Mr. Lawin was with Bioplasty, Inc., a medical device manufacturer
and distributor. He first served as controller of Bioplasty in 1984, was
appointed to executive vice president in 1989, served as president from 1991 to
1993, and chief executive officer from 1992 to 1993. Mr. Lawin was also a
director of Bioplasty from 1990 until 1993. From 1989 to 1991, Mr. Lawin served
as the Chairman of the Board for Bio Manufacturing, Inc., which was a related
manufacturing company of Bioplasty, Inc. Subsequent to Mr. Lawin's resignation
from Bioplasty, Inc. in 1993, Bioplasty, Inc. filed a petition for bankruptcy,
resulting from litigation regarding its breast implant product. Mr. Lawin holds
a B.A. degree in Accounting from the University of St. Thomas in St. Paul,
Minnesota.
DEAN A. KLEIN has served as the Company's President and Chief Executive
Officer since its inception in 1994. Mr. Klein was the President of the urology
products division of Brennen Medical, Inc. from May to August 1994 when that
division was transferred to the Company. From 1991 to 1994, Mr. Klein was
employed by Medical Care America as a General Manager of the Critical Care
America business units in Minneapolis, Minnesota and Omaha, Nebraska. From 1983
to 1991, Mr. Klein was employed in a variety of sales and marketing positions
with Baxter International, Physicians Diagnostics Division and its successor
MediSense, Inc. Mr. Klein's career in the medical products industry began in
1977 with Abbott Laboratories. He holds a B.S. degree in Pharmacy from North
Dakota State University.
25
<PAGE>
DANIEL A. WHITE joined the Company in November 1994 and serves as the
Company's Vice President -- Sales and Marketing. Mr. White has over fifteen
years of experience with implantable devices for the treatment of urological
disorders. From 1992 to 1994, Mr. White served as Vice President of Sales and
Marketing for Uroplasty, Inc. where he established international distribution
for that company's implantable urology product. Prior to that time, he served as
Vice President of Sales and Marketing for Bioplasty, Inc. from 1990 to 1992.
From 1981 to 1990, Mr. White was with American Medical Systems, Inc., a division
of Pfizer focused on the treatment of urologic dysfunctions including urinary
incontinence with implantable devices. Mr. White held a number of positions at
American Medical Systems, Inc. including most recently the Director of Domestic
Sales. Mr. White's career in the urology products industry began in 1978 with C.
R. Bard, Inc. He holds a degree in Business Administration from Mankato State
University.
THOMAS M. JAEGER has been the Company's Director of Finance since May 1996.
From 1988 to 1996, Mr. Jaeger served as the Chief Financial Officer of Winsor
Grain, Inc., a company involved in the international export of agricultural
commodities. From 1979 to 1988, he was employed by Arthur Andersen LLP where he
was audit manager for the last three years of his tenure there. Mr. Jaeger is a
Certified Public Accountant and received his B.S.B.A. in accounting from the
University of North Dakota.
MICHAEL CZURA has served as the Company's Director of Manufacturing since
January of 1996. From 1993 to 1996, Mr. Czura was employed by a medical division
of the Ascom Corporation, initially as Operations Manager and later as Director
of Quality Assurance. Mr. Czura was the Production Manager at CIMA Labs from
1991 to 1993. Prior to that time, Mr. Czura spent six years in a variety of
manufacturing related positions at The Upjohn Company. Mr. Czura holds a B.S.
degree in Industrial Engineering from Bradley University and a Masters in
Business Administration from Western Illinois University.
RICHARD G. HOLCOMB, PH.D. joined the Company on a part-time basis in May
1996 as Director of Regulatory Affairs. Dr. Holcomb consults on biostatistics,
clinical studies, and regulatory affairs to the medical device industry in the
United States and Europe and has served as the Company's regulatory affairs
consultant since inception. He has over 20 years experience in the medical
device industry with companies such as Diva Medical and Cardiac Pacemakers, Inc.
Dr. Holcomb has a B.S. degree from Michigan Tech. University and a M.S. degree
and Ph.D. degree from the University of Minnesota.
BRUCE A. LAWIN has been a director of the Company since its inception in
1994 and is Mr. Timothy Lawin's father. Mr. Lawin has served as President of The
Specialty Mfg. Co., a company that specializes in flow control products, plastic
injection molding and contract manufacturing since 1969. Mr. Lawin is a director
and a shareholder of Brennen Medical. Mr. Lawin holds a B.A. degree in Business
Administration from St. Cloud University.
MARK G. NOSBUSH has served as a director of the Company since February 1996.
Mr. Nosbush has served as Vice President of The Specialty Mfg. Co. since 1979.
Mr. Nosbush holds a B.A. from the University of Minnesota.
PAUL E. COLOMBO has served as a director of the Company since February 1996.
Mr. Colombo founded and has been the President of Chorus Corporation, a
multi-national company that specializes in the manufacture of semiconductor
processing equipment since 1986. Mr. Colombo holds a B.S. degree in engineering
from the University of Minnesota.
JAMES M. KNOBLACH has served as a director of the Company since February
1996. Mr. Knoblach founded and has served as President of North Star Resources,
an investment and venture capital firm, since 1995. Prior to that time, Mr.
Knoblach served as President of North Star Direct which he founded in 1987. From
1984 to 1986, Mr. Knoblach served as division manager for Genetics
International, Inc., the predecessor of MediSense, Inc. Mr. Knoblach is a
director of Harbinger, Inc., a privately held medical device company. Mr.
Knoblach holds a M.B.A. from Harvard University, a M.A. from Georgetown
University, a B.S. from St. John's University and is a Certified Public
Accountant.
HARRY E. WELLS, III has served as a director of the Company since April
1996. Mr. Wells has been employed by Adams, Harkness & Hill, Inc. since 1969.
Mr. Wells has served as Managing Director in charge
26
<PAGE>
of Money Management since 1990 and prior to that served as Director of Research
from 1981 to 1990. Mr. Wells holds an B.A. from Albion College, M.B.A. from the
University of Michigan and is a Chartered Financial Analyst.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding compensation
earned or awarded to the President and Chief Executive Officer. No other
executive officer of the Company received annual salary and bonus compensation
in excess of $100,000 for 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- ----------------------------------------------- ------------ --------- --------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Dean A. Klein, ................................ 1994(1) $ 8,400 -- $ 1,100(2) 240,000
President and Chief Executive Officer 1995 $ 75,000 $ 35,000 $ 6,600(2) 30,000
</TABLE>
- ------------------------
(1) From the Company's date of inception (August 1, 1994) through December 31,
1994.
(2) Represents car allowance.
AGGREGATE OPTIONS EXERCISED IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
The Chief Executive Officer did not exercise any options in 1995. The
following table sets forth certain information regarding the number and value of
exercisable and unexercisable options to purchase shares of Common Stock held as
of the end of the Company's 1995 fiscal year by the Chief Executive Officer:
AGGREGATED 1995 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/95 AT 12/31/95 ($)(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Dean A. Klein.......................................... 270,000 0 $ 151,200 0
</TABLE>
- ------------------------
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of Common Stock at
December 31, 1995 and the option exercise price per share multiplied by the
number of shares subject to options. The fair market value as of December
31, 1995 was $1.67 per share as determined by the Board of Directors, based
on the sales price of common stock sold through a private placement during
this time frame.
OPTIONS GRANTED
The following table sets forth the options that have been granted to the
Chief Executive Officer during the Company's last fiscal year ended December 31,
1995.
OPTION GRANTS IN FISCAL YEAR 1995
(Individual Grants)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---------------------------------------------------- --------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Dean A. Klein....................................... 30,000(1) 18.5% $ 1.67 12/31/2005
</TABLE>
- ------------------------
(1) 100% vested on date of grant.
27
<PAGE>
COMPENSATION OF DIRECTORS
Directors are not currently paid fees for attending meetings. Each member of
the current Board of Directors has received a nonqualified stock option to
purchase 12,000 shares of Common Stock. In addition, the 1996 Stock Option Plan
provides for the automatic grant to each director of a nonqualified option to
purchase 5,000 shares of Common Stock upon the completion of each year of
service.
EMPLOYMENT AGREEMENTS AND COMPENSATION PLANS
The Company does not currently have any employment agreements with its
executive officers. During 1994 and 1995, Mr. Klein was compensated pursuant to
the terms of an employment agreement which agreement was terminated on May 1,
1996.
Effective May 1, 1996, the Compensation Committee of the Board established a
management by objective compensation plan for the Chairman of the Board and the
Chief Executive Officer. Pursuant to this plan, these officers each receive an
annual base salary of $135,000 and are eligible to receive a bonus based upon
the accomplishment of certain business objectives.
STOCK OPTIONS
The Board of Directors recently adopted, subject to shareholder approval,
the 1996 Stock Option Plan (the "Plan") in order to provide for the granting of
stock purchase options to employees, directors and officers of the Company. The
Plan permits the granting of incentive stock options meeting the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, and also
nonqualified stock options which do not meet the requirements of Section 422.
The Company has reserved 500,000 shares of its Common Stock for issuance upon
exercise of options granted under the Plan. The Company has outstanding options
to purchase 599,880 shares outside of the Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation, as amended, limit the liability of
directors in their capacity as directors to the Company or its shareholders to
the full extent permitted by Minnesota law. The Articles provide that a director
shall not be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for dividends, stock repurchases and other distributions
made in violation of Minnesota law or for violations of the Minnesota securities
laws, (iv) for any transaction from which the director derived an improper
personal benefit or (v) for any act or omission occurring prior to the effective
date of the provision in the Company's Articles of Incorporation, as amended,
limiting such liability. These provisions do not affect the availability of
equitable remedies, such as an action to enjoin or rescind a transaction
involving a breach of fiduciary duty, although, as a practical matter, equitable
relief may not be available. The above provisions also do not limit liability of
the directors for violations of, or relieve them from the necessity of complying
with, the federal securities law.
The Bylaws of the Company also provide that the Company will exercise, to
the extent permitted by law, its power of indemnification. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
CERTAIN TRANSACTIONS
Acyst product technology, patent application and certain relevant equipment
was acquired from Brennen Medical, Inc., whose principal shareholders are
majority shareholders of the Company. The terms of the acquisition included an
interest bearing note (8% per annum) in the amount of $300,000 of which $100,000
was paid in 1994 and $200,000 was paid in 1996. Total interest paid in
connection with this note was $24,000.
28
<PAGE>
On May 1, 1996, the Company entered into a two-year lease agreement with
Lawin Enterprises, LLC for the facilities presently occupied by the Company. The
lease covers approximately 2,700 square feet of office and laboratory space at a
rate of $3,000 per month and is on terms believed to be no less favorable to the
Company than those obtainable from an unrelated third party. Lawin Enterprises,
LLC is owned by Timothy Lawin, an executive officer, director and a principal
shareholder of the Company, and Bruce Lawin, a director and principal
shareholder of the Company.
Upon formation of the Company, Timothy Lawin purchased 1,512,000 shares at
aggregate purchase price of $70. Subsequently, Timothy Lawin transferred 756,000
to his wife, Lisa Lawin. In the December 1995 private placement by the Company,
Timothy Lawin purchased 7,500 units (each unit consisting of one share and one
warrant) and Brennen Medical, Inc. purchased 36,000 units at $1.67 per unit. In
the December 1994 private placement by the Company, Ms. Lawin purchased 120,000
shares at $.83 per share. In December 1995, Timothy Lawin received a ten-year
nonqualified stock option to purchase 30,000 shares at $1.67 per share.
Upon formation of the Company, Dean Klein purchased 108,000 shares at an
aggregate purchase price of $5. In the December 1994 private placement by the
Company, Mr. Klein purchased 60,600 shares at $.83 per share. In the December
1995 private placement by the Company, Mr. Klein purchased 7,500 units at $1.67
per unit. In August 1994, Mr. Klein received a ten-year nonqualified stock
option to purchase 240,000 shares at $1.04 per share. In December 1995, Mr.
Klein received a ten-year nonqualified stock option to purchase 30,000 shares at
$1.67 per share.
Upon formation of the Company, Bruce Lawin purchased 540,000 shares at an
aggregate purchase price of $25. In December 1994 and May 1995, Bruce Lawin
transferred an aggregate of 108,000 shares to his son, Timothy Lawin, 108,000
shares to his daughter-in-law, Lisa Lawin, and 108,000 shares to a trust for the
benefit of his granddaughter, Elizabeth Lawin. In the December 1994 private
placement by the Company, Bruce Lawin purchased 120,000 shares at $.83 per
share. In the December 1995 private placement by the Company, Bruce Lawin
purchased 30,000 units at $1.67 per unit. In December 1995, Bruce Lawin received
a ten-year nonqualified stock option to purchase 12,000 shares at $1.67 per
share.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of the Shares offered hereby, certain information
regarding beneficial ownership of the Company's Common Stock by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company, (iii) the Chief
Executive Officer and (iv) all executive officers and directors of the Company
as a group. The following information assumes that the named individuals will
not be purchasing any Shares in the Offering.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OWNED (1) OFFERING OFFERING
- --------------------------------------------------- -------------------- ----------------- ---------------
<S> <C> <C> <C>
Timothy P. Lawin (2)(3)............................ 2,073,000 54.7% 39.2%
Dean A. Klein (2)(4)............................... 453,600 11.4% 8.3%
Bruce A. Lawin (5)(6).............................. 408,000 10.9% 7.8%
Mark G. Nosbush (7)................................ 27,000 * *
Paul E. Colombo (6)(8)............................. 192,000 5.1% 3.7%
James M. Knoblach (9).............................. 147,000 3.9% 2.8%
Harry E. Wells, III (10)........................... 162,000 4.3% 3.1%
Lisa Lawin (11).................................... 2,073,000 54.7% 39.2%
Mark Knoblach (12)................................. 390,000 10.0% 7.2%
All executive officers and directors as a group (8
persons) (13)..................................... 3,612,600 82.1% 61.2%
</TABLE>
- ------------------------
* Less than one percent.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of the Prospectus, or
within 60 days of such date, are treated as outstanding when determining the
percent of the class owned by such individual and when determining the
percent owned by the group. For purposes of calculating the percent of class
owned after the Offering, it was assumed that the officers, directors and
principal shareholders will not be purchasing Shares in the Offering. Unless
otherwise indicated, each person named or included in the group has sole
voting and investment power with respect to the shares of Common Stock set
forth opposite the shareholder's name.
(2) The address of the executive officers is 1290 Hammond Road, St. Paul, MN
55110.
(3) Includes 984,000 shares held by Lisa Lawin (Mr. Lawin's wife), 108,000
shares held by Mr. Lawin's daughter, 36,000 shares held by Brennen Medical
(a corporation controlled by Mr. Lawin), 36,000 shares which may be
purchased upon exercise of a currently exercisable warrant held by Brennen
Medical, and 37,500 shares which may be purchased upon exercise of currently
exercisable options and warrants held by Mr. Lawin.
(4) Includes 277,500 shares which may be purchased upon exercise of currently
exercisable options and warrants.
(5) Mr. Bruce Lawin's address is 5858 Centerville Road, St. Paul, MN 55110.
(6) Includes 42,000 shares which may be purchased upon exercise of currently
exercisable options and warrants.
(7) Includes 19,500 shares which may be purchased upon exercise of currently
exercisable options and warrants. Mr. Nosbush's address is 5858 Centerville
Road, St. Paul, MN 55110.
(8) Mr. Colombo's address is 1290 Hammond Road, St. Paul, MN 55110.
30
<PAGE>
(9) Includes 72,000 shares which may be purchased upon exercise of currently
exercisable options and warrants. Mr. James Knoblach's address is 1552
Prairie Hill Road, St. Cloud, MN 56301.
(10) Includes 12,000 shares that are not outstanding but may be purchased upon
exercise of currently exercisable options and 150,000 shares held by Adams,
Harkness and Hill Partners Fund. Mr. Wells is the Managing Director in
charge of Money Management and a director of Adams, Harkness and Hill, Inc.
and a director of Adams, Harkness and Hill Partners Fund. His address is 60
State Street, 12th Floor, Boston, MA 02109.
(11) Includes 871,500 shares held by Timothy P. Lawin (Ms. Lawin's husband),
108,000 shares held by their daughter, 36,000 shares held by Brennen Medical
(a corporation controlled by Mr. Lawin), 36,000 shares which may be
purchased upon exercise of a currently exercisable warrant held by Brennen
Medical, and 37,500 shares which may be purchased upon exercise of currently
exercisable options and warrants held by Mr. Lawin. Ms. Lawin's address is
c/o Advanced UroScience, Inc., 1290 Hammond Road, St. Paul, MN 55110.
(12) Includes 180,000 shares which may be purchased upon exercise of a currently
exercisable warrant. Mr. Mark Knoblach's address is 4170 Thielman Lane, St.
Cloud, MN 56301.
(13) Includes 688,500 shares which may be purchased upon exercise of currently
exercisable options and warrants.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 22,000,000 shares of
capital stock, no par value, of which 20,000,000 shares are Common Stock and
2,000,000 shares are Class A Preferred Stock ("Preferred Stock"). The Company
has approximately 40 shareholders of record of its capital stock.
COMMON STOCK
The Company has 3,713,220 shares of Common Stock issued and outstanding. The
holders of the Common Stock: (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all the assets
of the Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters which shareholders may vote on at all
meetings of shareholders. All shares of the Common Stock now outstanding are
fully paid and nonassessable.
The holders of the Common Stock do not have cumulative voting rights, which
means that the holders of more than 50 percent of such outstanding shares voting
for the election of directors can elect all of the directors of the Company to
be elected, if they so choose. In such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.
PREFERRED STOCK
The following description of the Preferred Stock is subject to the detailed
provisions of the Preferred Stock contained in the Company's Articles of
Incorporation, as amended. No shares of Preferred Stock are issued or
outstanding.
In the event of the liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, holders of Preferred Stock are
entitled to receive the applicable per share initial subscription price plus any
accrued and unpaid dividends. In the event that the assets of the Company are
insufficient for all holders of Preferred Stock to receive their liquidation
amount, such holders will share pro rata in proportion to the amounts they would
otherwise be entitled.
Holders of Preferred Stock are not entitled to any special dividends. Any
dividends paid by the Company, which dividends are not anticipated, will be paid
equally among holders of Common Stock and the Preferred Stock.
31
<PAGE>
Each share of the Company's Preferred Stock entitles its holder to one vote.
Holders of Common Stock and Preferred Stock vote as a single class on all
matters submitted to the Company's shareholders, except where the Minnesota
Business Corporation Act requires separate class voting, such as with respect to
voting on a merger, exchange, liquidation or amendment to the Company's Articles
of Incorporation which may adversely affect holders of the Company's securities.
