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Filed with the Securities and Exchange Commission on December 23, 1997
Registration No 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ATRIX LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-0402207
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 Midpoint Drive, Fort Collins, Colorado 80525. (970) 482-5868
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(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
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Brian G. Richmond
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2579 Midpoint Drive, Fort Collins, Colorado 80525. (970) 482-5868
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
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COPIES TO:
Warren L. Troupe, Esq. and Brian D. Lewandowski, Esq.
Morrison & Foerster LLP
370 17th Street, Suite 5200, Denver, Colorado 80202
(303) 592-1500
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, 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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Maximum Offering Price Amount of
securities to be registered registered Per Unit(1) registration fee
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7% Convertible Subordinated $50,000,000(1) 100% $14,750(2)
Notes due 2004
Common Stock, $.001 par value
per share (2) (2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and 457(i).
(2) Such indeterminate number of shares of Common Stock as shall be
issuable upon conversion of the Convertible Note being registered
hereunder. No additional consideration will be received for the Common
Stock and therefore no registration fee is required pursuant to Rule
457(i).
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.
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.
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SUBJECT TO COMPLETION DATED DECEMBER 23, 1997
PROSPECTUS
$50,000,000
ATRIX LABORATORIES, INC.
7% CONVERTIBLE SUBORDINATED NOTES
INTEREST PAYABLE JUNE 1 AND DECEMBER 1
AND
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
This Prospectus relates to the proposed sale from time to time by
certain holders named herein (the "Selling Securityholders") of $50,000,000
principal amount of 7% Convertible Subordinated Notes Due 2004 (the "Notes") of
Atrix Laboratories, Inc. ("Atrix" or the "Company") and the shares of common
stock, par value $.001 per share (the "Common Stock"), of the Company into
which the Notes may be converted (the "Conversion Shares"). The Notes are
convertible into the Conversion Shares at any time at or before maturity,
unless previously redeemed, at a conversion price of $19 per share, subject to
adjustment upon the occurrence of certain events. The Common Stock is traded
on The Nasdaq National Market under the symbol "ATRX."
The Notes do not provide for a sinking fund and are not redeemable by
the Company prior to December 5, 2000. The Notes are redeemable thereafter at
the option of the Company, in whole or in part, at the redemption prices set
forth in this Prospectus, together with accrued interest. Upon a Repurchase
Event (as defined herein), each holder of the Notes shall have the right, at
the holder's option, to require the Company to repurchase such holder's Notes
at a price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any. See "Description of Notes --
Certain Rights to Require Repurchase of Notes."
The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness, (as defined herein) of the Company. As of September 30, 1997,
the Company had less than $1 million of indebtedness outstanding which would
have constituted Senior Indebtedness. The Indenture governing the Notes does
not limit or prohibit the incurrence of additional indebtedness, including
Senior Indebtedness, by the Company or its subsidiary. See "Description of
Notes -- Subordination."
Sales of the Notes and the Conversion Shares (collectively, the
"Securities") may be effected by or for the account of the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such Securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market price, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the
Securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders, or to broker-dealers who may purchase Securities
as principals and thereafter sell the Securities from time to time in
transactions (which may include block transactions in the case of the
Conversion Shares) on any exchange or market on which Securities are listed or
quoted, as applicable, in negotiated transactions, through a combination of
such methods of sale or otherwise. In effecting sales, broker-dealers engaged
by Selling Securityholders may arrange for other broker-dealers to participate.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Securities for whom such broker-dealers may act as agents or
to whom they may sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). See
"Selling Securityholders" and "Plan of Distribution."
None of the proceeds from the sale of the Securities by the Selling
Securityholders will be received by the Company. The Company has agreed to
bear all expenses (other than selling commissions) in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders . The Company has agreed to
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indemnify the Selling Securityholders against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
The Notes have been designated for trading in the Private Offering,
Resales and Trading through Automated Linkages ("PORTAL") Market. Notes sold
pursuant to this Prospectus will not remain eligible for trading on the PORTAL
Market. For a description of certain income tax consequences to holders of the
Notes, see "Certain United States Federal Income Tax Consequences."