Each Preferred Stock will be automatically converted into one share of
Common Stock of the Company, as adjusted, upon (i) the closing of the first
registered, firm commitment, underwritten public offering for the Company with a
price of at least $3.33 per share of Common Stock, as adjusted or (ii) on March
1 of any year in which the year-end audited financial statements for the
Company's prior year show gross revenues of at least $2,000,000. The Company has
reserved a sufficient number of shares of its Common Stock for issuance upon
conversion of the Preferred Stock, which number of reserved shares will be
adjusted in the event of certain actions by the corporation so as to maintain a
level of shares of Common Stock necessary to provide for the conversion of all
of the Preferred Stock.
MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by the holders of a majority of the outstanding voting stock
other than shares held by the acquirer (if already a shareholder) and officers
and directors who are also employees of the Company, the shares acquired above
any such new percentage level of voting control will not be entitled to voting
rights. In addition, if the requirements of this Section are not satisfied, the
Company may redeem the shares so acquired by the acquirer at their market value.
Section 302A.671 generally does not apply to a cash offer to purchase all shares
of voting stock of the issuing corporation if such offer has been approved by a
majority vote of disinterested directors of the issuing corporation.
Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and a shareholder who becomes the beneficial
holder of 10% or more of any class of the Company's outstanding voting stock (an
"interested shareholder") unless a majority of the disinterested directors of
the Company have approved, prior to the date on which the shareholder acquired a
10% interest, either the business combination transaction suggested by such a
shareholder or the acquisition of shares that made such a shareholder a
statutory interested shareholder. If such prior approval is not obtained, this
section imposes a four-year prohibition from the interested shareholder's share
acquisition date on mergers, sales of substantial assets, loans, substantial
issuance of stock and various other transactions involving the Company and the
interested shareholder or its affiliates.
In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years following
the completion of such an offer unless the selling shareholders are given the
opportunity to sell the shares on terms that are substantially equivalent to
those contained in the earlier tender offer. The Section does not apply if a
committee of the Board consisting of all of its disinterested directors
(excluding present and former officers of the corporation) approves the
subsequent acquisition before the shares are acquired pursuant to the earlier
tender offer.
These statutory provisions could have the effect of delaying or preventing a
change in the control of the Company in a transaction or series of transactions
not approved by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Company's Common Stock
is Norwest Bank Minnesota, N.A.
32
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 3,713,200 shares of Common Stock. In addition,
as of the date of this Prospectus, the Company has outstanding 599,880 shares
reserved for issuance upon exercise of options granted. Of the 5,213,220 shares
to be outstanding after the Offering, 1,500,000 will be freely tradeable without
restrictions or registration under the Securities Act. The remaining 3,713,220
shares are subject to restrictions and will become transferable under Rule 144
after the expiration of applicable holding periods. Of the outstanding shares,
3,176,100 shares are subject to lockup agreements pursuant to which the holders
of such shares agreed not to offer, sell or otherwise dispose of any of their
shares for a period of 180 days after the effective date of the Offering,
without the prior written consent of John G. Kinnard and Company, Incorporated.
In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns shares acquired privately from the Company or an affiliate
of the Company at least two years previously and an affiliate of the Company who
beneficially owns shares acquired (whether or not such shares were acquired
privately) from the Company or an affiliate of the Company at least two years
previously, are entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding the filing of notice with
the Commission in connection with such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the three months
preceding a sale and who beneficially owns shares acquired from the Company or
an affiliate of the Company at least three years previously is entitled to sell
all such shares under Rule 144 without regard to any of the limitations of the
Rule.
In addition, Rule 144A under the Securities Act, as currently in effect, in
general, permits unlimited resales of certain restricted securities of any
issuer provided that the purchaser is an institution that owns and invests on a
discretionary basis at least $100 million in securities or is a registered
broker-dealer that owns and invests $10 million in securities. Rule 144A allows
the existing shareholders of the Company to sell their shares to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
The Company cannot predict the effect, if any, that sales of the securities
subject to the previously described lockup or Rule 144 restrictions or the
availability of such securities for sale could have on the market price, if any,
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Company's securities, including the securities offered hereby, could adversely
affect prevailing market prices of the Company's securities and the Company's
ability to raise additional capital by occurring at a time when it would be
beneficial for the Company to sell securities.
33
<PAGE>
UNDERWRITING
The Underwriters named below, for which John G. Kinnard and Company,
Incorporated and Pennsylvania Merchant Group Ltd are acting as representative(s)
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement with the Company to purchase from the
Company the 1,500,000 shares of Common Stock offered hereby. The number of
Shares that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------- -----------------
<S> <C>
John G. Kinnard and Company, Incorporated..............
Pennsylvania Merchant Group Ltd........................
-----------------
Total.............................................. 1,500,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the 1,500,000 Shares offered hereby, if any are
purchased.
The Underwriters propose to offer the shares to the public at the Price to
Public set forth on the cover page of this Prospectus and to dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other brokers and dealers. After the initial public offering,
the Price to Public, concession and reallowance may be changed by the
Representatives. Additionally, the Company has agreed to pay the Representatives
their accountable expenses up to a maximum of $50,000. The Company has paid the
Representatives $10,000 as an advance against the accountable expenses.
The Company has granted the Underwriters an option exercisable within 30
days after the effective date of the Registration Statement of which this
Prospectus is a part, to purchase up to an additional 225,000 shares of Common
Stock at the Price to Public, less the Underwriting Discount shown on the cover
page of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any overallotments in the sale of the Shares of Common Stock
offered hereby.
The Company has agreed to sell to the Representatives, for nominal
consideration, warrants to purchase an aggregate of up to 150,000 shares of
Common Stock (the "Representatives' Warrants"). The Representatives' Warrants
may be exercised in whole or in part commencing twelve months after the
effective date of the Registration Statement of which this Prospectus is a part
and for a period of four years thereafter, at an exercise price equal to 120% of
the Price to Public. During the term of the Representatives' Warrants, they may
not be transferred, sold, assigned or hypothecated except to officers of the
Representatives. The Representatives' Warrants contain anti-dilution provisions
providing for appropriate adjustments on the occurrence of certain events, and
contains customary demand and participatory registration rights. Any profits
realized by the Representatives upon the sale of such warrant or the securities
issuable upon exercise thereof may be deemed to constitute additional
underwriting compensation.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriters and their controlling persons against civil
liabilities in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted pursuant to the
foregoing provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in such
Act and is therefore unenforceable.
34
<PAGE>
Holders of Common Stock of the Company, who beneficially own in the
aggregate 3,176,100 shares, have agreed that they will not, without the prior
consent of John G. Kinnard and Company, Incorporated, publicly offer, sell or
grant any option to sell any securities of the Company in the open market or
otherwise for a period of 180 days from the effective date of the Offering.
Prior to the Offering there has been no public trading market for the Common
Stock. The initial public offering price of the Shares has been determined by
negotiations between the Company and the Representatives and bears no relation
to the Company's current earnings, book value, net worth or financial statement
criteria of value. Among the factors considered in such negotiations were the
prevailing market conditions, estimates of the business potential of the
Company, the results of operations of the Company in recent periods and other
factors deemed to be relevant.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and the Representatives' Warrants and does not purport to be a
complete statement of their terms and conditions. The Underwriting Agreement and
the Representatives' Warrants have been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Fredrikson & Byron, P.A. Certain legal matters for the Underwriters
will be passed upon by Dorsey & Whitney LLP.
EXPERTS
The audited financial statements of the Company included in this Prospectus
and elsewhere in the Registration Statement have been audited by McGladrey &
Pullen, LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Prior to the Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Washington, D.C. Office of the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
sale of the Shares. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Shares, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at one of the Commission's regional offices: 500 West Madison,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York, 10048. Copies of all or any part of such material may be
obtained upon payment of the prescribed fees from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to distribute to its shareholders annual reports
containing audited financial statements and interim reports containing unaudited
financial statements.
35
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report.......................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and May 31, 1996 (unaudited).......... F-3
Statements of Operations for the Period from August 1, 1994 (Date of Inception) to
December 31, 1994, Year Ended December 31, 1995, Five Months Ended May 31, 1995 and
1996 (unaudited), and Period from August 1, 1994 to May 31, 1996 (unaudited).......... F-4
Statements of Stockholders' Equity for the Period from August 1, 1994 (Date of
Inception) to December 31, 1994, Year Ended December 31, 1995, Five Months Ended May
31, 1995 and 1996 (unaudited), and Period from August 1, 1994 to May 31, 1996
(unaudited)........................................................................... F-5
Statements of Cash Flows for the Period from August 1, 1994 (Date of Inception) to
December 31, 1994, Year Ended December 31, 1995, Five Months Ended May 31, 1995 and
1996 (unaudited), and Period from August 1, 1994 to May 31, 1996 (unaudited).......... F-6
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Advanced UroScience, Inc.
St. Paul, Minnesota
We have audited the accompanying balance sheets of Advanced UroScience, Inc.
(A Development Stage Company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the period
since inception (August 1, 1994) through December 31, 1994 and for the year
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced UroScience, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period since inception (August 1, 1994) through December 31, 1994
and for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
January 26, 1996
F-2
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MAY 31,
1994 1995 1996
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 2)
Current Assets
Cash and cash equivalents.............................. $ 352,833 $ 474,749 $1,349,909
Other current assets................................... 62,630 17,849 80,980
--------- --------- ----------
TOTAL CURRENT ASSETS................................. 415,463 492,598 1,430,889
--------- --------- ----------
Equipment, less accumulated depreciation, 1994 -- $1,204,
1995 -- $6,839, 1996 -- $10,773........................ 16,921 18,364 46,182
Intangible Assets, less accumulated amortization 1994 --
$1,770,
1995 -- $7,087, 1996 -- $9,621......................... 21,160 23,484 29,124
--------- --------- ----------
TOTAL ASSETS..................................... $ 453,544 $ 534,446 $1,506,195
--------- --------- ----------
--------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 35,367 $ 43,558 $ 96,195
Accrued expenses....................................... 12,562 33,805 90,068
--------- --------- ----------
TOTAL CURRENT LIABILITIES........................ 47,929 77,363 186,263
--------- --------- ----------
Related-Party Long-Term Debt (Note 2).................... 200,000 200,000 --
--------- --------- ----------
Commitments and Contingencies (Notes 3, 4, and 5)
Stockholders' Equity (Notes 2, 3, 4, and 6)
Class A preferred stock, no par value; 2,000,000 shares
authorized; no shares issued and outstanding......... -- -- --
Common stock, no par value; 20,000,000 shares
authorized; issued and outstanding: 1994 -- 2,811,600
shares; 1995 -- 3,170,220 shares, 1996 -- 3,713,220
shares............................................... 533,900 1,109,812 2,527,312
Contributed capital.................................... 50,000 50,000 210,000
Deficit accumulated during the development stage....... (378,285) (902,729) (1,417,380)
--------- --------- ----------
205,615 257,083 1,319,932
--------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 453,544 $ 534,446 $1,506,195
--------- --------- ----------
--------- --------- ----------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 1, 1994 AUGUST 1, 1994
(DATE OF FIVE MONTHS ENDED (DATE
INCEPTION), YEAR ENDED MAY 31, OF INCEPTION),
TO DECEMBER 31, DECEMBER 31, ------------------------- TO MAY 31,
1994 1995 1995 1996 1996
--------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expenses
Research and development.... $ 33,504 $ 353,334 $ 108,973 $ 215,040 $ 601,878
General and administrative
(Notes 3 and 4)........... 73,705 164,771 48,574 309,732 548,208
Interest expense to related
party (Note 2)............ 3,333 16,000 6,667 4,667 24,000
--------------- ------------ ----------- ----------- --------------
110,542 534,105 164,214 529,439 1,174,086
--------------- ------------ ----------- ----------- --------------
Interest Income............... 1,632 9,661 4,972 14,788 26,081
--------------- ------------ ----------- ----------- --------------
NET LOSS.............. $ (108,910) $ (524,444) $ (159,242) $ (514,651) $ (1,148,005)
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
Net loss per share............ $ (0.03) $ (0.12) (0.04) $ (0.12) $ (0.27)
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
Weighted average number of
common and common equivalent
shares outstanding.......... 3,840,887 4,393,483 4,387,883 4,397,483 4,268,802
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM AUGUST 1, 1994 (DATE OF INCEPTION) TO MAY 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE TOTAL
--------------------- CONTRIBUTED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
--------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1994 (Date
of Inception)............... -- $ -- $ -- $ -- $ --
Initial sale of common stock
in August 1994............ 2,160,000 100 -- -- 100
Acquisition of assets from
Brennen Medical (Note
2)........................ -- -- -- (269,375) (269,375)
Capital contribution from
Brennen (Note 3).......... -- -- 50,000 -- 50,000
Private placement issuance
of common stock in
November and December at
$0.83 per share, net of
stock issuance costs of
$9,200.................... 651,600 533,800 -- -- 533,800
Net loss.................... -- -- -- (108,910) (108,910)
--------- ---------- ----------- ----------- -------------
Balance, December 31, 1994.... 2,811,600 533,900 50,000 (378,285) 205,615
Private placement issuance
of common stock in
February at $0.83 per
share..................... 24,000 20,000 -- -- 20,000
Private placement issuance
of common stock in
November and December at
$1.67 per share, net of
stock issuance costs of
$1,713.................... 334,500 555,787 -- -- 555,787
Exercise of common stock
options at $1.04 per
share..................... 120 125 -- -- 125
Net loss.................... -- -- -- (524,444) (524,444)
--------- ---------- ----------- ----------- -------------
Balance, December 31, 1995.... 3,170,220 1,109,812 50,000 (902,729) 257,083
Private placement issuance
of common stock in January
and February at $1.67 per
share (unaudited)......... 235,500 392,500 -- -- 392,500
Private placement issuance
of common stock in April
and May at $3.33 per share
(unaudited)............... 307,500 1,025,000 -- -- 1,025,000
Compensation element of
common stock options
issued (unaudited) (Note
4)........................ -- -- 160,000 -- 160,000
Net loss (unaudited)........ -- -- -- (514,651) (514,651)
--------- ---------- ----------- ----------- -------------
Balance, May 31, 1996
(unaudited)................. 3,713,220 $2,527,312 $210,000 $(1,417,380) $1,319,932
--------- ---------- ----------- ----------- -------------
--------- ---------- ----------- ----------- -------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 1, 1994 AUGUST 1, 1994
(DATE FIVE MONTHS ENDED MAY 31, (DATE
OF INCEPTION), YEAR ENDED OF INCEPTION),
TO DECEMBER 31, DECEMBER 31, ------------------------- TO MAY 31,
1994 1995 1995 1996 1996
--------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities
Net loss.................... $(108,910) $(524,444) $(159,242) $ (514,651) $ (1,148,005)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation.............. 1,204 5,635 1,850 3,934 10,773
Amortization.............. 1,770 5,317 2,712 2,534 9,621
Noncash expenses (Notes 3
and 4).................. 50,000 -- -- 160,000 210,000
Changes in assets and
liabilities:
Other current assets.... (19,130) 1,281 7,692 (63,131) (80,980)
Accounts payable........ 35,367 8,191 (29,766) 52,637 96,195
Accrued expenses........ 12,562 21,243 741 56,263 90,068
--------------- ------------ ----------- ----------- --------------
NET CASH USED IN
OPERATING
ACTIVITIES.......... (27,137) (482,777) (176,013) (302,414) (812,328)
--------------- ------------ ----------- ----------- --------------
Cash Flows From Investing
Activities
Purchase of equipment....... -- (7,078) -- (31,752) (38,830)
Purchase of intangible
assets.................... (10,430) (7,641) (1,055) (8,174) (26,245)
--------------- ------------ ----------- ----------- --------------
NET CASH USED IN
INVESTING
ACTIVITIES.......... (10,430) (14,719) (1,055) (39,926) (65,075)
--------------- ------------ ----------- ----------- --------------
Cash Flows From Financing
Activities
Net proceeds from issuance
of common stock........... 490,400 619,412 62,500 1,417,500 2,527,312
Payments on note payable to
related party............. (100,000) -- -- (200,000) (300,000)
--------------- ------------ ----------- ----------- --------------
NET CASH PROVIDED BY
FINANCING
ACTIVITIES.......... 390,400 619,412 62,500 1,217,500 2,227,312
--------------- ------------ ----------- ----------- --------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS......... 352,833 121,916 (114,568) 875,160 1,349,909
Cash and cash equivalents:
Beginning................... -- 352,833 352,833 474,749 --
--------------- ------------ ----------- ----------- --------------
Ending...................... $ 352,833 $ 474,749 $ 238,265 $ 1,349,909 $ 1,349,909
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
</TABLE>
F-6
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 1, 1994 AUGUST 1, 1994
(DATE OF FIVE MONTHS ENDED MAY 31, (DATE
INCEPTION), TO YEAR ENDED OF INCEPTION),
DECEMBER 31, DECEMBER 31, ------------------------- TO MAY 31,
1994 1995 1995 1996 1996
--------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental Disclosures of
Cash Flow Information
Cash payments for
interest.................. $ -- $ 18,166 $ 8,000 $ 5,834 $ 24,000
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
Supplemental Schedule of
Noncash Investing and
Financing Activities
Acquisition of assets of
Brennen Medical (Note 2):
Cash purchase price....... $ -- $ -- $ -- $ -- $ --
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
Carrying value of
equipment acquired...... $ 18,125 $ -- $ -- $ -- $ 18,125
Carrying value of
intangibles acquired.... 12,500 -- -- -- 12,500
Issuance of note
payable................. (300,000) -- -- -- (300,000)
Distribution to Brennen's
stockholders............ 269,375 -- -- -- 269,375
--------------- ------------ ----------- ----------- --------------
$ -- $ -- $ -- $ -- $ --
--------------- ------------ ----------- ----------- --------------
--------------- ------------ ----------- ----------- --------------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, DEVELOPMENT STAGE RISKS, AND SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS AND DEVELOPMENT STAGE RISKS: Advanced UroScience, Inc.
(the Company) was incorporated on July 27, 1994 for the purpose of manufacturing
and selling medical products specifically designed to correct human urinary
incontinence. The technology for the Company's first and only product currently
under development was purchased from Brennen Medical, Inc. (Brennen), a company
related through common majority owners (see Note 2). The Company will be
required to obtain regulatory approval from the Food and Drug Administration
(FDA) prior to selling the product within the United States. Foreign regulatory
approval must also be obtained prior to selling the product internationally.
The Company is in the development stage and has yet to obtain regulatory
approval for its product. The Company is currently beginning the preliminary
phase of the clinical trials of their product. In order to obtain regulatory
approval, the Company must satisfactorily complete clinical trials which will
result in significant costs to the Company. The Company will be unable to
complete their United States clinical trials unless additional capital is
raised. Even if the required capital is raised and the clinical trials are
completed, there is no assurance that regulatory approval will be obtained and,
if obtained, that a market will develop for the Company's product. Additionally,
substantial time may pass before significant revenue may be realized by the
Company. In addition to the proceeds from the private placements of common stock
received subsequent to year end, the Company plans to raise the needed capital
through a public offering of common stock.
A summary of the Company's significant accounting policies follows:
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the
Company considers all unrestricted cash and Treasury bills, commercial paper,
and money market funds with an original maturity of three months or less to be
cash equivalents.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may differ
from those estimates.
CONCENTRATIONS OF RISK: The Company maintains deposits at banks which, at
times, exceed federally insured limits and in money market accounts which are
not federally insured. The Company has not experienced any losses in such
accounts.
Certain of the raw materials and components for the manufacture of its
product are available only from single sources. In the event that the Company is
unable to maintain these single sources of supply and is required to replace its
current raw materials or components with alternatives, additional testing may be
required in order to receive regulatory approval. Any interruption in the supply
of raw materials or components currently used by the Company or the usage of any
alternatives could adversely affect the Company's operations.
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development
are charged to operations as incurred.
EQUIPMENT: Depreciation of equipment is computed over estimated useful
lives of five to seven years using accelerated methods.
INTANGIBLE ASSETS: Intangible assets, consisting of organizational costs
and patents, are amortized on the straight-line basis over five years.
F-8
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS, DEVELOPMENT STAGE RISKS, AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LOSS PER COMMON AND COMMON EQUIVALENT SHARE: The net loss per common and
common equivalent share is based upon the weighted average number of common and
common equivalent shares outstanding during each period. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, stock issued and stock
options and warrants granted with exercise prices below the assumed initial
public offering price during the 12 month period preceding the date of the
initial filing of the Registration Statement have been included in the
calculation as if they were outstanding for all periods presented. The weighted
average number of common and common equivalent shares outstanding and the net
loss per share have been adjusted for all periods presented to reflect the stock
split described in Note 6.
INCOME TAXES: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions
were used to estimate the fair value of each class of financial instruments:
CASH EQUIVALENTS: The carrying amount approximates fair value.
LONG-TERM DEBT: The fair value of the long-term debt is estimated based
on interest rates for the same or similar debt offered to the Company having
the same or similar remaining maturities and collateral requirements. The
carrying value of the long-term debt approximates fair value.
RECENTLY ISSUED ACCOUNTING STANDARDS: In October 1995, the FASB issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which establishes a
fair-value-based method for financial accounting and reporting for stock-based
employee compensation plans. However, the new standard allows compensation to
continue to be measured by using the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, but requires expanded disclosures. SFAS No. 123 is
effective in fiscal year 1996. The Company has elected to continue to apply the
intrinsic value-based method of accounting for stock options.
INTERIM FINANCIAL INFORMATION (UNAUDITED): The financial statements and
notes related thereto as of May 31, 1996, and for the five-month period ended
May 31, 1995 and 1996, and from August 1, 1994 (date of inception), to May 31,
1996, are unaudited, but in the opinion of management include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations. The operating
results for the interim periods are not indicative of the operating results to
be expected for a full year or for other interim periods. Not all disclosures
required by generally accepted accounting principles necessary for a complete
presentation have been included.
NOTE 2. ASSET PURCHASE FROM RELATED PARTY
On August 1, 1994, the Company purchased certain assets of Brennen relating
to a product to treat urinary incontinence (as discussed in Note 1) for
$300,000. The note bears interest at 8 percent per annum and is payable monthly.
Interest expense of $3,333 and $16,000 was incurred under this note agreement
for
F-9
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ASSET PURCHASE FROM RELATED PARTY (CONTINUED)
the period ended December 31, 1994 and the year ended December 31, 1995,
respectively. The note is secured by substantially all the assets of the
Company. $100,000 was repaid on the note in December, 1994 with the balance
repaid in 1996.
The approximate total value of the assets purchased was as follows:
<TABLE>
<S> <C>
Equipment.......................................................... $ 18,125
Intangibles........................................................ 12,500
---------
TOTAL ASSETS PURCHASED......................................... $ 30,625
---------
---------
</TABLE>
Because the Company and Brennen are under common control, the Company, for
accounting purposes, is precluded from recording the acquired assets at any
amount other than Brennen's carrying cost. Accordingly, the excess purchase
price of $269,375 has been treated as a distribution to Brennen's stockholders
and is recorded as a charge directly to deficit accumulated during development
stage.
NOTE 3. RELATED-PARTY TRANSACTIONS
CONTRIBUTED CAPITAL: During the period from August 1, 1994 to November 1,
1994, Brennen agreed to pay, on the Company's behalf, certain operating expenses
(primarily salary, rent, and certain administrative expenses) amounting to
$50,000. As those expenses were incurred by the Company and paid by Brennen, the
Company expensed those amounts and recorded a credit in the same amount to
contributed capital.
OPERATING LEASE: Through April, 1996, the Company subleased its office and
research facility from Brennen on a monthly basis. Rent expense to Brennen
amounted to $1,000 for the period ended December 31, 1994, $6,000 for the year
ended December 31, 1995. In May, 1996, the Company signed a two year lease
directly with the landlord (also a related party) for $36,000 annually.
NOTE 4. STOCKHOLDER TRANSACTIONS
STOCK ISSUANCE AND WARRANT ARRANGEMENTS: Since inception, the Company has
raised approximately $2.5 million from the issuance of common stock through
private placements. During 1995, the Company had a private placement which
resulted in the issuance of a total of 334,500 shares of common stock. Under the
1995 Private Placement Agreement, each investor was also granted one warrant for
each share of common stock purchased. Each warrant allows the investor to
purchase one additional share of common stock at $1.67 per share. A total of
334,500 warrants are exercisable and outstanding at December 31, 1995. These
warrants expire during fiscal 2000.
F-10
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. STOCKHOLDER TRANSACTIONS (CONTINUED)
STOCK OPTIONS: The Company granted nonqualified options to purchase 600,000
shares of common stock to certain employees, directors, and other individuals.
All options are currently exercisable. A summary of outstanding stock options
follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
SHARES PRICE DATE
------------ ------------- -------------
<S> <C> <C> <C>
Balance, August 1, 1994 (date of inception)
Options granted.......................................... 300,000 $ 0.83 - 1.04 2004
------------ -------------
Balance, December 31, 1994................................. 300,000 0.83 - 1.04
Options granted.......................................... 210,000 1.04 - 1.67 2000 - 2005
Options exercised........................................ (120) 1.04
------------ -------------
Balance, December 31, 1995................................. 509,880 0.83 - 1.67 2000 - 2005
Options granted.......................................... 90,000 1.67 - 3.33 2006
------------ -------------
Balance, May 31, 1996...................................... 599,880 $ 0.83 - 3.33 2000 - 2006
------------ -------------
------------ -------------
</TABLE>
The 1994 and 1995 options were granted at prices which approximated the fair
value on the dates of grant and, accordingly, no compensation expense was
recorded. In 1996, compensation expense of $160,000 was recorded related to
option grants.
NOTE 5. INCOME TAXES
The components of deferred taxes at December 31, 1994 and 1995, are as
follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.............................................. $ 40,000 $ 220,000
Tax credits................................................................... -- 11,000
Amortization of Brennen asset purchase (1).................................... 92,000 85,000
Valuation allowance........................................................... (132,000) (316,000)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) As discussed in Note 2, the excess purchase price related to the Brennen
asset purchase was recorded as a distribution for financial reporting
purposes. For tax purposes, the amount is amortized over a fifteen year
period. Accordingly, at inception, the Company recorded a valuation
allowance of $95,000 on this deferred tax asset.
At December 31, 1995, the Company recorded a valuation allowance of $316,000
on the deferred tax assets to reduce the total to an amount that management
believes will ultimately be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
The Company's income tax benefit differed from the statutory federal rate as
follows:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Statutory rate applied to loss before tax...................................... $ (37,000) $ (184,000)
Change in valuation allowance.................................................. 37,000 184,000
---------- -----------
$ -- $ --
---------- -----------
---------- -----------
</TABLE>
F-11
<PAGE>
ADVANCED UROSCIENCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED)
At December 31, 1995, the Company had net operating losses of approximately
$628,000 expiring as follows:
<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
- ------------------------------------------------------------------------ ----------
<S> <C>
2009.................................................................... $ 116,000
2010.................................................................... 512,000
</TABLE>
These net operating losses may be subject to certain annual limitations
resulting from future stock offerings.
NOTE 6. SUBSEQUENT EVENTS (UNAUDITED)
STOCK SPLIT: In May, 1996, the Company effected a six for five common stock
split. The effect of this common stock split has been retroactively reflected in
these financial statements and notes for all periods presented.
PRIVATE PLACEMENTS: Subsequent to December 31, 1995, the Company completed
its 1995 private placement by selling an additional 235,500 shares of common
stock, resulting in proceeds of approximately $392,500. In connection with these
sales of common stock, an additional 235,500 of warrants were granted at an
exercise price of $1.67 per share.
In May, 1996, the Company completed a private placement with the sale of
307,500 shares of common stock at $3.33 per share for proceeds of $1,025,000.
PREFERRED STOCK: The Board of Directors authorized issuance of up to
2,000,000 shares of preferred stock. The preferred stock has certain voting,
liquidation, dividend and conversion rights. As of May 31, 1996, no shares of
preferred stock have been issued.
PUBLIC OFFERING: On May 23, 1996, the Company signed a letter of intent
with an investment banker to undertake a public offering of 1,500,000 shares of
common stock at a price based on market conditions at the time of effectiveness.
The letter of intent includes an overallotment option to sell an additional
225,000 shares and provides that the Company will issue the investment banker a
warrant for the purchase of 150,000 shares. The Company plans to use the
proceeds to conduct clinical trials, for sales and marketing, research and
development, and general corporate purposes.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE AFFAIRS OF THE COMPANY SINCE THAT DATE HEREOF OR THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 10
Dividend Policy................................ 10
Capitalization................................. 11
Dilution....................................... 12
Selected Financial Data........................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business....................................... 16
Management..................................... 25
Certain Transactions........................... 28
Principal Shareholders......................... 30
Description of Securities...................... 31
Shares Eligible for Future Sale................ 33
Underwriting................................... 34
Legal Matter................................... 35
Experts........................................ 35
Available Information.......................... 35
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,500,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JOHN G. KINNARD AND COMPANY,
INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521, subd. 2, of the Minnesota Statutes requires the Company to
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect to
the Company, against judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions if such person (1) has not been
indemnified by another organization or employee benefit plan for the same
judgments, penalties or fines; (2) acted in good faith; (3) received no improper
personal benefit, and statutory procedure has been followed in the case of any
conflict of interest by a director; (4) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity
of officer, board committee member or employee, reasonably believed that the
conduct was in the best interests of the Company, or, in the case of performance
by a director, officer or employee of the Company involving service as a
director, officer, partner, trustee, employee or agent of another organization
or employee benefit plan, reasonably believed that the conduct was not opposed
to the best interests of the Company. In addition, Section 302A.521, subd. 3,
requires payment by the Company, upon written request, of reasonable expenses in
advance of final disposition of the proceeding in certain instances. A decision
as to required indemnification is made by a disinterested majority of the Board
of Directors present at a meeting at which a disinterested quorum is present, or
by a designated committee of the Board, by special legal counsel, by the
shareholders, or by a court.
Provisions regarding indemnification of officers and directors of the
Company are contained in Bylaw 37 of the Company's Bylaws (Exhibit 3.2 to this
Registration Statement).
The Company maintains a director and officer liability policy.
Under Section 6 of the Underwriting Agreement, filed as Exhibit 1.1 hereto,
the Underwriters agree to indemnify, under certain conditions, the Company, its
directors, certain of its officers and persons who control the Company within
the meaning of the Securities Act of 1933, as amended, against certain
liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company in connection with the
distribution of the securities registered hereby and do not include the
underwriting discount to be paid to the Underwriters. All of such expenses,
except for the SEC registration fee, NASD fee and Nasdaq listing fee, are
estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 5,949
NASD Fee.......................................................... 2,225
Nasdaq National Market Listing Fee................................ 29,000
Legal Fees........................................................ 75,000
Representatives' Accountable Expenses............................. 50,000
Accountants' Fees and Expenses.................................... 40,000
Printing Expenses................................................. 40,000
Blue Sky Fees and Expenses........................................ 5,000
Miscellaneous..................................................... 12,826
---------
Total........................................................... $ 260,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold the securities listed
below pursuant to exemptions from registration under the Securities Act. The
information below is presented on a post-stock split basis.
II-1
<PAGE>
1. In August 1994, an aggregate of 2,160,000 shares of Common Stock were
issued at less than $.01 per share as follows: 1,512,000 shares to Timothy
Lawin, 540,000 shares to Bruce Lawin and 108,000 shares to Mr. Klein.
2. From December 1994 through February 1995, an aggregate of 675,600 shares
of Common Stock were issued at $0.83 per share pursuant to a private placement.
Of the 675,600 shares sold in the private placement, 120,000 shares were
purchased by each of Bruce Lawin, Mr. Colombo and Ms. Lawin, 60,600 shares were
purchased by Mr. Klein.
3. In December 1995, 120 shares of Common Stock were purchased at $1.04 per
share by a consultant to the Company in connection with an exercise of an
option.
4. In November 1995, units consisting of 240,000 shares of Common Stock and
warrants to purchase 240,000 shares of Common Stock at an exercise price of
$1.67, were sold at $1.67 per share in a private placement to James Knoblach
(60,000 units) and Mark Knoblach (180,000 units).
5. From December 1995 through February 1996, units consisting of 330,000
shares of Common Stock and warrants to purchase 330,000 shares of Common Stock
at an exercise price of $1.67 per share were sold at $1.67 per share in a
private placement. Of the total 330,000 units sold in the private placement,
30,000 were purchased by Bruce Lawin, 7,500 were purchased by Timothy Lawin,
7,500 were purchased by Mr. Klein, 30,000 were purchased by Mr. Colombo, 7,500
were purchased by Mr. Nosbush and 36,000 were purchased by Brennen Medical, Inc.
6. In April 1996 and May 1996, an aggregate of 307,500 shares of Common
Stock were issued at $3.33 per share pursuant to a private placement. Of the
307,500 shares sold in the private placement, 30,000 shares were purchased by
Mark Knoblach, 15,000 were purchased by James Knoblach and 150,000 shares were
purchased by Adams, Harkness & Hill Partners Fund of which Harry Wells is a
director.
The sales of securities above were made in reliance upon Section 4(2) and
Regulation D of the Securities Act, which provide exemptions for transactions
not involving a public offering. The purchasers of securities described above
acquired them for their own account and not with a view to any distribution
thereof to the public. The certificates evidencing the securities bear legends
stating that the shares are not to be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act, or an
exemption from such registration requirements. No underwriting commissions or
discounts were paid with respect to the sales of unregistered securities
described above.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, including form of Representatives' Warrants (to be filed by amendment)
3.1 Articles of Incorporation, as amended
3.2 Amended and Restated Bylaws
4.1 Form of Stock Certificate (to be filed by amendment)
4.2 Articles of Incorporation, as amended (filed as Exhibit 3.1)
4.3 Amended and Restated Bylaws (filed as Exhibit 3.2)
4.4 Form of Representatives' Warrants (filed as part of Exhibit 1.1)
5.1 Opinion and Consent of Fredrikson & Byron, P.A. (to be filed by amendment)
10.1 1996 Stock Option Plan (to be filed by amendment)
10.2 Form of Stock Option Agreement
10.3 Form of Stock Purchase Warrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.4 Agreement for Purchase and Sale from Brennen Medical, Inc. of Urology Business and Assets dated August
1, 1994
10.5 Employment Agreement with Dean A. Klein dated August 1, 1994, including consent to termination of
employment agreement
10.6 Lease Agreement by and between Lawin Enterprises, Inc. and the Registrant dated May 1, 1996
10.7 Business Relationship Agreement (to be filed by amendment)
11 Statement re computation of per share earnings
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of McGladrey & Pullen, LLP independent public accountants
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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) It will provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on June 28, 1996.
ADVANCED UROSCIENCE, INC.
By /s/ DEAN A. KLEIN
------------------------------------
Dean A. Klein,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Dean A.
Klein and Timothy P. Lawin, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
SIGNATURES TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board,
/s/ TIMOTHY P. LAWIN Chief Financial Officer
- ----------------------------------- (principal financial and June 28, 1996
Timothy P. Lawin accounting officer)
/s/ DEAN A. KLEIN
- ----------------------------------- President and Chief June 28, 1996
Dean A. Klein Executive Officer
/s/ BRUCE A. LAWIN
- ----------------------------------- Director June 28, 1996
Bruce A. Lawin
/s/ MARK G. NOSBUSH
- ----------------------------------- Director June 28, 1996
Mark G. Nosbush
/s/ PAUL E. COLOMBO
- ----------------------------------- Director June 28, 1996
Paul E. Colombo
/s/ JAMES M. KNOBLACH
- ----------------------------------- Director June 28, 1996
James M. Knoblach
/s/ HARRY E. WELLS, III
- ----------------------------------- Director June 28, 1996
Harry E. Wells, III
II-4
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
ADVANCED UROSCIENCE, INC.
EXHIBIT INDEX TO FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement, including form of Representatives' Warrants (to be filed by
amendment)
3.1 Articles of Incorporation, as amended
3.2 Amended and Restated Bylaws
4.1 Form of Stock Certificate (to be filed by amendment)
4.2 Articles of Incorporation, as amended (filed as Exhibit 3.1)
4.3 Amended and Restated Bylaws (filed as Exhibit 3.2)
4.4 Form of Representatives' Warrants (filed as part of Exhibit 1.1)
5.1 Opinion and Consent of Fredrikson & Byron, P.A. (to be filed by amendment)
10.1 1996 Stock Option Plan (to be filed by amendment)
10.2 Form of Stock Option Agreement
10.3 Form of Stock Purchase Warrant
10.4 Agreement for Purchase and Sale from Brennen Medical, Inc. of Urology Business and Assets dated
August 1, 1994
10.5 Employment Agreement with Dean A. Klein dated August 1, 1994, including consent to termination
of employment agreement
10.6 Lease Agreement by and between Lawin Enterprises, Inc. and the Registrant dated May 1, 1996
10.7 Business Relationship Agreement (to be filed by amendment)
11 Statement re computation of per share earnings
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of McGladrey & Pullen, LLP, independent public accountants
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADVANCED UROSCIENCE, INC.
(CLASS A PREFERRED STOCK)
The undersigned, Timothy P. Lawin, Secretary of Advanced UroScience, Inc.,
a Minnesota corporation, hereby certifies: (i) that Article 3 of the
corporation's Articles of Incorporation has been amended to read in its entirety
as follows:
ARTICLE 3 - CAPITAL STOCK
3.1 AUTHORIZED SHARES. The aggregate number of shares that the
corporation has authority to issue shall be Twenty Million (20,000,000) shares
of common stock, and Two Million (2,000,000) shares of Class A Preferred stock.