The Selling Securityholders and any broker-dealers or agents that
participate with the Selling Securityholders in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit on the
resale of the Securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Common Stock is listed for trading on the Nasdaq National Market
under the symbol "ATRX." On December 19, 1997, the last reported sale price of
the Common Stock was $12.8125 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January __, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a World Wide Web site
containing such reports, proxy statements and other information at www.sec.gov.
Such reports, proxy statements and other information concerning the Company can
also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has agreed that, if at any time while the Notes or the
Conversion Shares are restricted securities within the meaning of the
Securities Act or the Company is not subject to the informational requirements
of the Exchange Act, the Company will furnish to holders of such Notes and
Conversion Shares and to prospective purchasers designated by such holders the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to permit compliance with Rule 144A in connection with resales
of such Notes and Conversion Shares.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, (ii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; and
(iii) the Company's Registration Statement on Form 8-A filed on January 12,
1990, registering the Common Stock under Section 12(g) of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering covered by this Prospectus shall be
deemed to be incorporated by reference herein and to be part hereof from the
date of the filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide a copy of any or all of such documents
(exclusive of exhibits unless such exhibits are specifically incorporated by
reference herein) without charge, to each person to whom this Prospectus is
delivered, upon written or oral request to Brian G. Richmond, Vice President,
Finance 2579 Midpoint Drive, Fort Collins, Colorado 80525, telephone (970)
482-5868.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the
Securities Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are accurate summaries of the material
provisions thereof, and in each instance, reference is made to the copy of such
contract or other document filed as an exhibit or incorporated by reference to
the Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission,
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or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the Securities offered hereby. The
Company cautions the reader that this list of risk factors may not be
exhaustive.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. These statements appear in a number of places in this
Prospectus and in documents incorporated by reference herein and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) whether
the Company will receive, and the timing of, regulatory approvals or clearances
to market the ATRIDOX product and any other potential products, (ii) the
results of current and future clinical trials, and (iii) the time and expenses
associated with the regulatory approval process for products. The success of
the Company's business operations is in turn dependent on factors such as the
receipt and timing of regulatory approvals or clearances for potential
products, the effectiveness of the Company's marketing strategies to market its
current and any future products, the Company's ability to manufacture products
on a commercial scale, the appeal of the Company's mix of products, the
Company's success at entering into and collaborating with others to conduct
effective strategic alliances and joint ventures, general competitive
conditions within the biotechnology and drug delivery industry and general
economic conditions. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The information contained and incorporated by reference in this
Prospectus, including without limitation the information set forth below
identifies important factors that could cause such differences.
ATRIGEL(R), ATRISORB(R) GTR BARRIER, ATRIDOX(TM) and
ATRISORB-DOXY(TM) are trademarks of the Company, with Block Drug Corporation
("Block") holding the ownership rights to ATRISORB(R) in the United States and
Canada.
EARLY STAGE OF DEVELOPMENT
The Company has commenced commercial sales of only one product, the
ATRISORB GTR Barrier, the first commercial shipment of which occurred in March
1996, and has not recognized significant revenue from product sales to date.