Such shares shall not have any par value, except that they shall have a par
value of one cent ($.01) per share solely for the purpose of a statute or
regulation imposing a tax or fee based upon the capitalization of a corporation
and except that they shall have such par value as may be fixed by the
corporation's Board of Directors for the purpose of a statute or regulation
requiring the shares of the corporation to have a par value.
3.2 CLASS A PREFERRED STOCK. The Class A Preferred stock shall have the
following relative rights and preferences:
(a) DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the corporation and prior to
distribution or payment made to the holders of common stock, the
holders of the Class A Preferred stock shall be entitled to be paid
the applicable per share subscription price (the price at which such
shares were initially sold by the corporation) of all outstanding
shares of Class A Preferred stock as of the date of such liquidation
or dissolution or such winding up, plus any accrued and unpaid
dividends thereon to such date, and no more, in cash or in property at
its fair value as determined by the Board of Directors, or both, at
the election of the Board of Directors. If such payment shall have
been made in full to the holders of the Class A Preferred stock, the
remaining assets and funds of the corporation shall be distributed
among the holders of common stock, according to their respective
shares and priorities. If, upon any such liquidation, dissolution or
other winding up affairs of the corporation, net assets of the
corporation distributable among the holders of all outstanding shares
of the Class A Preferred stock shall be insufficient to permit the
payment in full to such holders of the preferential amounts to which
they are entitled, then the entire
<PAGE>
net assets of the corporation remaining shall be distributed among the
holders of the Class A Preferred stock ratably in proportion to the
full amounts to which they would otherwise be respectively entitled.
Neither the consolidation or merger of the corporation into or with
another corporation or corporations, nor the sale of all or
substantially all of the assets of the corporation to another
corporation or corporations shall be deemed a liquidation, dissolution
or winding up of the affairs of the corporation within the meaning of
this Article 3.2(a).
(b) DIVIDENDS. Except as set forth in Article 3.2(a) with respect to
certain dividend preferences in the event of liquidation, the holders
of Class A Preferred stock shall share ratably in any dividends
authorized by the corporation's Board of Directors and legally
available for payment. All such dividends will be issued and paid
ratably among the holders of Class A Preferred stock and common stock,
as if all such shares were of a single class.
(c) VOTING RIGHTS. Except as may be required to comply with the
provisions of Minnesota Statutes Chapter 302A as amended, the holders
of the issued and outstanding Class A Preferred stock shall vote
together with the holders of common stock on all shareholder matters,
with each share of Class A Preferred stock and each share of common
stock entitled to a single vote on all such matters.
(d) AUTOMATIC CONVERSION ON CERTAIN EVENTS. The Class A Preferred stock
shall automatically be converted into shares of common stock of the
corporation, without any further act by the corporation or the holders
of the Class A Preferred stock:
(i) concurrently with the closing of the first public offering of
shares of common stock of the corporation registered under the
Securities Act of 1933, as amended, in which (1) the offering is
underwritten on a firm commitment basis by an underwriter, or a
group of underwriters represented by an underwriter or
underwriters, which is a member of the New York Stock Exchange,
and (2) the public offering price per share of common stock is at
least $4.00. As used herein, the term "closing" shall mean the
delivery to the underwriters of certificates representing the
shares of common stock of the corporation offered to the public
against delivery to the sellers thereof by such underwriters of
payment therefor. The term "firm commitment basis" with respect
to the underwriting of such public offering shall mean a
commitment pursuant to a written underwriting agreement under
which the nature of the underwriters' commitment is such that all
securities will be purchased by such underwriters if any
securities are purchased by such underwriters; or
<PAGE>
(ii) on March 1 of any year in which the fiscal year end audited
financial statements of the corporation for the previous fiscal
year show gross revenues of at least $200,000.
Each holder of a share of Class A Preferred stock so converted shall
be entitled to receive one share of common stock (as may be adjusted
from time to time by the Board of Directors in order to equitably
reflect stock splits, dividends, recapitalizations, combinations or
the like) for each share of Class A Preferred stock held at the time
of closing of such public offering or on such March 1, as the case may
be. At all times hereafter, the corporation will reserve for issuance
a sufficient number of shares of common stock necessary for automatic
conversions under this section 3.2(d). Upon such conversion, each
holder of a share or shares of Class A Preferred stock shall
immediately surrender the certificate or certificates for such shares
in exchange for appropriate stock certificates representing a share or
shares of common stock of the corporation. Regardless of whether
certificates for such Class A Preferred stock are surrendered for
exchange, in the event of an automatic conversion all issued and
outstanding shares of Class A Preferred stock will be cancelled on the
books and records of the corporation.
(e) NO OTHER PREFERENCES. Except as may be set forth in this Article 3.2,
or as may be required under the provisions of Minnesota Statutes
Chapter 302A as amended, the Class A Preferred stock shall have no
other preferences or special rights with respect to any other class of
equity securities of the corporation.
3.3 ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of stock of any authorized class or series of the corporation,
and rights to purchase securities of the corporation, to such persons, at such
time, for such consideration, and upon such terms and conditions as the Board
shall determine."
IN WITNESS WHEREOF, I have subscribed my name on behalf of the corporation
this 28th day of March 1996.
/s/ Timothy P. Lawin
-----------------------------------
Timothy P. Lawin, Secretary
<PAGE>
ARTICLES OF INCORPORATION
OF
ADVANCED UROSCIENCE, INC.
The undersigned, being a natural person of full age, for the purpose of
forming a corporation under and pursuant to Chapter 302A of Minnesota Statutes,
as amended, hereby adopts the following Articles of Incorporation:
ARTICLE 1 - NAME
1.1 The name of the corporation shall be Advanced UroScience, Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1 The location and office address of the registered office of the
corporation in this state shall be 1290 Hammond Road, White Bear Lake, Minnesota
55110.
ARTICLE 3 - CAPITAL STOCK
3.1 AUTHORIZED SHARES. The aggregate number of shares that the
corporation has authority to issue shall be Twenty Million (20,000,000) shares
of common stock. Such shares shall not have any par value, except that they
shall have a par value of one cent ($.01) per share solely for the purpose of a
statute or regulation imposing a tax or fee based upon the capitalization of a
corporation and except that they shall have such par value as may be fixed by
the corporation's Board of Directors for the purpose of a statute or regulations
requiring the shares of the corporation to have a par value.
3.2 ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of stock of any class or series of the corporation, and rights to
purchase securities of the corporation, to such persons, at such time, for such
consideration, and upon such terms and conditions as the Board shall determine.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1 NO PREEMPTIVE RIGHTS. No shareholder of the corporation shall have
any preemptive right to subscribe for, purchase or acquire any shares of stock
of any class or series of the corporation now or hereafter authorized or issued
by the corporation.
4.2 NO CUMULATIVE VOTING RIGHTS. No shareholder shall have the right to
cumulate votes for the election of directors or for any other purpose.
<PAGE>
ARTICLE 5 - WRITTEN ACTION BY DIRECTORS
5.1 Any action required or permitted to be taken at a Board meeting may be
taken by written action signed by all of the directors or, in cases where the
action need not be approved by the shareholders, by written action signed by the
number of directors that would be required to take the same action at a meeting
of the Board at which all directors were present.
ARTICLE 6 - LIMITATION OF DIRECTOR LIABILITY
6.1 A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except to the extent that elimination or limitation of liability is
not permitted under Section 302A.251, the Minnesota Business Corporation Act, as
the same exists or may hereafter be amended. Any repeal or modification of the
provisions of this Article shall not adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal or
modification.
ARTICLE 7 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
7.1 Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitle to vote shall be required to authorize the corporation (i) to merge into
or with one or more other corporations, (ii) to exchange its shares for shares
of one or more other corporations, (iii) to sell, lease, transfer or otherwise
dispose of all or substantially all of its property and assets, including its
good will, or (iv) to commence voluntary dissolution.
ARTICLE 8 - AMENDMENT OF ARTICLES OF INCORPORATION
8.1 Any provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the holders of
at least a majority of the voting power of the shares present and entitled to
vote at a duly held meeting or such greater percentage as may be otherwise
prescribed by the laws of the State of Minnesota.
ARTICLE 9 - INCORPORATOR
9.1 The name and post office address of the incorporator are as follows:
Dean A. Klein 1290 Hammond Road
St. Paul, Minnesota 55110
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has hereunto set his hand
this 27th day of July, 1994.
/s/ Dean A. Klein
-----------------------------------
Dean A. Klein
Subscribed and sworn to before me
this 27th day of July, 1994
- --------------------
Notary Public
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
ADVANCED UROSCIENCE, INC.
A corporation duly organized under Minnesota Statutes, Chapter 302A, as amended.
OFFICES
BYLAW 1. PLACE. The registered office of the corporation shall be at such
location as set forth in the Articles of Incorporation or any such subsequent
filings made with the Secretary of State. The principal executive office in
Minnesota shall be at such location as may be determined by the Board of
Directors. Other offices may be maintained by the corporation at any other
place or places which the Board may designate.
BYLAW 2. MAINTENANCE OF RECORDS. The original books and records of the
corporation shall be maintained at the principal executive office of the
corporation where they shall be available for examination by the shareholders on
such terms and conditions as the Board may from time to time impose.
SHAREHOLDERS' MEETINGS
BYLAW 3. PLACE. All meetings of the shareholders shall be held at such
place as the Board may designate provided that any meeting called at the demand
of one or more shareholders shall be held in the county where the principal
executive office is located.
BYLAW 4. REGULAR MEETINGS. Regular meetings of the shareholders may be
called from time to time by the Board and any meeting so called shall be held on
such date and at such time as the Board may determine. The action to be taken
at a regular meeting shall include the election of directors and any other
business appropriate for action by the shareholders.
BYLAW 5. SPECIAL MEETINGS. Special meetings of the shareholders may be
called for any purpose by the President or Treasurer, or by the Board of
Directors or any two members thereof, and shall be called by the Board of
Directors at the demand in writing of a shareholder or shareholders owning 10
percent or more of the voting stock of the corporation, as provided by Minnesota
Statutes, Section 302A.433, Subd. 2, as amended. Business transacted at any
special meeting shall be confined to purposes stated in the notice of the
meeting, unless all of the shareholders are present at the meeting and consent
to consideration of other business.
- 1 -
<PAGE>
BYLAW 6. NOTICE. Written notice of shareholder meetings shall be given to
each shareholder entitled to vote thereat by mailing such notice, postage
prepaid, to each shareholder's last known address. The notice shall be given at
least 10 days, and not more than 60 days, before the meeting. The notice of a
regular meeting shall set forth the time and place of the meeting and the items
of business to be transacted at the meeting. The notice of a special meeting
shall set forth the time and place of the meeting and shall also state the
purpose or purposes of the meeting. Notice may be waived by a shareholder
before, at or after a meeting, orally, in writing, or by attendance at the
meeting.
BYLAW 7. WRITTEN ACTIONS. Any action which may be taken at a meeting of
the shareholders may be taken without a meeting if authorized by a writing
signed by all of the shareholders who would be entitled to vote on such action.
Such action is effective when it is signed by all of the shareholders, unless a
different effective time is provided in the written action.
BYLAW 8. QUORUM; ADJOURNMENT. The presence at any meeting, in person or
by proxy, of the holders of a majority of the voting power of the shares
entitled to vote shall constitute a quorum for the transaction of business. If
a quorum is present when a duly called or held meeting is convened, the
shareholders present may continue to transact business until adjournment, even
though the withdrawal of a number of shareholders originally present leaves less
than the proportion or number otherwise required for a quorum. In the absence
of a quorum, those present may adjourn the meeting from day to day or time to
time without notice other than announcement at the meeting. At an adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally noticed.
BYLAW 9. VOTING; RECORD DATE. At each meeting of the shareholders, each
shareholder entitled to vote thereat may vote in person or by proxy duly
appointed by a written instrument signed by such shareholder. Shares owned by
two or more shareholders may be voted by any one of them unless the corporation
receives written notice from any one of them denying the authority of any other
person or persons to vote those shares. Unless otherwise provided in the terms
of the shares, each shareholder shall have one vote for each share standing in
his or her name on the books of the corporation, or on the books of any transfer
agent appointed by the corporation, on the record date established by the Board,
which date shall be not more than 60 days before the meeting. If no record date
has been established, the record date shall be the close of business on the
third business day preceding the date of the meeting as originally noticed.
Upon the demand of any shareholder, the vote for directors, or the vote upon any
question before the meeting, shall be by ballot. All elections shall be had and
all questions shall be decided by a majority vote, except as otherwise
specifically provided for by statute or by the Articles of Incorporation.
BYLAW 10. SHAREHOLDER MANAGEMENT. The shareholders of the corporation's
voting stock may, by unanimous affirmative vote, take any action required or
permitted to be taken
- 2 -
<PAGE>
by the Board of Directors. Such actions are deemed to be approved by the Board
of Directors, if such approval is required.
BOARD OF DIRECTORS
BYLAW 11. AUTHORITY. The business and affairs of the corporation shall be
managed by the Board of Directors, subject to the provisions of Bylaw 10. The
Board shall have all powers necessary and appropriate to manage the business of
the corporation, including the power to set the compensation of its members.
BYLAW 12. NUMBER, ELECTION AND TERM. The directors shall number not less
than one nor more than nine. The number of directors shall be determined from
time to time by resolution of the shareholders, and if the shareholders do not
expressly fix the number of directors to serve, then the number of directors
shall be the number of directors elected at the preceding regular meeting of the
shareholders or at any subsequent special meeting of the shareholders called for
the election of directors. A director need not be a shareholder. Directors
shall be elected by the vote of the holders of a majority of the shares present
at the meeting and entitled to vote. At each such election, one director will
be designated and elected to serve a three year term, a second director will be
designated and elected to serve a two year term, and all other directors will be
elected to serve a one year term. Notwithstanding the foregoing, each term of a
director shall not end until such director's successor has been elected and
qualified, or until such director's earlier death, resignation, removal or
disqualification.
BYLAW 13. MEETINGS. Meetings of a Board may be called by the President or
by any director at any time. In the absence of designation by the Board,
meetings of the Board shall be held at the principal executive office of the
corporation.
BYLAW 14. NOTICE. The notice of a Board meeting shall state the time and
place of the meeting, and if the meeting is to be held by means of electronic
communication, the arrangements to be made in that regard. Notice shall be
given to each director personally or by mail, telefax, or telegraph sent at
least 10 days prior to the meeting. The notice need not specify the purpose or
purposes of the meeting. Notice may be waived by a director before, at or after
a meeting, orally, in writing, or by attendance and participation at the
meeting.
BYLAW 15. WRITTEN ACTIONS. Any action which might be taken at a meeting
of the Board may be taken without a meeting if authorized by a writing signed by
all directors unless the action need not be approved by the shareholders, in
which case the writing must be signed by the number of directors that would be
required to take the same action at a meeting of the Board at which all
directors were present. A written action is effective when signed by the
required number of directors, unless a different effective time is provided in
the written action.
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<PAGE>
BYLAW 16. TELEPHONE MEETINGS. The directors of the corporation may
participate in a meeting of the Board by means of conference telephone or
similar communications equipment which allows all persons participating in the
meeting to hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
BYLAW 17. QUORUM. At all meetings of the Board, a majority of the
directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum when the meeting is convened shall be the
act of the Board. If there is only one director, that director shall constitute
a quorum. In the absence of a quorum, those present may adjourn the meeting
from day to day or time to time without notice other than announcement at the
meeting.
BYLAW 18. ABSENT DIRECTORS. A director may give advance written consent
or opposition to a proposal to be acted on at a Board meeting. If the director
is not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes or other record of action at the
meeting, if the proposal acted on at the meeting is substantially the same or
has substantially the same effect as the proposal to which the director has
consented or objected.
BYLAW 19. ORDER OF BUSINESS; RECORD OF PROCEEDINGS. The directors shall
determine the order of the business of their meetings. If a Secretary of the
corporation has been elected and is in attendance at a meeting, the Secretary
shall keep a record of all proceedings at the meeting; otherwise a Secretary PRO
TEM, chosen by the directors, shall so act.
BYLAW 20. VACANCY. A vacancy in the Board of Directors resulting from the
death, resignation, removal or disqualification of a director shall be filled by
a majority vote of the remaining members of the Board, although less than a
quorum, and a vacancy resulting from a newly created directorship shall be
filled by the affirmative vote of a majority of the directors serving at the
time of the increase. A director so elected shall serve until a successor is
elected by the shareholders at their next regular meeting or at a special
meeting duly called for that purpose, or until such director's earlier death,
resignation, removal or disqualification.
BYLAW 21. COMMITTEES. The Board may establish such committees composed of
one or more natural persons, who need not be directors, having the authority of
the Board in the management of the business of the corporation to the extent
provided in the resolution establishing the committee. Committees so
established are subject at all times to the direction and control of the Board.
These Bylaws apply to such committees and members of such committees to the same
extent as they apply to the Board and the directors.
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<PAGE>
STOCK
BYLAW 22. ISSUANCE OF SHARES. The Board is authorized to issue shares of
the corporation, in the full amount authorized by the Articles of Incorporation,
in such amounts and at such times as may be determined by the Board and as may
be permitted by law.
BYLAW 23. TRANSFER OF SHARES. Subject to any applicable restrictions,
shares of stock in the corporation shall be transferred upon demand accompanied
by a tender of stock certificates to be transferred, duly endorsed, together
with any transfer taxes due thereon.
BYLAW 24. CERTIFICATE OF SHARES. The certificates of shares of the
corporation shall be fully printed, lithographed, or steel engraved in form and
shall be registered in the books of the corporation as they are issued. They
shall exhibit the holder's name, number of shares, any other information
required by law, and shall be signed by at least one officer of the corporation.
If a transfer agent has been appointed for the corporation's stock, the
signature of such officer may be by facsimile.
BYLAW 25. LOST CERTIFICATES. Any shareholder claiming a certificate of
shares to be lost, stolen or destroyed shall make an affidavit or affirmation of
that fact in such form as the Board may require, and shall, if the Board so
requires, give the corporation (and its transfer agent, if a transfer agent be
appointed) his or her personal indemnification or a bond of indemnity in an
amount and form and with one or more sureties satisfactory to the Board,
whereupon a new certificate may be issued for the same number of shares as the
one alleged to have been lost, stolen or destroyed.
OFFICERS
BYLAW 26. APPOINTMENT OF OFFICERS. The Board shall appoint a President,
who shall be the chief executive officer, and a Treasurer, who shall be the
chief financial officer. The Board may also appoint such other officers and
agents as it shall deem necessary from time to time, who shall exercise such
powers and perform such duties as stated in these Bylaws and/or as shall be
prescribed from time to time by the Board. The same person may hold more than
one office.
BYLAW 27. TERMS OF OFFICE. The officers of the corporation shall hold
office for an indefinite term until their successors are appointed and have
qualified, or until their earlier death, resignation, removal or
disqualification. Any officer may be removed by the Board at any time, with or
without cause.
BYLAW 28. SALARIES. The salaries of the officers of the corporation shall
be determined by the Board, or the Board may authorize the President to
determine such salaries.
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<PAGE>
BYLAW 29. PRESIDENT. In addition to such other powers or duties as the
Board may prescribe, the President shall have responsibility for the general
active management of the business of the corporation. Unless a Chairman of the
Board has been appointed and is present, the President shall preside at all
meetings of the Board of Directors and of the shareholders. Unless some other
person is specifically authorized by the Board, the President shall sign all
stock certificates, bonds, deeds, mortgages, instruments, contracts and
agreements on behalf of the corporation. The President shall have such other
powers as may be granted by Minnesota law to the chief executive officer.
BYLAW 30. CHAIRMAN. In addition to such other powers or duties as the
Board may prescribe the Chairman shall preside at all meetings of the
directors and shareholders.
BYLAW 31. CHIEF FINANCIAL OFFICER. In addition to such other powers or
duties as the President or the Board may prescribe, the Chief Financial Officer
shall keep accurate financial records for the corporation and shall be
responsible for the safekeeping, deposit and disbursal of all moneys, securities
and other valuables that may come into the possession of the corporation. The
Chief Financial Officer shall have such other powers as may be granted by
Minnesota law to the chief financial officer.
BYLAW 32. VICE PRESIDENT. If the Board shall appoint a Vice President,
the Vice President shall, in the absence or disability of the President, perform
the duties and exercise the powers of the President, and shall perform such
other duties as the Board may prescribe.
BYLAW 33. SECRETARY. If the Board shall appoint a Secretary, the
Secretary shall attend all meetings of the Board of Directors and of the
shareholders and record all votes and the minutes of all proceedings in a book
kept for that purpose. The Secretary shall also give, or cause to be given,
notice of all meetings of the shareholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board.
BYLAW 34. VACANCY. If the office of any officer becomes vacant, the
directors then in office, although less than a quorum may choose a successor,
who shall hold office for the unexpired term in respect of which such vacancy
occurred.
MISCELLANEOUS
BYLAW 35. NO SEAL. The corporation shall not have a corporate seal.
BYLAW 36. AMENDMENTS TO BYLAWS. These Bylaws, or any one or more of them,
may be amended or repealed by the Board of Directors, provided that the Board
shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
on the Board, or fixing the qualifications, classifications, term of office, or
number (except to increase the number) of directors. Such authority in the
directors is subject to the powers of the shareholders to
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<PAGE>
adopt, amend or repeal such Bylaws as provided in Minnesota Statutes, Section
302A.181, Subd. 3, as amended.
BYLAW 37. INDEMNIFICATION. Pursuant to the provisions of Minnesota
Statutes, Section 302A.521, as amended, the corporation shall indemnify its
officers, directors, committee members, employees, and agents in the manner and
to the full extent that the corporation has power to provide indemnification
under such statute, provided that a determination is made in each case, in the
manner required by such statute, that the person seeking indemnification is
eligible therefor. The corporation may purchase and maintain insurance on
behalf of its officers, directors, committee members, employees, and agents
against any liabilities asserted against such persons in their official
capacities, regardless of whether or not the corporation is required to provide
indemnification under this section with respect to such liabilities.
BYLAW 38. SHAREHOLDERS' AGREEMENT. Any of the provisions contained herein
may be modified pursuant to an agreement among the shareholders adopted in the
manner required by Minnesota Statutes, Section 302A.457, as amended.
CERTIFICATE
The foregoing Amended and Restated Bylaws of Advanced UroScience, Inc. were
adopted by the Board of Directors of the corporation effective the 31st day of
January, 1996.
/s/ Timothy P. Lawin
---------------------------------------------
Timothy P. Lawin, Chairman of the Board and
Secretary
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<PAGE>
ADVANCED UROSCIENCE, INC.
STOCK OPTION AGREEMENT
PARTIES:
------------------------
------------------------
------------------------ ("Optionee")
Advanced UroScience, Inc.
1290 Hammond Road
St. Paul, MN 55110 ("Corporation")
EFFECTIVE DATE:
------------------------
AGREEMENT
SECTION 1. OPTION GRANT.
--------------------
Subject to the additional terms and conditions herein and in order to
provide ongoing performance incentives to certain key employees, directors and
executives, the Corporation grants to Optionee the option to purchase up to
________shares of common stock of the Corporation at an exercise price of ______
per share. This option may be exercised in whole or in part at any time and from
time to time through ____________________, subject to earlier expiration in the
event Optionee: (a) dies; (b) voluntarily terminates his employment or
directorship; or (c) is discharged by the Corporation following Optionee's
conviction of any felony, or any gross misdemeanor which relates to the
Corporation's business, and/or following Optionee's refusal to perform his
employment duties, which refusal shall remain uncured for at least 30 days
following written notice by the Corporation. Upon Optionee's death, this option
will expire within 180 days of Optionee's death, but in no event later than
_________________. Upon Optionee's voluntary termination of employment, or his
discharge by the Corporation for any reasons identified above, this option will
expire 30 days from the effective date of such termination or discharge.
All rights under this option are personal to Optionee, and may not be sold,
assigned, pledged, hypothecated or transferred in any manner, and shall not be
subject to any voluntary or involuntary sale under execution, attachment or any
similar process. This option and all rights and privileges conferred hereby will
immediately become null and void upon any such transfer by Optionee or under
applicable law.
<PAGE>
SECTION 2. MANNER OF EXERCISE.
This option may be exercised prior to expiration by delivery of a written
exercise notice signed by Optionee (or upon Optionee's death, by his legal
representative), together with full payment for all share to be exercised. At
its option, the Corporation may require Optionee to deliver an acceptable
opinion of counsel that the shares to be issued upon exercise of the option need
not be registered under the Securities Act of 1933 or any other applicable
securities laws. Optionee shall also make arrangements satisfactory to the
Corporation to satisfy all applicable withholding requirements that may arise in
connection with exercise of this option and/or the disposition of any share
issuable upon such exercise.
SECTION 3. TRANSFER RESTRICTION.
The Corporation reserves the right, in its sole discretion and judgment, to
impose restrictions upon the sale, pledge or other transfer of shares issuable
upon exercise of this option if, in its judgment, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act of 1933, the securities laws of any state, or any other law. Each
share certificate issued upon exercise of this option shall bear an appropriate
restrictive legend, unless the Corporation, in its sole judgment, feels that
such legend is not required.
SECTION 4. INVESTMENT INTENT.
Except as may be permitted in the event Optionee's shares are registered,
Optionee represents and agrees that the shares to be acquired upon exercise of
this option will be acquired for investment only, and not with a view to the
resale or other distribution thereof in the event (a) that registration of the
sale of shares to be issued upon exercise of this option is not required under
the Securities Act of 1933, or (b) an exemption is available which requires an
investment or other representation, the Optionee shall represent and agree at
the time of exercise that the shares being acquired on exercise of this option
for investment only, and not with a view to the resale or distribution thereof,
and shall make such other representations as are deemed necessary or appropriate
by the Corporation and its counsel.
SECTION 5. LEGAL RIGHTS.
Any determination by the Corporation and its counsel in connection with any
of the matters set forth in this Stock Option Agreement shall be conclusive and
binding upon the Optionee and all other parties. Neither the Optionee nor any
legal representative thereof shall have any rights as a shareholder with respect
to any shares subject to this option unless and until such shares have been
issued as provided herein.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by the undersigned duly authorized officer, and the
Optionee has personally executed this Agreement, all dated and to be effective
as of the date hereof.
CORPORATION: OPTIONEE:
ADVANCED UROSCIENCE, INC.
By:
-------------------------- ------------------------------
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
ADVANCED UROSCIENCE, INCORPORATED
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
COMPANY: Advanced UroScience, Incorporated, a Minnesota
corporation (the "Company"), and any corporation that shall succeed to
the obligations of the Company under this Warrant.
NUMBER OF SHARES: ____________
CLASS OF STOCK: Common Stock
EXERCISE PRICE: _______ per share
EXPIRATION DATE: _________________
DATE OF GRANT: _________________
THIS CERTIFIES THAT, for value received, ____________________ is entitled
to purchase the above number (as adjusted pursuant to Section 6 hereof) of fully
paid and nonassessable shares of the Common Stock of the Company at the Exercise
Price above (as adjusted pursuant to Section 6 hereof), subject to the
provisions and upon the terms and conditions set forth herein.
1. DEFINITIONS.
As used herein, the following terms, unless the context otherwise requires,
shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, as shall be
in effect at the time.
(b) "Common Stock" shall mean shares of the presently authorized
common stock of the Company and any stock into which such Common Stock may
hereafter be exchanged.
(c) "Holder" shall mean any person who shall at the time be the
holder of this Warrant.
<PAGE>
(d) "Shares" shall mean the shares of the Class of Stock (as defined
on Page 1 of this Warrant) that the Holder is entitled to purchase upon exercise
of this Warrant, as adjusted pursuant to Section 6 hereof.
(e) "Warrant Price" shall mean the Exercise Price at which this
Warrant may be exercised, as adjusted pursuant to Section 6 hereof.
2. NUMBER OF SHARES.
Holder is entitled to purchase ______ shares of the Company's Common Stock,
subject to the terms and conditions of this Warrant.
3. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time on or before the Expiration Date.
4. METHOD OF EXERCISE: PAYMENT: ISSUANCE OF NEW WARRANT.
Subject to Section 3 hereof, the purchase right represented by this Warrant
may be exercised by the Holder, in whole or in part, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Appendix A duly
executed) at the principal office of the Company and by the payment to the
Company, by certified check made payable to the Company drawn on a United States
bank and for United States funds, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased.
In the event of any exercise of the purchase right represented by this Section
4, certificates for the Shares so purchased shall be delivered to the Holder
within thirty (30) days of receipt of such payment and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
5. EXERCISE PRICE.
The Warrant Price at which this Warrant may be exercised shall be the
Exercise Price, as adjusted from time to time pursuant to Section 6 hereof.
6. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT
PRICE.
6.1 CERTAIN DEFINITIONS. As used in this Section 6 the following terms
shall have the following respective meanings:
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<PAGE>
(a) OPTIONS: rights, options or warrants to subscribe for, purchase
or otherwise acquire either shares of Common Stock or Convertible Securities.
(b) CONVERTIBLE SECURITIES: any evidences of indebtedness, shares of
stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
6.2 ADJUSTMENTS. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(a) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the
case of any reclassification of the Common Stock, or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), the Company, or such successor corporation, as the case may be,
shall execute a new warrant, providing that the Holder shall have the right to
exercise such new warrant and upon such exercise to receive, in lieu of each
share of the Class of Stock theretofore issuable upon exercise of this Warrant,
the number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the same Class
of Stock of the Company for each share of the Class of Stock. The aggregate
warrant price of the new warrant shall be the aggregate Warrant Price in effect
immediately prior to the reclassification, reorganization, consolidation or
merger. Such new warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
6 including, without limitation, adjustments to the Warrant Price and to the
number of shares issuable upon exercise of this Warrant. The provisions of this
subsection (a) shall similarly apply to successive reclassifications,
reorganizations, consolidations or mergers.
(b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the Class of Stock for which this Warrant is then
exercisable, the Warrant Price shall be proportionately decreased in the case of
a split or subdivision or proportionately increased in the case of a
combination. Any adjustment under this subsection (b) shall become effective
when the split, subdivision or combination becomes effective.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant
remains outstanding and unexpired shall pay a dividend with respect to the Class
of Stock for which this Warrant is then exercisable, payable in shares of that
Class of Stock, Options or Convertible Securities, the Warrant Price shall be
adjusted, from and after the date of determination of the shareholders entitled
to receive such dividend or distributions, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of that Class of Stock outstanding immediately prior to such dividend
or distribution, and (ii) the denominator of which shall be the total number of
shares of the same Class of Stock
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<PAGE>
outstanding immediately after such dividend or distribution (including shares of
that Class of Stock issuable upon exercise, conversion or exchange of any
Options or Convertible securities issued as such dividend or distribution). If
the Options or Convertible Securities issued as such dividend or distribution by
their terms provide, with the passage of time or otherwise, for any decrease in
the consideration payable to the Company, or any increase in the number of
shares issuable upon exercise, conversion or exchange thereof (by change of rate
or otherwise), the Warrant Price shall, upon any such decrease or increase
becoming effective, be reduced to reflect such decrease or increase as if such
decrease or increase became effective immediately prior to the issuance of the
Options or Convertible Securities as the dividend or distribution. Any
adjustment under this subsection (c) shall become effective on the record date.
(d) EXERCISE PRICE REDUCTION. In the event the Company issues any
shares of Common Stock for cash for a per share purchase price which is less
than the Exercise Price then in effect, the Exercise Price shall be reduced from
time to time to equal the per share purchase price for such transaction(s).
6.3 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Warrant
Price pursuant to this Section 6, the number of Shares issuable upon exercise of
this Warrant shall be adjusted to the product obtained by multiplying the number
of Shares issuable immediately prior to such adjustment in the Warrant Price by
a fraction (i) the numerator of which shall be the Warrant Price immediately
prior to such adjustment, and (ii) the denominator of which shall be the Warrant
Price immediately after such adjustment.
6.4 NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such actions as may be necessary or
appropriate in order to protect against impairment of the rights of the holder
of this Warrant to adjustments in the Warrant Price.
7. NOTICE OF ADJUSTMENTS.
Whenever the Warrant Price shall be adjusted pursuant to Section 6 hereof,
the Company shall issue a certificate signed by an authorized executive officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Warrant Price after giving effect to such adjustment, and shall cause a copy
of such certificate to be mailed (by first class mail, postage prepaid) to the
Holder.
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<PAGE>
8. RIGHT TO CONVERT WARRANT INTO STOCK.
8.1 RIGHT TO CONVERT. In addition to the rights granted under Section 4 of
this Warrant, the Holder shall have the right to require the Company to convert
this Warrant (the "Conversion Right") into shares of the Class of Stock for
which the Warrant is then exercisable, as provided in this Section 8. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Warrant Price) that number of shares of
stock equal to the quotient obtained by dividing (x) the value of this Warrant
at the time the conversion Right is exercised (determined by subtracting the
aggregate Warrant Price immediately prior to the exercise of the Conversion
Right from the aggregate fair market value of the Shares issuable upon exercise
of this Warrant immediately prior to the exercise of the Conversion Right, as
determined pursuant to Section 8.4 below) by (y) the fair market value (as
determined pursuant to Section 8.4 below) of one share of that Class of Stock
immediately prior to the exercise of the Conversion Right.
8.2 METHOD OF EXERCISE. The Conversion Right may be exercised at any time
by the Holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right. Certificates of the shares of stock
issuable upon exercise of the Conversion Right shall be delivered to the Holder
within thirty (30) days following the Company's receipt of this Warrant together
with the aforesaid written statement.
8.3 AUTOMATIC CONVERSION PRIOR TO EXPIRATION. To the extent this Warrant
is not previously exercised, and if the fair market value of one share of Common
Stock is greater than the Warrant Price per share, this Warrant shall be deemed
automatically exercised in accordance with Section 8.1 hereof (even if not
surrendered) immediately before its expiration. To the extent this Warrant or
any portion thereof is deemed automatically exercised pursuant to this Section
8.3, the Company agrees to notify Holder within a reasonable period of time of
the number of shares of the Class of Stock, if any, Holder is to receive by
reason of such automatic exercise. The Company shall issue to the Holder
certificates for the Shares issued upon such automatic conversion in accordance
with Section 8.2 above, although the Company may condition receipt of the
certificate upon surrender of the Warrant to the company.
8.4 VALUATION OF STOCK. For purposes of this Section 8, the fair market
value of one share of the Class of Stock issuable upon exercise of this Warrant
shall mean:
(a) The product of (i) the average of the closing price or, if no
closing price is reported, the closing bid and asked prices of the Common Stock,
quoted in the Over-The-Counter Market Summary, or the closing price quoted on
any exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the ten (10)
trading days prior to the date of determination of fair market value, and (ii)
the number of shares of Common Stock into which each share of the Class of Stock
is then convertible, if applicable;
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<PAGE>
(b) If the Common Stock is not traded Over-The-Counter or on an
exchange, the fair market value of the Class of Stock per share shall be as
determined in good faith by the Company's Board of Directors; provided, however,
that if the Holder in good faith disputes in writing the fair market value
determined by the Board of Directors within thirty (30) days of being informed
of such fair market value, the fair market value shall be determined by an
independent appraiser, appointed in good faith by the Company's Board of
Directors and whose reasonable expenses shall be borne equally by the Company
and the Holder.
9. COMPLIANCE WITH ACT: TRANSFERABILITY OF WARRANT: DISPOSITION OF
SHARES.
9.1 LEGENDS. The Shares issued upon exercise of this Warrant shall be
imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED."
Nothing in this Warrant shall obligate the Company to effect registration
under federal or state securities law for any Shares issued upon exercise of the
Warrant.
9.2 TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT AND SHARES. This
Warrant and the Shares issued upon exercise thereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 9.2, title to this Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
10. MISCELLANEOUS.
10.1 HOLDER TREATED AS OWNER. The Holder shall be treated by the Company
and all other persons dealing with this Warrant as the absolute owner of the
Warrant for any purpose and as the person entitled to exercise the rights
represented by this Warrant, until the Warrant is transferred on the Company's
books.
10.2 NOTICES. Any notice or communication to be given pursuant to this
Warrant shall be in writing and shall be delivered in person or by certified
mail, return receipt requested, in the United States mail, postage prepaid.
Notices to the Company shall be
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<PAGE>
addressed to the Company's principal office. Notices to the Holder shall be
addressed to the Holder's address as reflected in the records of the Company.
Notices shall be effective upon delivery in person, or, if mailed, at midnight
on the third (3rd) business day after mailing.
10.3 NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.
10.4 GOVERNING LAW: VENUE. This Warrant shall be governed by and
construed in accordance with the laws of the State of Minnesota as applied to
contracts entered into between residents of the State of Minnesota to be
wholly performed within the State of Minnesota. Venue for any suit brought
with respect to this Agreement shall be solely in Ramsey County, Minnesota,
where the Company's principal place of business is located.
10.5 HEADINGS: INTERPRETATION. The section headings used herein are for
convenience of reference only and are not intended to define, limit, or describe
the scope or intent of any provision of this Warrant. All pronouns used in the
Warrant shall be deemed to include masculine, feminine and neuter forms.
10.6 SUCCESSORS. The covenants, agreements, and provisions of this
Warrant shall bind the parties hereto and their respective successors and
permitted assigns.