The Company does not have regulatory approval or clearance to market any other
product. All of the Company's potential products, other than the ATRIDOX
product, are at an early stage of development and will require extensive
research, development, and preclinical and clinical testing prior to
commercialization. In addition, all of the Company's potential products will be
subject to an extensive, time consuming and costly regulatory approval or
clearance process prior to commercialization. There can be no assurance that
any such potential products will prove safe and effective in clinical trials,
obtain required regulatory approvals or clearance, or be capable of commercial
scale production at an acceptable cost, or that any clinical trials will be
completed on schedule, at or below budget or at all. Furthermore, there can be
no assurance that any of the Company's products that are or will be sold
commercially will be accepted by medical and dental professionals or patients,
or that reimbursement for the cost of such products will be available from
third party payors. Any failure of the Company to achieve technical
feasibility, demonstrate safety, achieve clinical efficacy, obtain regulatory
approvals or clearances or successfully manufacture or commercialize its
products would have a material adverse effect on the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has sustained losses in each year of its operations, and
had incurred an accumulated deficit of approximately $44 million through
September 30, 1997. Prior to March 1996, the Company had not received any
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revenues from product sales. The Company expects to continue to incur losses
due to expenses for research, development, manufacturing, sales, marketing, and
interest on the Notes in excess of anticipated revenues. In particular, the
Company expects to incur substantial manufacturing, sales and marketing
expenses in connection with the commercial launch of the ATRIDOX product, if
and when this product is approved by the United States Food and Drug
Administration ("FDA") and foreign regulatory agencies. There can be no
assurance that the Company will ever achieve substantial revenues from product
sales or profitability, or that profitability will be sustained for any
particular period of time.
DEPENDENCE ON RELATIONSHIP WITH BLOCK
The ability to commercialize the ATRIDOX product will depend to a
significant extent on the marketing and sales efforts of Block, over which the
Company has limited control. The Company anticipates that, assuming successful
launch of the ATRIDOX product, royalties and manufacturing margins from Block
may constitute a substantial portion of the Company's revenues. However, there
can be no assurance that Block will be able to establish effective marketing,
sales and distribution capabilities for the ATRISORB GTR Barrier, the ATRIDOX
product and the ATRISORB-DOXY product or will be successful in gaining market
acceptance for these products. Moreover, Block has the right to terminate its
agreement with the Company at any time with or without cause on 12-months
notice. The election by Block to discontinue its participation in the
commercialization, marketing and distribution of the ATRIDOX product, the
ATRISORB GTR Barrier or the ATRISORB-DOXY product could materially adversely
affect the Company.
DEPENDENCE ON THE ATRIDOX PRODUCT
The Company is dependent on its ability to obtain regulatory approval
of the ATRIDOX product to generate revenues while it continues the research,
development and regulatory approval processes for other products under
development. While the Company filed an New Drug Application ("NDA") with the
FDA for the ATRIDOX product in the first quarter of 1997, there can be no
assurance as to the outcome or timing of the FDA's review of such filing.
Furthermore, there can be no assurance that the ATRIDOX product, if approved by
the FDA, will achieve market acceptance. See "Significant Government
Regulation; Uncertainty of Obtaining Regulatory Approvals."
LEVERAGE
At September 30, 1997, as adjusted for the issuance of the Notes, the
Company's total long-term debt and stockholders' equity would have been
approximately $50 million and $29 million, respectively. The Indenture
governing the Notes does not restrict the ability of the Company or its
subsidiaries to incur additional indebtedness, including Senior Indebtedness.
Additional indebtedness of the Company may rank senior or pari passu with the
Notes in certain circumstances. See "Description of Notes." The Company's
ability to satisfy its obligations will be dependent upon its future
performance, which is subject to prevailing economic conditions and financial,
business and other factors, including factors beyond the Company's control.
There is no assurance that the Company's operating cash flow will be sufficient
to meet its debt service requirements or to repay the Notes at maturity or upon
a Repurchase Event.
SIGNIFICANT GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY
APPROVALS
The Company's research, preclinical development, clinical trials,
manufacturing, marketing and distribution of its products in the United States
and other countries are subject to extensive regulation by numerous
governmental authorities including, but not limited to, the FDA. The Company
has not received regulatory approval in the United States or any foreign
jurisdiction for the commercial sale of any of its drug products. Prior to
marketing in the United States, any drug developed by the Company must undergo
rigorous preclinical (animal) and clinical (human) testing and an extensive
regulatory process implemented by the FDA under the United States Federal Food,
Drug, and Cosmetic Act and implementing regulations. Satisfaction of such
regulatory requirements, which includes satisfying the FDA that the product is
both safe and effective for its proposed indications, typically takes several
years or more, depending upon the type, complexity, and novelty of the product,
and requires the
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expenditure of substantial resources. Preclinical studies must be conducted in
conformance with the FDA's Good Laboratory Practice regulations. Clinical
testing, which is rigorously regulated, must meet requirements for
Institutional Review Board oversight and informed consent, as well as FDA prior
review and oversight, and Good Clinical Practice requirements. Failure to
comply with FDA or other applicable regulatory requirements may subject a
company to administrative sanctions or judicially imposed sanctions such as
civil penalties, criminal prosecution, injunctions, product seizure or
detention, product recalls, or total or partial suspension of production. In
addition, noncompliance may result in the FDA's refusal to approve pending NDAs
or supplements to approved NDAs, PMAs or PMA (as defined below) supplements and
the FDA's refusal to clear 510(k)s.