10.7 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10.8 REPRESENTATIONS OF THE HOLDER. By accepting delivery of this
Warrant, the Holder hereby reconfirms its prior representations to the
Company that this Warrant is being acquired for investment for its own
account and not with a view to, or for resale in connection with, any
distribution or public offering thereof. The Holder further understands that
this Warrant has not been registered under the Securities Act of 1933, as
amended, or any state securities law by reason of it being issued in a
transaction exempt from the
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registration requirements. The Holder further reconfirms its prior
representations that it is qualified as an "accredited investor" for purposes of
Regulation D promulgated under the Securities Act of 1933. The Holder
acknowledges that the Company has afforded it the opportunity to make such
investigation of the Company as the Holder has deemed appropriate. The Holder
further reconfirms its prior representations that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment.
ADVANCED UROSCIENCE, INCORPORATED
By:
--------------------------------
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<PAGE>
APPENDIX A
NOTICE OF EXERCISE
TO: Advanced UroScience, Incorporated
1. The undersigned hereby elects to purchase _______ shares of the Common
Stock of Advanced UroScience, Incorporated, pursuant to terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full (as authorized by Section 4 thereof), together with all applicable transfer
taxes, if any.
2. Please issue a certificate or certificates representing said shares of
the Common Stock in the name of the undersigned or in such other name as is
specified below.
3. The undersigned represents it is acquiring the shares of Common Stock
solely for its own account and not as a nominee for any other party, and for
investment purposes only, not with a view toward the resale or distribution
thereof.
-----------------------------------
(Name)
-----------------------------------
(Address)
-----------------------------------
-----------------------------------
-----------------------------------
(Taxpayer Identification Number)
- ------------------------------
[Print name of Holder]
By:
---------------------------
Title:
------------------------
Date:
------------------------
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<PAGE>
AGREEMENT
FOR PURCHASE AND SALE FROM BRENNEN MEDICAL, INC.
OF UROLOGY BUSINESS AND ASSETS
PARTIES: Brennen Medical, Inc. "Brennen"
1290 Hammond Road
White Bear Lake, Minnesota 55110
Advanced UroScience, Inc. "UroScience"
1290 Hammond Road
White Bear Lake, Minnesota 55110
DATE: August 1, 1994
RECITALS:
1. Advanced UroScience, Inc. ("UroScience") is a Minnesota business
corporation that desires to acquire certain assets of Brennen Medical, Inc.
("Brennen"), a Minnesota business corporation, and Brennen desires to sell such
assets to UroScience.
2. UroScience and Brennen wish to enter into mutual covenants not to
compete as a condition of this agreement.
AGREEMENTS:
In consideration of the mutual promises and covenants herein contained, and
intending to be legally bound, the parties do hereby agree as follows:
1. ASSETS AND BUSINESS TO BE ACQUIRED BY UROSCIENCE.
1.1 On the Closing Date (as hereinafter defined) UroScience shall
purchase and acquire and Brennen shall sell, assign, transfer and deliver, as
part of the purchase price herein stated, the following assets:
All of the assets and the business owned by Brennen relating to the
development and manufacture of urology products (all of such assets
and business are referred to herein as the "Acquired Assets").
UroScience shall not acquire or assume any liabilities of Brennen, except
as specifically provided in Section 2 hereof.
1.2 The Acquired Assets include, without limitation the following:
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a. The business of Brennen in which and for which the Acquired Assets are
used.
b. All inventories of raw materials, manufacturing supplies, work-in-
process and finished goods related to urology products and business,
owned, controlled or in the possession of Brennen as of the "Effective
Date" (hereinafter defined), including, without limitation, the items
described in Exhibit A hereto.
c. All machinery and equipment, including, without limitation, relating
to Brennen's urology business. Without limitation Exhibit A hereto
contains a substantially complete list of such assets.
d. All prepaid expenses recorded on the books of Brennen in accordance
with GAAP as of the Effective Date pertaining to urology products,
including, without limitation, advanced payments, prepaid items,
rights to offsets and credits of all kinds, including, without
limitation, the items described in Exhibit B hereto.
e. All intangible assets of Brennen, to the extent of its interest,
pertaining to urology products, including without limitation, patents,
patent assignments, trade names, licenses, permits, manufacturing
rights, trademarks (including all goodwill of the business represented
by said trademarks), copyrights, applications for any of the
foregoing, trade secrets and inventions or discoveries or research of
Brennen relating to urology products, and any other intellectual
property of Brennen related to its urology business, including,
without limitation, the assets described in Exhibit C hereto.
f. All supplier lists, working files and correspondence with suppliers
(both actual and prospective, in each case), regulatory files
(including FDA correspondence), and materials related to the urology
assets or business.
g. All rights of Brennen under those certain contracts, purchase orders,
agreements, prepaid service contracts, legally enforceable
commitments, insurance policies, instruments, and other binding
arrangements owned or controlled by Brennen relating to the urology
assets or business.
1.3 Notwithstanding the foregoing, the Acquired Assets shall not
include any of the following assets (which are referred to herein as the
"Excluded Assets"):
a. Any assets related to the production, manufacture, marketing,
distribution or sale of wound care products.
b. Corporate record books of Brennen itself; original copies of financial
and income tax records of Brennen, and records of employees.
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c. All shares of Brennen, and all assets and liabilities of such
corporation.
d. All cash and cash equivalents of any kind and all accounts receivable.
e. Deferred income taxes and net operating loss carry forwards of
Brennen.
UroScience shall not acquire any liabilities of Brennen except as
specifically provided in Section 2 hereof.
2. LIABILITIES OF BRENNEN TO BE ACQUIRED AND ASSUMED BY UROSCIENCE.
On the Closing Date, UroScience shall acquire and assume, as part of
its obligations under this contract, the following outstanding or contingent
liabilities of Brennen (referred to herein as the "Acquired Operating
Liabilities"):
a. All liabilities and obligations relating to UroScience's ownership or
use of the Acquired Assets after the Effective Date.
b. UroScience shall not acquire any other liabilities of Brennen.
3. PURCHASE PRICE.
The purchase price for the assets described in Sections 1.1 and 1.2
here of shall be $300,000, (referred to herein as the "Purchase Price").
4. PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be delivered to Brennen by UroScience as
follows:
a. $300,000 by Secured Promissory Note (the "Note"), secured by a
security agreement with respect to the Acquired Assets. The Note
shall take the form of Exhibit D hereto.
5. EFFECTIVE DATE.
The economic risks and rewards resulting from the operation and
ownership of the Acquired Assets shall pass from Brennen to UroScience as of
12:01 am., August 1, 1994 (referred to herein as the "Effective Time" or
"Effective Date").
Subsequent to the Effective Time, all profits and losses, obligations,
benefits and responsibilities resulting from the ownership, control and
operation of the Acquired Assets and the Acquired Liabilities shall belong to
UroScience, except as specifically provided in Section 1.2 hereof.
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<PAGE>
6. CLOSING.
Subject to the terms and conditions hereof, the closing (referred to
herein as the "Closing" or the "Closing Date") of the transactions herein
contemplated shall take place at the office of Brennen, 1290 Hammond Road, White
Bear Lake, MN 55110, at 11:00 am., Minnesota Time, on August 1, 1994 or at such
other date, place and time as the parties shall mutually agree upon.
7. DELIVERIES AT CLOSING.
7.1 At Closing, UroScience shall deliver to Brennen the following:
a. The Note, in the form of Exhibit D hereto.
b. The Security Agreement, in the form of Exhibit E.
c. Such other documents as may reasonably be required.
7.2 At Closing, Brennen shall deliver to UroScience the following:
a. Such bills of sale, assignments, instruments of conveyance or other
documents as may reasonably be needed to transfer the Acquired Assets
and the Acquired Liabilities to UroScience.
b. Such other documents as may reasonably be required.
8. REPRESENTATIONS AND WARRANTIES OF BRENNEN.
8.1 Brennen represents and warrants to UroScience as follows:
a. Brennen is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota.
b. Brennen has the corporate power and authority, to execute and to
perform all of the terms and conditions of this Agreement which are to
be performed by it, and has obtained any necessary authorization for
the same.
c. Brennen has good and marketable title to all of the assets and
properties which are to be sold and transferred to UroScience pursuant
to this Agreement, and such assets and properties are not subject to
any lien, claim, charge, security interest or any other encumbrance
whatsoever, and Brennen has the free and unrestricted right to
transfer and assign the same in accordance with the terms hereof
without the consent or approval of any other party, however, Brennen
disclaims any warranties regarding intellectual property infringement.
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<PAGE>
d. The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of Brennen, and it is a
valid and binding obligation of Brennen, and is enforceable in
accordance with its terms. The execution, delivery, and performance
of this Agreement, and compliance with its terms and provisions will
not violate or conflict with any provisions of the Articles of
Incorporation or Bylaws of Brennen, nor with any agreements,
instruments, covenants or conditions to which it is a party or by
which it is bound.
9. REPRESENTATIONS AND WARRANTIES OF UROSCIENCE.
9.1 UroScience represents and warrants to Brennen as follows:
a. UroScience is duly organized, validly existing and in good standing
under the laws of the State of Minnesota.
b. The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of UroScience, and it is a
valid and binding obligation of UroScience, and is enforceable in
accordance with its terms. The execution, delivery, and performance
of this Agreement, and compliance with its terms and provisions will
not violate or conflict with the Articles of Incorporation or Bylaws
of UroScience, nor any agreements, instruments, covenants or
conditions to which it is a party or by which it is bound.
c. UroScience's obligations hereunder are not in any way contingent upon
the tax effect of any transaction hereunder.
10. AGREEMENTS OF BRENNEN.
10.1 Brennen shall cooperate with representatives of UroScience in
making the transition from Brennen to UroScience during the period between the
date hereof and for a period 90 days following the Closing Date.
10.2
a. Brennen acknowledges and agrees (a) that the bankers and/or
independent auditors of UroScience may need to conduct, at
UroScience's expense, an audit of Brennen books and records with
respect to the Acquired Assets and Acquired Liabilities as of August
1, 1994; and (b) that Brennen will provide all such books, records and
information to such bankers and/or auditors as may be needed in order
to conduct an audit of the financial records of Brennen's urology
business as herein defined and as recorded in accordance with
generally accepted accounting principles, and to cause Brennen
officers
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<PAGE>
and employees to respond to all such requests for information as may
be customarily made in the course of such an audit.
b. Brennen agrees, for three years following Closing, to maintain and to
preserve and to grant to UroScience access to its financial books and
records, such that UroScience can obtain and copy information relating
to the Acquired Assets. Such information and documents to be used
only for UroScience's internal purposes and to be held in confidence.
10.3 Brennen agrees to provide to UroScience, for up to 90 days after
Closing, the services of those Brennen employees as may reasonably be required
for the conduct of normal business, such services to be provided without cost to
UroScience, it being understood that any testing expenses or outside costs to be
the responsibility of UroScience.
10.4 Brennen will lease a reasonable portion of the White Bear
Property to UroScience, suitable for its current purposes, up to November 1,
1994, without requiring the payment of any rent or expenses, UroScience to keep
such space in a good state of repair and clearness.
11. AGREEMENTS OF UROSCIENCE.
11.1 UroScience shall be responsible for securing and maintaining
products liability insurance for all products liability and warranty claims made
after the Effective Date relating to products made, sold, or owned by UroScience
after the Effective Date.
11.2 Although exemptions appear to be available from any possible
obligation to pay Minnesota sales taxes with respect to any tangible personal
property sold hereunder, UroScience acknowledges that it bears the risk of any
terse determination by the Minnesota Department of revenue with respect thereto.
12. MUTUAL PROVISIONS AS TO CONFIDENTIAL INFORMATION.
a. Brennen covenants and agrees that it will not, after the Effective
Date and for a minimum period of five(5) years after the date hereof,
disclose any information concerning the trade secrets, confidential or
proprietary information, or other information relating to the
operation of the Acquired Assets (the "UroScience Confidential
Information"), or allow access to the UroScience Confidential
Information by, any person, firm, corporation or other entity, nor
shall Brennen use the UroScience Confidential Information to the
detriment of UroScience; provided , however, that Brennen shall not
have any restrictive obligation with respect to any UroScience
Confidential Information which is contained in a printed publication
available to the general public, or is or becomes publicly known
through no wrongful act or omission of Brennen, or is known by Brennen
without any proprietary restrictions by
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<PAGE>
UroScience at the time of receipt thereof, and UroScience confirms the
lack of such restrictions in writing.
b. UroScience covenants and agrees that it will not, after the Effective
Date and for a minimum period of five(5) years after the date hereof,
disclose any information concerning the customers, trade secrets,
merchandising techniques, confidential or proprietary information, or
other information relating to the operation of Brennen other than with
respect to the Acquired Assets (the "Brennen Confidential
Information"), or allow access to the Brennen Confidential Information
by any person, firm, corporation, or other entity, nor shall
UroScience use the Brennen Confidential Information to the detriment
of Brennen; provided, however, that UroScience shall not have any
restrictive obligation with respect to any Brennen Confidential
Information which is contained in a printed publication available to
the general public, or is or becomes publicly known through no
wrongful act or omission of UroScience, or is known by UroScience
without any proprietary restrictions by Breenen at the time of receipt
thereof and Brennen confirms the lack of such restrictions in writing.
13. MUTUAL NON-COMPETE PROVISIONS.
13.1 Non-Compete by Brennen.
Brennen covenants and agrees that, neither Brennen, nor any business
directly or indirectly controlled by Brennen shall, after the Effective Date and
for a period of five (5) years after the date hereof, (i) directly or indirectly
own, control, manage, or operate, or participate in the ownership, control,
management or operation of, any Competitive Urology Business (defined below),
(ii) induce employees, officers, consultants or agents of UroScience or any
affiliate of UroScience to terminate their employment or business relationship
with or compete against UroScience or any affiliate of UroScience or (iii)
solicit the business of any customer, supplier, or joint venturer of UroScience
or any affiliate of UroScience in connection with any Competitive Business.
"Competitive Urology Business" shall mean any business that sells, or
attempts to sell, any goals or services that compete in any way with the sale,
or attempted sale, of products related to the practice of urology.
Notwithstanding the foregoing, the ownership of less than one percent (1%) of
any outstanding class of equity securities of a Competitive Business whose stock
is actively traded on a stock exchange or in the over-the-counter market shall
not be deemed a violation of Brennen's covenant under this Section.
13.2 Remedies.
Brennen acknowledges that the restrictions and covenants contained in
this Section 13 are reasonable and necessary to protect the legitimate interests
of UroScience and
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<PAGE>
Brennen understands and agrees that the remedies at law for any violation of the
restrictions or covenants of such Section may be inadequate, that such
violations may cause irreparable injury within a short period of time and that
UroScience or any other entity entitled to the protection afforded by such
Section shall be entitled to preliminary injury relief and other injunctive
relief against such violation without the necessity of proving actual damages.
Such injunctive relief shall be in addition to and not in limitation of any and
all remedies UroScience or such other entities shall have at law and in equity
for the enforcement of such restrictions and covenants. Nothing in this
Agreement shall be construed as prohibiting UroScience from pursuing any other
remedies available to UroScience in the event of any breach or threatened breach
of this Agreement by Brennen, including the recovery of damages from Brennen.
13.3 Non-Compete by UroScience.
UroScience covenants and agrees that, neither UroScience nor any
business directly or indirectly controlled by UroScience shall, after the
Effective Date and for a period of five (5) years after the date hereof, (i)
directly or indirectly own, control, manage, or operate, or participate in the
ownership, control, management, or operation of, any Competitive Business
(defined below), (ii) induce employees, officers, consultants or agents of
Brennen or any affiliate of Brennen to terminate their employment or business
relationship with or compete against Brennen or any affiliate of Brennen or
(iii) solicit the business of any customer, supplier or joint venturer of
Brennen or any affiliate of Brennen in connection with any Competitive Business.
"Competitive Business" shall mean any business that sells, or attempts
to sell, any goods or services that compete in any way with the sale, or
attempted sale, of products related to Brennen's wound care products business.
Notwithstanding the foregoing, the ownership of less than one percent (1%) of
any outstanding class of equity securities of a Competitive Business whose stock
is actively traded on a stock exchange or in the over-the-counter market shall
not be deemed a violation of UroScience's covenant under this Section.
13.4 Remedies
UroScience acknowledges that the restrictions and covenants contained
in this Section 13 are reasonable and necessary to protect the legitimate
interests of Brennen and UroScience understands and agrees that the remedies at
law for any violation of the restrictions or covenants of such Section may be
adequate, that such violations may cause irreparable injury within a short
period of time and that Brennen or any other entity entitled to the protection
afforded by such Section shall be entitled to preliminary injunctive relief and
other injunctive relief against such violation without the necessity of proving
actual damages. Such injunctive relief shall be in addition to and not in
limitation of any and all remedies Brennen or such other entities shall have at
law and in equity for the enforcement of such restrictions and covenants.
Nothing in this Agreement shall be construed as
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<PAGE>
prohibiting Brennen from pursuing any other remedies available to Brennen in the
event of any breach or threatened breach of this Agreement by UroScience
including the recovery of damages from UroScience.
14. CONDITIONS TO THE OBLIGATIONS OF BRENNEN AT THE CLOSING DATE
The obligations of Brennen to convey, transfer and assign the
properties, assets and business described herein shall be subject, in discretion
of Brennen, to the satisfaction at or prior to Closing of the following
conditions:
a. The representations and warranties of UroScience contained in this
Agreement shall be true on and as of the Closing Date and there shall
have been no material breach thereof.
b. UroScience shall have performed and satisfied all agreements and
conditions required by this Agreement to be performed and satisfied
prior to or at the Closing Date.
15. CONDITIONS TO THE OBLIGATIONS OF UROSCIENCE AT THE CLOSING DATE.
The obligations of UroScience to acquire the assets described in this
Agreement and to make payment for such assets in accordance with this Agreement
shall, in the discretion of UroScience and be subject to the satisfaction at or
prior to the Closing Date of the following conditions:
a. The representations and warranties of Brennen contained in this
Agreement shall be true on and as of the Closing Date and there shall
have been no material breach thereof.
b. Brennen shall have performed and satisfied all agreements and
conditions required by this Agreement to be performed and satisfied by
it prior to or at the Closing Date.
c. Brennen shall have obtained the signed consent of all persons that may
be needed to transfer any of the Acquired Assets.
17. MISCELLANEOUS.
17.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made by Brennen and UroScience,
herein shall survive the Closing Date.
17.2 BROKERS AND FINDERS.
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Each party represents and warrants that all negotiations relative to
this Agreement have been carried on by each directly with the other without the
intervention of any other person and that there will be no brokerage commissions
or finder's fees payable in connection with the transactions contemplated by
this Agreement
17.3 NOTICES.
Any notice, request, instruction or consent to be given to either
party shall be in writing and deliver personally or sent by registered mail,
postage prepaid, as follows unless otherwise directed in writing by any
recipient:
To Brennen Brennen Medical, Inc.
1290 Hammond Road
White Bear Lake, MN 55110
To UroScience Advanced UroScience, Inc.
1290 Hammond Road
White Bear Lake, MN 55110
17.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts each of
which shall be deemed an original.
17.5 ENTIRE AGREEMENT.
This Agreement sets forth the entire understanding between the
parties. There are no terms, conditions, warranties or representations other
than those contained herein which are binding on the parties. No amendment to
this Agreement shall be valid unless made in writing and signed by the parties.
17.6 APPLICABLE LAW, BINDING EFFECT.
This Agreement shall be governed, construed and enforced in accordance
with the laws of the State of Minnesota, and shall be enforceable by and binding
upon the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
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<PAGE>
In the Presence of: ADVANCED UROSCIENCE, INC.
/s/ Teresa M. Studer By: /s/ Dean Klein
- ------------------------- ---------------------------
BRENNEN MEDICAL, INC.
/s/ Teresa M. Studer By: /s/ Timothy P. Lawin
- ------------------------- ---------------------------
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<PAGE>
Exhibit A
FIXED ASSETS OF THE UROLOGY BUSINESS
ASSET DESCRIPTION AMOUNT
- ------------------------------------------------------------
Liberty Class 1,000 Clean Room 12' x 15' $21,760.00
Bard HVAC System, #063P890632597 10,200.00
NuAir Laminar Flow Cabinets (2 each)
#16895TT/16896TT 11,400.00
Liberty HEPA Modules (11 each), #Max 8000 6,985.00
Stainless Steel Work Bench 1,100.00
Air Lift Clean Room Chairs (2 each) Ajusto 22561 605.00
Cubicle Walls, Work Tops, Files, Desks 7,550.00
--------
For a total amount of $59,600.00
----------
----------
<PAGE>
Exhibit B
PREPAID ASSETS OF THE
UROLOGY BUSINESS AS OF AUGUST 1, 1994
ASSET DESCRIPTION AMOUNT
- ------------------------------------------------------------
Facility rent through October 31, 1994 $ 4,000.00
Secretarial Services/Administrative Support
Through October 31, 1994 4,000.00
Regulatory/Quality Assurance Support
Through October 31, 1994 12,000.00
Administrative Salary through October 31, 1994 36,000.00
Supplies, Inventory, Product 4,400.00
---------
Book value of Prepaids $60,400.00
----------
----------
<PAGE>
Exhibit C
INTANGIBLE ASSETS OF THE UROLOGY
BUSINESS AS OF AUGUST 1, 1994
ASSET DESCRIPTION AMOUNT
- -------------------------------------------------------------
Pending patent application dated July 14, 1994 $180,000.00
<PAGE>
ADVANCED
UROSCIENCE
A DIVISION OF BRENNEN MEDICAL, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of August, 1994,
by and between Advanced UroScience, Inc., a Minnesota corporation, ("Employer"),
and Dean Klein, a Minnesota resident ("Employee").
WHEREAS, Employer desires to retain the personal services of Employee and
Employee has agreed to provide such service as set forth herein;
WHEREAS, Employer has shares of Common Stock outstanding, and desires to
grant to Employee an equity interest of the corporation, effective as of the
date hereof;
NOW THEREFORE, in consideration of the terms and conditions contained
herein, the parties agree as follows:
1. EMPLOYMENT. During the term of this Agreement, Employee shall serve
as CEO and President of Employer and shall assume and perform the duties and
responsibilities incidental to such position, or such other duties commensurate
with Employee's position and as reasonably assigned to him from time to time by
Employer. Employee shall use his best efforts in the performance of his duties,
and shall spend substantially his full time in connection therewith, except in
the event of illness, disability, vacation or other absence permitted by
Employer.
2. TERM. This Agreement shall be effective from the date hereof through
August 31, 1996, and may be terminated prior to said expiration date only upon
the occurrence of one or more of the following events:
A. By mutual written agreement of Employer and Employee;
B. By Employee at any time upon at least 60 days' prior written
notice to Employer;
C. Immediately upon Employee's death;
D. At Employer's option, with good cause, upon written notice to
Employee. "Good cause", for purposes of this Agreement, shall
include, but not be limited to:
i. The Employee's theft or embezzlement of money or property of
the Employer.
<PAGE>
ii. The conviction of the Employee of a felony or misdemeanor
which impairs his ability substantially to perform his
duties with the Company, or results in material injury to
the property or operations of the Company.
iii. Employee has engaged in willful and material misconduct
affecting the Employer, including willful and material
failure to perform his duties as an employee of the Company.
iv. The performance of his duties with negligence, gross
negligence or intentional fault.
v. A material default of the Employee in the performance or
observance of any promise or understanding of the Employee
under this Agreement (including, without limitation, the
Employee's failure to follow the instructions of the
Chairman of the Board) after a notice specifically
identifying the manner in which the Employer believes that
the Employee has caused such default, and after the Employee
has failed to cure such default within seven (7) days of
receiving such notice.
vi. Activities by the Employee inimical to the interests of the
Employer.
vii. Failure of the Employee to be available for performance of
duties hereunder (without the prior consent of the Chairman
of the Board) for two consecutive months or for four months
out of any twelve consecutive months, in either case where
such failure to be available does not result, in the opinion
of the Chairman of the Board, from the disability of the
Employee.
If the Employee disputes the existence of "good cause" as
defined in this subparagraph (d), the question shall be
submitted to a Board of Arbitrators, one of whom shall be
selected by each of the parties hereto and the third of whom
shall be selected by the two so appointed; if the first two
arbitrators are unable to agree upon the third arbitrator,
such third arbitrator shall be selected by the senior judge
of the Hennepin County District Court. The Board of
Arbitrators shall determine whether or not "good cause" (as
herein defined) for termination of this Agreement exists and
shall render its written decision, by majority vote, within
sixty (60) days after the appointment of the third
arbitrator. Such arbitration shall be governed by the
provisions of Minnesota Statutes (Uniform Arbitration Act)
and such other rules not inconsistent therewith as the Board
may establish. Each party shall have the right to appear
before the
<PAGE>
Board, with legal counsel, and to submit evidence and
argument bearing upon the existence or nonexistence of "good
cause" for termination. The fees and costs incurred in any
such arbitration proceeding shall be paid by the
nonprevailing party or as the Board of Arbitrators otherwise
specifies.
E. If the Employer shall become bankrupt, insolvent, make an
application for winding up of its business or decides not to
pursue the current business of injectable micro particles for the
treatment of urinary incontinence.
3. SEVERANCE PAYMENTS. Employer and Employee share a firm commitment and
expectation for a successful relationship. However, in recognition of
the risk to Employee of becoming associated with a company in this
competitive field, the Employer agrees that, in the event Employee is
involuntarily terminated before the termination of this Agreement or
any extensions thereof, for reasons other than willful and material
misconduct, gross negligence or intentional fault, Employee will be
provided with severance pay. Such severance pay will be equal to four
months' salary at the time of termination.
4. COMPENSATION.
A. SALARY. As gross compensation for services rendered during the
first and second year that this Agreement is in effect, Employee
shall receive $75,000 per annum payable in the same manner and
frequency as other employees of Employer, but in any event not
less than monthly on or before the first day of each month. Upon
completion of each year of employment, Employee's compensation
shall he reviewed and may be increased (but not decreased) by
Employer, in its discretion.
B. BONUS. Employee shall receive a signing bonus of $25,000 on or
about September 1, 1994. Additional performance bonus programs
may be initiated at the discretion of the Board.
C. EQUITY. Hereinafter stated, and in consideration of his promise
and agreement to perform their Employment Agreement according to
its terms, Employee is granted options for 200,000 shares of the
Company's common stock at a price of 1.25 per share (See stock
option agreement).
5. BENEFITS. Employee shall receive the following benefits:
a. Fifteen days of paid vacation during each of Employer's fiscal
years, plus paid public holidays to include New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, and
<PAGE>
two additional days to be selected by Employee by reasonable
notice to Employer;
b. Up to six paid sick days per year;
c. Fully paid family coverage (subject to applicable employee
deductibles under Employer's group medical and dental plans).
d. A monthly automobile allowance of $550.
e. Reimbursement for reasonable and necessary meals, travel,
lodging, and entertainment expenses, property documented and
actually incurred by Employee in connection with the affairs of
Employer.
f. Such other employment benefits as may be made available to other
employees of Employer.
6. PROTECTION OF EMPLOYER'S TRADE SECRETS. Employee hereby reaffirms his
confidentiality and patent assignment obligations under that certain Employee
Patent and Confidential Information Agreement executed by the parties.
7. COVENANT NOT TO COMPETE.
a. The Employee agrees that during his employment by the Company and
for a period of one year after termination of the Employment
Period, he shall not, without the prior written consent of the
Company, directly or indirectly and whether as principal or as
agent, officer, director, employee, consultant, or otherwise,
alone or in association with any other person, carry on, be
engaged, concerned, or take part in, render services to, or own,
share in the earnings of or invest in the stocks, bonds or other
securities of any person engaged in the Employer's current
business or reasonably contemplated business activities provided,
however, that the Employee may invest in stocks, bonds or other
securities of any Similar Business (but without otherwise
participating in such Similar Business) if: (i) such stocks,
bonds or other securities are publicly traded; (ii) his
investment does not exceed, in the case of any class of the
capital stock of any one issuer, 1% of the issued and outstanding
shares, or in the case of bonds or other securities, 1% of the
aggregate principal amount thereof issued and outstanding; and
(iii) such investment would not prevent, directly or indirectly,
the transaction of business by the Company within any state,
district, territory, or possession of the United States or any
governmental subdivision, agency, or instrumentality thereof by
virtue of any statute, law, regulation or administrative
practice. The period of time during which the Employee is
prohibited from engaging in certain
<PAGE>
activities by this Section shall be extended by the length of
time during which he is in breach of the terms of their Section.
8. COVENANT TO REPORT. The Employee shall promptly communicate and
disclose to the Company all information regarding the business or affairs of the
Company obtained by him in the course of his employment by the Company. All
written materials, records and documents made by the Employee or coming into his
possession during the employment period concerning the business or affairs of
the Company shall be the sole property of the Company and, upon the termination
of the employment period or upon the request of the Company during the
employment period, the Employee shall promptly deliver the same to the Company.
The Employee agrees to render to the Company such reports of the activities
undertaken by the Employee or conducted under the Employee's direction pursuant
hereto during the employment period as the Employer may reasonably request.
9. ASSIGNMENT. This Agreement may not be assigned by either party
without the written consent of the other party. Subject to the foregoing, this
Agreement is binding upon any heirs, successors, or assigns of the parties.
10. LEGALITY. The parties covenant and agree that the provisions
contained herein are reasonable and are not known or believed to be in violation
of any federal or state law or regulation. In the event a court of competent
jurisdiction finds any provision contained herein to be illegal or
unenforceable, such court may modify such provision to make it valid and
enforceable. Such modification shall not affect the remainder of their
Agreement which shall continue at all times to be valid and enforceable.
11. INTERPRETATION. This Agreement constitutes the entire agreement
between the parties and supersedes any prior oral or written agreements between
the parties regarding Employee's employment, except for the confidentiality and
patent assignment agreement referenced in Section 5. This Agreement can only be
modified by a writing signed by both parties. This Agreement shall be
interpreted in accordance with and governed by the laws of the State of
Minnesota.
12. JURISDICTION. The parties agree that all disputes under this
Agreement shall be resolved in the applicable federal or state courts venued in
Hennepin County, Minnesota, and each party agrees to submit to the jurisdiction
of said courts and to accept service of process for actions commenced in said
courts.
13. NOTICES. All notices required or delivered under this Agreement shall
be delivered personally, sent via facsimile, overnight courier or first class
mail, postage prepaid to the addresses set forth in this Agreement, or such
other addresses as may be designated by either party via a notice delivered
under this Section. All notices shall be deemed to have been given upon
delivery for personally delivered notices, and on the day after transmission via
facsimile, or delivery to overnight courier or deposit in the U.S. mail.
IN WITNESS WHEREOF, the parties have caused the execution of the Agreement
as of the day and year first above written.
<PAGE>
EMPLOYEE Advanced UroScience, Inc.
/s/ Dean Klein By: /s/ Timothy P. Lawin
- ------------------------- ---------------------------
Dean Klein Timothy P. Lawin
CEO and President Chairman of the Board
<PAGE>
May 1, 1996
Pursuant to Section 2., Part A of Employment Agreement between Advanced
UroScience, Inc. and Dean Klein dated August 1, 1994, consent is hereby
granted by both parties to terminate such agreement effective immediately.
/s/ DEAN KLEIN
- --------------------------------------
Dean Klein
/s/ TIM LAWIN
- --------------------------------------
Advanced UroScience, Inc. by Tim Lawin
552791
<PAGE>
LEASE AGREEMENT
This LEASE AGREEMENT (hereinafter called "LEASE" made as of the 1st day of
May, 1996, by and between: Lawin Enterprises, Inc., a Minnesota corporation
(hereinafter called "Landlord"), and Advanced UroScience Inc. (hereinafter
called "Tenant").
WITNESSETH
IN CONSIDERATION OF THE TERMS AND CONDITIONS IN THIS LEASE;
the parties hereto mutually agree and covenant as follows:
DATA SHEET
(1) PREMISES: The area set forth on Exhibit "A" hereto, and described
thereon, located in the Lawin Enterprises Building, in the Township of White
Bear Lake, State of Minnesota, Ramsey County, with a street address and suite
number of 1290 Hammond Road, Suite 100, St. Paul, Minnesota 55110.
(2) TERM: Two (2) years, commencing on May 1, 1996, (hereinafter referred
to as the Commencement Date) and terminating on May 1, 1998 (hereinafter
referred to as the Termination Date).
(3) DELIVERY DATE: May 1, 1996.
(4) PERMITTED USE: The Premises shall be used by the Tenant
solely for: Office, manufacturing and distribution uses.
(5) TENANT NAME: Tenant shall operate and do business in the Premises and
all signs and advertising shall be under the trade name: Advanced UroScience,
Inc. Any signage displayed by Tenant shall be subject to prior approval of
Landlord, which shall not be unreasonably withheld.
(6) ANNUAL RENT: During years one and two, the rent shall be $36,000
annually; payable monthly in equal installments as provided in Article 3.
Tenant shall be responsible for all utilities charges related to the
Premises.
(7) SECURITY DEPOSIT: Not applicable.
Each reference in this Lease to any of the data contained in this Data
Sheet shall be construed to incorporate the data stated under that title.
<PAGE>
ARTICLE 1
DEMISED Premises
Landlord does hereby demise and lease to Tenant the premises shown on
Exhibit "A", hereto attached and described thereon and made a part hereof.
ARTICLE 2
TERM
TO HAVE AND HOLD for a Term beginning at the Commencement Date as set forth
on the Data Sheet of this Lease Agreement and continuing until the Termination
Date as set forth on said Data Sheet.
ARTICLE 3
RENTS, UTILITIES AND INTEREST
Tenant covenants and agrees to pay Landlord, without set-off, deduction or
demand, at the address set out in the heading of this Lease, or at such other
place as Landlord may designate in writing to Tenant, rental at the following
rates and times:
(A) Annual Rent: Tenant shall pay annually during the Term of this Lease
the sum specified on the Data Sheet as Annual Rent, which sum shall be payable
in equal monthly installments, on or before the first day of each month, in
advance.
(B) Other Charges; Utilities: (including heat, air-conditioning, gas,
water, sewer and electricity) are included in the monthly installment of Annual
Rent, unless a different time for such payment is specified in this Lease.
(C) Interest. Any amount due from Tenant to Landlord under this Lease
which is not paid when due shall bear interest at the highest legal rate from
the date due until paid; provided, however, the payment of such interest shall
not excuse or cure the default upon which such interest accrued. No interest
shall begin to accrue until 10 days after written notice by Landlord to Tenant,
and then only if Tenant has failed to pay such rent.
ARTICLE 4
IMPROVEMENTS
(a) Parking Facilities
Landlord shall provide reasonable parking space for Tenant's needs.
(b) Improvements
Tenant shall have the right to utilize the existing improvements to the
leased space. Any additional improvements shall be the expense of the tenant.
<PAGE>
ARTICLE 5
DAMAGES
The tenant shall have no claim whatsoever for damages against Landlord for
any delay in the date on which the premises shall be ready for occupancy for
Tenant.
ARTICLE 6
CONDITION OF PREMISES
(a) Tenant's taking of possession of the premises shall be conclusive
evidence of Tenant's acceptance thereof in good order and satisfactory
condition, unless Tenant gives Landlord notice of any problems or defects in
writing, within 60 days after May 1, 1996.
(b) Landlord represents, warrants, and covenants that the premises and the
building are of good quality, comply with applicable laws and regulations, and
that all structural features and functional systems are in good condition.
ARTICLE 7
COMMON AREAS
(a) Landlord hereby grants to Tenant, its employees, agents, customers and
invitees, the non-exclusive right for and during the term of this Lease and any
renewal thereof to use the parking area, lunch room, and other common areas from
time to time constituted, such use to be common with Landlord and all tenants of
Landlord from time to time, its and their employees, agents, customers and
invitees, except when the same are being repairs
(b) Landlord agrees to manage, operate and maintain at its expense during
the term of this Lease and any renewal thereof all parking areas, roads,
sidewalks, landscaping and draining. The manner in which such areas and
facilities shall be maintained and the expenditures therefor shall be at the
sole discretion of Landlord. However, Landlord will maintain such area in a
first class manner.
ARTICLE 8
TAXES
Tenant shall pay no real estate related taxes and assessments against the
land, building or improvements that are levied or assessed by any lawful
authority during each calendar year during the Term of this Lease.
ARTICLE 9
LANDLORD WARRANTIES AND LEASE SUBORDINATION
Landlord hereby warrants, so long as Tenant shall perform each and every
covenant to be performed by Tenant hereunder, Tenant shall have peaceful and
quiet use and possession of the Premises without hindrance on the part of the
Landlord or others, and Landlord shall warrant and defend Tenant in such
peaceful and quiet use and possession.
<PAGE>
Landlord reserves the right to subordinate or sell this Lease at all times
to any other party the lien of any mortgage, or mortgages, trust deed or trust
deeds now or hereafter placed upon the premises, and Tenant covenants and agrees
to execute and deliver, upon demand, such reasonable further instruments
subordinating this Lease to the lien of any such mortgage, mortgages, trust deed
or trust deeds as shall be reasonably desired by Landlord, or any mortgagees or
proposed mortgagees or trustees under trust deeds. Landlord shall pay Tenant's
reasonable fees for legal review each time such subordination is requested.
Landlord shall furnish Tenant evidence that Tenant shall have the right to
remain in possession of the premises under the terms of this Lease and Tenant's
quiet enjoyment of the premises shall not be adversely affected, notwithstanding
any default in any such mortgage, mortgages, trust deed or trust deeds, or after
foreclosure thereof, so long as tenant is not in default under any of the
covenants, conditions, and agreements contained in this lease.