In March 1997, the Company submitted an NDA with the FDA for the
ATRIDOX product a minimally invasive subgingival antibiotic therapy for
periodontal disease employing the ATRIGEL system containing doxycycline. The
Company filed the NDA based on the results of pivotal Phase III trials, which
were completed in May 1996, and included data from 822 patients at 20 study
sites. There can be no assurance that the results of the Company's preclinical
or clinical studies will demonstrate, to the FDA's satisfaction, substantial
evidence that the drug is safe and effective. Additionally, because the
protocol of the Phase III clinical trials required the removal of the ATRIDOX
product following treatment, an additional Phase III study has been conducted
and will be submitted in an amendment to the original NDA filing, which may
allow the Company to seek approval of the product for use without removal.
There can be no assurance that the Company will obtain approval for any use of
the product. If regulatory approval of the ATRIDOX product or any other drug
product is granted, such approval will be limited to those disease states and
conditions for which the product has been shown to be safe and effective, as
demonstrated to the FDA's satisfaction through well controlled clinical
studies. Furthermore, approval may entail ongoing requirements for
post-marketing studies. Even if such regulatory approval is obtained, a
marketed product, promotional activities for the product, its manufacturer and
its manufacturing facilities are subject to continual review and periodic
inspections by the FDA. In addition, identification of certain side effects
after a drug is on the market or the occurrence of marketing problems could
cause subsequent withdrawal of approval, reformulation of the drug, additional
preclinical or clinical testing and changes in labeling.
The ATRISORB GTR Barrier is regulated in the United States as a
medical device. New medical devices are generally introduced to the market
based on a premarket notification or 510(k) submission to the FDA in which the
sponsor establishes that the proposed device is "substantially equivalent" to a
legally marketed Class I or Class II medical device or to a Class III device
for which the FDA has not required premarket approval. If the sponsor cannot
demonstrate substantial equivalence, the sponsor will be required to submit a
premarket approval application ("PMA"), which generally requires preclinical
and clinical trial data, to prove the safety and effectiveness of the device.
The Company has received FDA clearance on a 510(k) for the ATRISORB GTR
Barrier, and is currently marketing the device in the United States.
The Company is also subject to foreign regulatory requirements in
connection with the research, development, manufacture and sale of its products
abroad. These requirements vary widely from country to country, and there can
be no assurance that the Company will be able to achieve or remain in
compliance with any such requirements. Any failure to achieve or remain in
compliance with foreign requirements, notwithstanding authorizations to legally
market the products in the United States, could have a material adverse effect
on the Company.
RELIANCE ON PATENTS AND PROPRIETARY RIGHTS
The Company considers patents and proprietary rights to be materially
significant to its business. As of September 30, 1997, the Company maintained
14 United States and 11 foreign patents, and has 18 United States and 38
foreign patent applications pending. The Company believes that its ATRIGEL
system, upon which the ATRISORB GTR Barrier, the ATRIDOX product and all of the
Company's products under development are based, is protected by claims
contained in these patents and in pending patent applications. The Company
intends to aggressively defend its patent position and to file additional
patent applications in the future. However, there can be no assurance that any
of the Company's present or future patents will provide the Company with
significant protection or will not be challenged. The patent positions of drug
delivery companies, including the Company's, are uncertain and involve complex
legal and factual issues. Accordingly, the Company anticipates that any
attempt to
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enforce its patents would be time consuming and costly. Furthermore, there can
be no assurance that any such attempted enforcement would be successful, or
that third parties will not succeed in circumventing or invalidating any one or
more of the Company's patents. Moreover, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Any invalidation or circumvention of the Company's
patents could have a material adverse effect on the Company.
There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents, that the claims filed in
any pending patent application will not be significantly reduced prior to
issuance or that any issued patents will provide significant proprietary
protection. Because patent applications in the United States are maintained in
secrecy until patents issue and publication of discoveries in the scientific or
patent literature often lags behind actual discoveries, the Company cannot be
certain that it was the first inventor of inventions covered by its pending
patent applications or that it was the first to file patent applications for
such inventions. Moreover, the Company may have to participate in interference
proceedings declared by the Patent and Trademark Office to determine priority
of invention that could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company.
The Company is not aware of any patents that it believes would be
infringed by its proposed products. However, there can be no assurance that the
Company has identified all patents that may pose a risk of infringement by its
proposed products. There can be no assurance that third parties will not assert
infringement claims against the Company or that any such assertions will not
result in costly litigation or require the Company to obtain a license to the
intellectual property rights of such parties. There can be no assurance that
any such licenses would be available on terms acceptable to the Company, if at
all. Furthermore, parties making such claims may be able to obtain injunctive
or other relief that could effectively block the Company's ability to further
develop or commercialize its products in the United States and abroad and could
result in the award of substantial damages. Defense of any lawsuit or failure
to obtain any such license could have a material adverse effect on the Company.
Finally, litigation, regardless of outcome, could result in substantial cost to
the Company, both financially and in terms of diversion of management's
attention.
UNCERTAINTY OF CUSTOMER ACCEPTANCE; THIRD PARTY REIMBURSEMENT
Because its initial products and product candidates are targeted
toward the treatment of periodontal disease, the primary customers for these
products will be dentists and periodontists. The Company expects that a
substantial portion of these customers will seek reimbursement for the
Company's products from third party payors, including Medicare, Medicaid,
health maintenance organizations and other public and private insurors. Third
party payors are increasingly challenging the price and cost-effectiveness of
medical and dental products and services. Significant uncertainty exists as to
the reimbursement status of newly approved health care products, such as the
ATRISORB GTR Barrier. The Company believes that certain third party payors
provide reimbursement at a specified rate for periodontal surgeries, without
additional reimbursement if a barrier product such as the ATRISORB GTR Barrier
is used therein. Furthermore, the Company believes that the portion of the
United States population that has dental insurance is substantially lower than
the percentage with medical insurance. Patients who lack dental insurance, and
therefore must pay the full cost of periodontal treatment, may elect to forego
the use of barrier products absent significant patient benefit associated with
such use. The Company's sales of the ATRISORB GTR Barrier and any future
products will depend to a great extent on the amount of available third party
reimbursement and the perceived patient benefits associated with the use of
such products. There can be no assurance that such reimbursement will be
available or that any of the Company's products will have advantages that will
be significant enough to cause dental professionals to purchase them.
LACK OF COMMERCIAL SCALE MANUFACTURING EXPERIENCE; REGULATORY COMPLIANCE
The Company has limited experience in manufacturing its products on a
commercial scale. The Company has manufactured the ATRISORB GTR Barrier at its
pilot manufacturing facility since March 1996. In July 1996, the Company
purchased a 26,000 square foot commercial production facility and completed a
number of renovations to the facility in 1997. The Company has completed
validation of the facility and currently is in the process of validating the
production process for the ATRISORB GTR Barrier, the ATRIDOX product, the
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ATRISORB-DOXY product and clinical study supplies for additional products in
development. The validation of the production process for the Heska veterinary
product has been completed. In the third quarter of 1997, the Company commenced
manufacturing the ATRISORB GTR Barrier on a commercial scale. There can be no
assurances that the Company will be able to manufacture the ATRISORB GTR
Barrier or any other products at an acceptable cost and in compliance with
Quality System Regulations ("QSRs"), which have recently replaced current Good
Manufacturing Practices ("cGMP") regulations for medical devices, or drug cGMP
regulations. Failure or significant delay by the Company in complying with
device QSRs or drug cGMPs and other regulations would have a material adverse
effect on the Company.