Notwithstanding anything herein contained to the contrary, Tenant's
obligations herein shall not be terminated or mitigated in any way by reason of
the foreclosure of any mortgage of the Landlord or its successor in title.
ARTICLE 10
REPAIR AND MAINTENANCE OF PREMISES
Except for any structural matters, roof, existing heating, existing
ventilating, existing air conditioning, existing electrical, existing plumbing
and except as provided in Article 14 hereof, Tenant shall, at Tenant's expense
at all times keep the demised premises and appurtenances thereto in good order,
condition, and repair, clean and sanitary and safe, including the replacement of
interior equipment, interior fixtures, and all broken glass (with glass of the
same size and quality) and shall repair and replace all doors, windows, frames
and related items in a manner satisfactory to Landlord.
ARTICLE 11
DAMAGE TO PREMISES
In case the premises are damaged by fire, explosion or other casualty or
occurrence to the extent of twenty-five percent (25%) or less of the insurable
value of the premises, the damage shall promptly be repaired by Landlord at
Landlord's expense in no event longer than 90 days after the casualty event. In
the event the premises shall be damaged to the extent of more than twenty-five
(25%) of the insurable value, or the building of which the premises are a part
is damaged to the extent of twenty-five (25%) or more of the insurable value,
Landlord may elect either to repair or rebuild the premises or the building or
to terminate this Lease upon giving notice of such election in writing to Tenant
within thirty (30) days after the happening of the event causing the damage.
Tenant shall have the same right to elect termination of this Lease. If the
casualty or the repairing or rebuilding shall render the premises untenantable
in whole or in part, a proportionate abatement of the minimum annual rent shall
be allowed from the date when the damage occurred until the date when the
premises are again made tenantable, or until the effective date of termination
as herein provided, said abatement to be computed on the basis of the relation
which the square foot area of the space rendered untenantable bears to the
aggregate square footage of area of the premises. Landlord shall take
reasonable steps to
<PAGE>
promptly repair all damage. Tenant may elect to terminate this Lease if repairs
are not completed within 90 days after the casualty event
ARTICLE 12
TRADE FIXTURES
All trade fixtures owned by Tenant and installed in the Premises shall
remain the property of Tenant and shall be removable from time to time and also
at the expiration of the Term, provided Tenant shall not, at such time, be in
default under any covenant or agreement contained herein; and provided further
that the Tenant repair any damage to the Premises caused by the removal of said
fixtures.
ARTICLE 13
LIENS
Tenant agrees to promptly pay for any work done or material furnished in or
about the premises and will not permit or suffer any lien to be attached to the
premises and shall promptly cause any such lien or any claim therefor to be
released; provided however, that in the event Tenant contests any such claim,
Tenant agrees to indemnify and secure Landlord to Landlord's satisfaction.
Tenant shall have no authority or power, express or implied, to create or cause
any lien, charge or encumbrance of any kind against the Premises.
ARTICLE 14
LAWS, ORDINANCES 7 GENERAL CONDITIONS
Tenant agrees to promptly comply with all laws, ordinances, orders and
regulations affecting its business and the premises and the cleanliness, safety,
operation and use thereof. Tenant also agrees to comply with the
recommendations of any insurance comply, inspection bureau or similar agency
with respect to the premises.
Tenant agrees not to: (a) permit any unlawful or immoral practice to be
carried on or committed on the premises; (b) make any use or allow the premises
to be used in any manner or for any purpose that might invalidate or increase
the rate of insurance thereof; (c) keep or use or permit to be kept or used on
said demised premises any inflammable fluids or explosive without the written
permission of the Landlord first obtained; (d) use the premises for any purpose
whatsoever which might create a nuisance or injure the reputation of the leased
premises or of the premises; (e) deface or injure the building premises; (f)
overload the floors; or (g) commit or suffer any waste. Tenant agrees to pay as
additional rent any increase in cost of insurance on the building or premises to
Landlord or the owner of same as a result of any unauthorized use of the
premises by Tenant, but such payment shall not constitute in any manner a waiver
by Landlord of its right to enforce all of the covenants and provisions of this
Lease.
Tenant agrees not to install any electrical equipment that overloads lines
in the premises. In connection with the installation or use of the electrical
equipment Tenant shall at Tenant's own expense make from time to time whatever
changes are necessary to comply with the requirements of the insurance
underwriters, governmental authorities, or of insurance inspectors
<PAGE>
designated by Landlord. Tenant agrees not to use any electrical equipment that
contains a heating element unless same is connected and operated in compliance
with the underwriters' specifications.
Landlord reserves the right at any time to change the name of the building
in which the leased premises are located and to change the address or
designation of the leased premises provided that Landlord reimburses Tenant for
all Tenant's costs (including overhead) resulting from such changes.
ARTICLE 15
INSURANCE
(a) Tenant agrees to carry during the term hereof public liability
insurance for the premises written by a company satisfactory to Landlord
providing coverage in the minimum amount of Two Hundred Thousand Dollars
($200,000.00) against liability for injury to or death of any one person and Two
Hundred Thousand ($200,000.00) Dollars against liability arising out of any one
accident or occurrence, and also Two Hundred Thousand Dollars ($200,000.00)
against liability arising out of any property damage; Tenant shall also provide
property insurance upon the demised premises in an amount not less than Two
Hundred Thousand Dollars ($200,000.00); said insurance shall include Landlord,
its agents, beneficiaries and employees as additional insured parties and shall
provide that Landlord shall be given a minimum often (10) days notice by the
insurance company prior to cancellation, termination or change of such
insurance. Upon request by Landlord, Tenant shall provide Landlord with copies
of the policies or certificates evidencing that such insurance is in full force
and effect and stating the terms thereof.
ARTICLE 16
INDEMNIFICATION
Except for matters related to Landlord's negligence or defects in the
building, Tenant agrees to indemnify, defend and hold harmless Landlord, its
agents, beneficiaries and employees, from and against all claims, liabilities,
losses, damages and expenses for injury to or death of any person or loss of or
damage to property in or upon Premises and including the person and property of
Tenant, its employees, agents, invitees, licenses or others, it being understood
and agreed that all property kept, stored or maintained in or upon the premises,
shall be at the risk of Tenant.
If any damages to the Premises or other property of Landlord results from
any act or neglect of Tenant, its agents or employees, Landlord may at its
option repair such damages, and Tenant shall promptly on demand reimburse
Landlord for the cost thereof to the extent costs are not covered by insurance.
The provisions of this Article shall not be deemed to exempt Landlord from
liability for negligence of Landlord, its agents, servants or employees.
<PAGE>
ARTICLE 17
CONDEMNATION
If the premises or any substantial part thereof shall be taken under
eminent domain proceedings, either party may at its option terminate this Lease
as of the date when possession is taken. All damages awarded for such taking
shall belong to and be the property of Landlord. The Tenant shall have no claim
against the Landlord by reason of such taking or termination but Tenant may
pursue an award for its own loss from the taking authority.
ARTICLE 18
ASSIGNMENT AND SUBLETTING
Tenant shall not sublet the premises in whole or in part and shall not
sell, assign, mortgage, pledge or in any manner transfer this Lease or any
interest therein without in each case the consent in writing of Landlord first
had and obtained which shall not be unreasonably withheld.
ARTICLE 19
ACCESS TO PREMISES
Tenant agrees that Landlord, its agents, employees or servants or any
person authorized by Landlord may enter the premises at any reasonable time
during business hours for the purpose of inspecting the condition of the same
and to make such repairs, additions, improvements, changes or alterations to the
premises or the building of which they are a part as Landlord may elect to make,
and exhibit the same to prospective purchasers of the building in which the
premises are contained so long as Tenant is given reasonable advance notice of
such entry, Tenant's quiet enjoyment of the premises and normal conduct of its
business are not interrupted and confidentiality and security of Tenant's
business are protected.
ARTICLE 20
COST, EXPENSES, ATTORNEY'S FEES
In case Landlord shall, without fault on its part, be made a party to any
litigation commenced by or against Tenant, the Tenant shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Landlord in
connection with such litigation; Tenant shall also pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by Landlord in enforcing
the covenants and agreements of this Lease.
ARTICLE 21
DEFAULT OF TENANTS
It is agreed that (i) if Tenant vacates or abandons the premises or permits
the same to remain vacant or unoccupied for a period of ten (10) days, or (ii)
if the rent, additional rent, or any part thereof shall be unpaid for five (5)
days alter written notice thereof to Tenant, or (iii) if default shall be made
in the prompt and full performance of any covenant, condition or agreement of
this Lease to be kept more than a reasonable time (in no event to exceed thirty
(30)
<PAGE>
days) alter written notice to Tenant, specifying such default or breach of
performance, or (iv) if any proceedings shall be commenced to declare Tenant
bankrupt or insolvent or to obtain relief under any chapter or provision of any
bankruptcy or debtor relief law or act to reduce or modify Tenant's debts or
obligations or to delay or to extend the payment thereof, or if any assignment
of Tenant's property be made for benefit of creditors, or if a receiver for
trustee be appointed for Tenant or Tenant's property or business, then Landlord
may treat the occurrence of any one or more of the foregoing events as a breach
of this Lease and thereupon at its option without further notice or demand of
any kind to Tenant or any other person, may have, in addition to all other legal
or equitable remedies, the following described remedies: (a) Landlord may elect
to terminate this Lease and the term created hereby in which event Landlord
forthwith may repossess the premises and Tenant shall pay at once to Landlord as
liquidated damages a sum of money equal to the rental provided in this Lease to
be paid by Tenant to Landlord for the balance of the stated term of this Lease;
less rental payments received, if any, upon reletting of the Premises for the
balance of the Lease term. (b) Landlord may elect to terminate Tenant's right
of possession without termination of this Lease in which event Tenant agrees to
surrender possession and vacate the Premises immediately and deliver possession
thereof to Landlord and Tenant hereby grants to Landlord full and free license
to enter into and upon the Premises, in whole or in part, with or without
process of law and to repossess the Premises or any part thereof and to expel or
remove Tenant and any other person, firm or corporation who may be occupying the
Premises or any part thereof and remove any and all property therefrom, using
such reasonable force as may be necessary; without terminating the Lease or
releasing Tenant in whole or in part from Tenant's obligation to pay rent and
perform any of the covenants, conditions and agreements to be performed by
Tenant as provided in this Lease; without being deemed in any manner guilty of
trespass, eviction or forcible entry or detainer; and without relinquishing
Landlord's right to rental or any other notice of any election made by Landlord
under this Article, demand for payment of rent or for possession, including any
and every form of demand and notice prescribed by any statute or other law.
Upon and after entry into possession without terminating the Lease, Landlord
may, but shall not be obligated to relet all or any part of the premises for
such rent and upon such terms and to such persons, firm or corporation and for
such period or periods as Landlord in Landlord's sole discretion shall determine
and Landlord shall not be required to accept any tenant offered by Tenant, or
observe any instruction given by Tenant about such reletting or to do any act or
exercise any care or diligence with respect to such reletting or to the
mitigation of damages of Tenant. If the consideration collected by Landlord
upon any such reletting for Tenant's account is not sufficient to pay the rental
reserved in this Lease, Tenant agrees to pay to Landlord the deficiency upon
demand.
ARTICLE 22
SURRENDER OF PREMISES
Tenant, upon expiration or termination of this Lease, either by lapse of
time or otherwise, agrees peaceably to surrender to Landlord the premises,
including the alterations, additions, improvements, changes and fixtures other
than Tenant's movable trade fixtures, in broom-clean condition and in good
repair, except for acts of God and ordinary use and wear and damage by fire;
provided, however, that Tenant's alterations, additions and improvements to the
Premises shall be removed at Tenant's expense upon written request by Landlord.
<PAGE>
ARTICLE 23
UNPERFORMED COVENANTS OF TENANT
In the event Tenant shall fail to comply with and perform any of the
covenants, conditions or agreements herein contained on the Tenant's part to be
performed after notice and the opportunity to cure as provided in this Lease,
the Landlord shall have the right (but not be obligated) to perform any such
covenants, conditions or agreements, and the Tenant agrees to pay to the
Landlord on demand, as additional rent hereunder, a sum equal to the amount
reasonably expended by the landlord in the performance of such covenants,
conditions or agreements.
ARTICLE 24
MISCELLANEOUS
A. Notices. Notices and demands required or permitted to be given
hereunder may be given by personal delivery to either party or any officer or
other representative of the party to be notified, or may be sent by certified
mail addressed, postage prepaid, if to Landlord, to it at the address at which
the last rental payment was made or required to be made, and if to Tenant,
addressed to Tenant at the premises, or such other address as was last specified
respectively in writing by one party to the other. Notices and demands shall be
deemed to have been given when mailed or if made by personal delivery, then upon
such delivery.
B. Remedies. All rights and remedies of Landlord and Tenant herein
created or otherwise existing at law are cumulative and the exercise of one or
more rights or remedies shall not be taken to exclude or waive the right to the
exercise of any other. All such rights and remedies may be exercised and
enforced concurrently and whenever and as often as Landlord and Tenant,
respectively, deem desirable.
C. Successors and Assigns. All covenants, promises, conditions,
representations and agreements herein contained shall be binding upon, apply and
inure to the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
D. Liability. If two or more individuals, corporations, partnerships, or
other business associations (or any combination of two or more thereof) shall
sign this Lease as Tenant, the liability of each such individual, corporation,
partnership, or other business association to pay Rent and perform all other
obligations hereunder shall be deemed to be join and several. In like manner,
if the Tenant named in this Lease shall be a partnership or other business
association, the members of which are by virtue of statute or general law,
subject to personal liability, the liability of each such member shall be deemed
to be joint and several. Only Tenant's corporate signature shall be required on
this Lease.
E. Representations. It is understood and agreed by Tenant that Landlord
and Landlord's agents have made no representations or promises with respect to
the premises or the making or entry into this Lease except as in this Lease
expressly set forth and that no claim or liability, or cause for termination
shall be asserted by Tenant against Landlord for, and landlord
<PAGE>
shall not be liable by reason of breach of any representations or promises not
expressly stated in this Lease.
F. Waiver. The failure of Landlord to insist upon strict performance by
Tenant of any of the covenants, conditions and Agreements of this Lease shall
not be deemed a waiver of any of Landlord's rights or remedies and shall not be
deemed a waiver of any subsequent breach or default by Tenant in any of the
covenants, conditions and agreements of this Lease.
G. Hold Over. Tenant shall pay to Landlord, as liquidated damages, the
same amount of rent specified in the Data Sheet, as a month-to-month Tenant for
the time Tenant retains possession of the premises or any part thereof after
termination of the Lease by lapse of time or otherwise; or, if and only if
Landlord serves written notice upon Tenant of Landlord's election thereof, such
holding over shall constitute renewal of this Lease for one (1) year.
Landlord's acceptance of any rent after holding over begins does not renew this
Lease. This provision does not waive Landlord's rights to re-entry or any other
right hereunder.
H. Interpretation. The time of the performance of all the covenants,
conditions and agreements of this Lease is of the essence of this agreement.
Nothing herein shall be construed so as to constitute a joint venture or
partnership between Landlord and Tenant. The captions of the several articles,
contained herein are for convenience only and do not define, limit, describe or
construe the contents of such articles. No amendments or modifications of or
supplements to this Lease, shall be effective unless in writing and executed by
Landlord and Tenant. If any provision of this Lease is held to be invalid, such
invalid provision shall be deemed to be severable from and shall not effect the
validity of the remainder of this Lease.
I. Bankruptcy. The bankruptcy of Landlord (whether voluntary or
involuntary) shall not affect the rights of Tenant in and to the Premises
pursuant to this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as of the day and year above written.
LANDLORD:
LAWIN ENTERPRISES, INC.
By /s/ Timothy P. Lawin
----------------------------
TENANT
ADVANCED UROSCIENCE, INC.
By /s/ Dean Klein
- ------------------------------
<PAGE>
EXHIBIT 11
ADVANCED UROSCIENCE, INC.
COMPUTATION OF LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Period from Period from
August 1, August 1,
1994 (Date of Five Months Ended May 31, 1994 (Date of
Inception), to Year Ended --------------------------- Inception), to
December 31, December 31, 1995 1996 May 31, 1996
1994 1995 (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Computation of weighted average
number of common shares
outstanding and common stock equivalent
shares: (A)
Common shares outstanding at
the beginning of the period -- 2,811,600 2,811,600 3,170,220 --
Weighted average number of
shares issued during the period 2,279,004 20,000 14,400 -- 2,706,919
Common equivalent shares
attributed to stock options and
warrants granted (B) 684,263 684,263 684,263 684,263 684,263
Common stock issued (C) 877,620 877,620 877,620 543,000 877,620
----------- ---------- ----------- ---------- -----------
Weighted average number of
common and common
equivalent shares 3,840,887 4,393,483 4,387,883 4,397,483 4,268,802
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
Net loss ($108,910) ($524,444) ($159,242) ($514,651) ($1,148,005)
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
Loss per common and common
equivalent shares ($0.03) ($0.12) ($0.04) ($0.12) ($0.27)
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
</TABLE>
(A) All shares have been adjusted to give effect to the 6 for 5 stock split
approved by the Board of Directors in May 1996
(B) All stock options and warrants are anti-dilutive, however, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83 (SAB
83), stock options and warrants granted with the exercise price below the
assumed initial offering price during the twelve-month period preceding the
date of the initial filing of the Registration Statement have been included
in the calculation of common stock equivalent shares as if they were
outstanding for all periods presented, using the treasury stock method.
(C) Pursuant to the Securities and Exchange Commission SAB 83, all stock issued
at a price below the assumed initial offering price issued during the
twelve-month period preceding the date of the initial filing of the
Registration Statement has been included in the calculation of common stock
as if it was outstanding for all periods presented.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Advanced UroScience, Inc.
St. Paul, Minnesota
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report, dated January 26, 1996, relating to the financial statements of Advanced
UroScience, Inc., and to the reference to our Firm under the caption "Experts"
in the Prospectus.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
June 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR OTHER
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAY-31-1996
<CASH> 474,700 1,349,900
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 492,600 1,430,900
<PP&E> 25,200 57,000
<DEPRECIATION> 6,800 10,800
<TOTAL-ASSETS> 534,400 1,506,200
<CURRENT-LIABILITIES> 77,400 186,300
<BONDS> 0 0
0 0
0 0
<COMMON> 1,109,800 2,527,300
<OTHER-SE> (852,700) (1,207,400)
<TOTAL-LIABILITY-AND-EQUITY> 534,400 1,506,200
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 518,100 524,800
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16,000 4,700
<INCOME-PRETAX> (524,400) (514,700)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (524,400) (514,700)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (524,400) (514,700)
<EPS-PRIMARY> (.12) (.12)
<EPS-DILUTED> 0 0
</TABLE>