Drug cGMP regulations and device QSRs require, among other things,
that each manufacturer establish a quality assurance program by which it
monitors the manufacturing process and maintains records evidencing compliance
with FDA regulations and the manufacturer's specifications and procedures.
Failure to comply with these requirements can result in, among other
consequences, warning letters, civil penalties, suspensions or losses of
regulatory approvals or clearances, product recalls or seizures, injunctions,
orders to cease operations and criminal penalties. The Company's existing
manufacturing processes have not been validated as being in compliance with
drug cGMP regulations, however the Company recently successfully completed an
FDA pre-approval inspection for the Heska periodontal product, and is in the
process of completing such validation for the ATRIDOX product. Any failure by
the Company to manufacture its present and future products in compliance with
cGMP and QSR regulations could have a material adverse effect on the Company.
LACK OF SALES AND MARKETING EXPERIENCE
The Company has limited experience in sales and marketing of products.
In December 1996, the Company entered into an agreement with Block (the "Block
Agreement") for the commercialization of certain of the Company's products.
Under the current terms of the Block Agreement, Block has the rights to market
the ATRISORB-GTR Barrier, the ATRIDOX product and the ATRISORB-DOXY product in
North America. In September 1997, Block elected not to exercise its option to
obtain the rights to market the ATRIDOX product in Europe. The Company intends
to use a portion of the proceeds from the sale of the Notes to develop
marketing channels for the ATRISORB GTR Barrier, the ATRISORB-DOXY product and
the ATRIDOX product in Europe. In order to market successfully the ATRISORB
GTR Barrier in Europe and future products to which Block does not have
marketing rights, the Company must develop a sales force with significant
technical expertise or enter into agreements with existing distributors or
other corporate partners.
The Company has engaged distributors to market the ATRISORB GTR
Barrier in Europe, and expects to utilize independent distributors, corporate
partners or implement its own direct sales force for foreign sales of its
future products, including the ATRIDOX product. The Company anticipates that
all such distributors will handle products of multiple vendors, potentially
including products that compete directly with the Company's products offered by
such distributors. The Company will have limited or no control over the
resources that any independent distributor may devote to the marketing of the
Company's products or to the level of customer service any such distributor
provides. There can be no assurance that the Company will be able to establish
or maintain a successful direct sales organization in Europe or enter into
marketing agreements with other corporate partners. In addition, there can be
no assurance that there will be sufficient sales of the ATRISORB GTR Barrier or
future products to fund related sales and marketing expenses, many of which
must be incurred before sales commence. Failure to develop a successful sales
force, a distribution network or marketing agreements with corporate partners
may have a material adverse effect.
DEPENDENCE ON THIRD PARTIES
The Company has entered into several collaborative arrangements, and
hopes to enter into additional collaborative arrangements, with other companies
and individual dental practitioners covering the research, development,
clinical trials, regulatory approval, manufacture and marketing of various of
its potential products. The Company believes that its ability to successfully
develop its ATRIGEL system for a wide array of human and animal health care
applications will depend in substantial part on its ability to enter into such
collaborative arrangements. There can be no assurance that the Company will be
able to enter into or maintain existing or future
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collaborations, or that any such collaborations will be successful. Any such
failure could have a material adverse effect on the Company. Furthermore, some
of the Company's existing collaborations are exclusive, and there can be no
assurance that any of the Company's present or future collaborative partners
will not pursue parallel development of other health care products that may
compete directly with the Company's products. The Company will have limited or
no control over the resources that any partner may devote to the Company's
products. There can be no assurance that any of the Company's present or future
collaborative partners will perform their obligations as expected or will
devote sufficient resources to the research, development, clinical testing,
regulatory approval, manufacture or marketing of the Company's products. The
Company also relies on third parties to manufacture various components of the
ATRISORB GTR Barrier and expects to rely in varying degrees on contract
manufacturers for the ATRIDOX product and its other products under development.
There can be no assurance that the Company will be able to obtain product in
required quantities, of acceptable quality or at a competitive cost from any
such third party manufacturers. Any failure by any of the foregoing third
parties to devote sufficient efforts to the research, development, clinical
testing, regulatory approval, manufacture or marketing of the Company's
products could have a material adverse effect on the Company.
SOLE SOURCE SUPPLIER
The Company presently obtains all of its requirements of a key
component used in the ATRIDOX product, the antibiotic doxycycline, from a sole
source supplier. To date, the Company has not experienced difficulty obtaining
doxycycline on commercially reasonable terms. However, any interruption of
supply could have a material adverse effect on the Company, including on its
ability to manufacture and sell the ATRIDOX product and the ATRISORB-DOXY
product, if approved by the FDA.
ACCESS TO PHARMACEUTICAL COMPOUNDS
The Company's ability to successfully commercialize its ATRIGEL system
will depend in substantial part on its ability to obtain access to the
pharmaceutical compounds to be delivered thereby. The Company intends to rely
in certain circumstances on the ability of its collaborative partners to
provide access to such pharmaceutical compounds. There can be no assurance that
the Company will be able to obtain such access, either directly or through its
collaborative partners. The failure of the Company to obtain rights to a
particular pharmaceutical would preclude the Company from developing its
ATRIGEL system for delivery of such pharmaceutical. Furthermore, there can be
no assurance that the Company's use of such pharmaceutical will not be alleged
or determined to be infringing on third parties' rights. Any such failure or
infringement could have a material adverse effect on the Company.
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The drug delivery industry is highly competitive and rapidly evolving,
with significant developments expected to continue at a rapid pace. The
Company's success will depend on developing efficient and effective drug
delivery products and technologies. All of the Company's products will compete
both with other systems for delivery of a particular drug and with other forms
of treatment of the indication targeted by such products. The ATRISORB GTR
Barrier will compete directly with at least two barrier products, both of which
are currently marketed in the United States. In addition, the ATRIDOX product,
if and when approved by the FDA, will compete directly with at least one
presently marketed product. The Company is aware of many competitors in the
field of drug delivery, including competitors developing injectable or
implantable drug delivery systems, oral drug delivery systems, passive
transdermal systems, electrotransport systems, oral transmucosal systems and
inhalation systems. There can be no assurance that any such products or
technologies will not render the Company's product and products under
development or technologies uncompetitive or obsolete. In addition to competing
for customers, the Company also competes with these companies in seeking and
obtaining quality collaborative partners. Most of the Company's existing or
potential competitors, including each party presently selling products that
compete directly with the ATRISORB GTR Barrier and the potential ATRIDOX
product, have substantially greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than
the Company. Furthermore, acquisitions of competing drug delivery companies by
large pharmaceutical companies
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could enhance competitors' financial, marketing and other resources.
Accordingly, the Company's competitors may succeed in developing competing
technologies, obtaining FDA approval or gaining market share for products more
rapidly than the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent on its ability to retain
highly qualified management and scientific personnel. Competition for such
personnel is intense and the inability to attract additional key employees or
the loss of one or more current key employees could have a material adverse
effect on the Company. There can be no assurance that the Company will be
successful in retaining requisite personnel in the future.
UNCERTAINTY OF ADDITIONAL FUNDING
The Company expects that the proceeds it received from the sale of the
Notes, together with its existing cash resources, should be sufficient to fund
its operations through 1999. Thereafter, the Company may need to seek
additional funding; however, there can be no assurance that additional
financing will be available on acceptable terms or at all. If additional funds
are raised by issuing equity securities, further dilution to then existing
stockholders may result. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its research and
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish certain rights to
certain of its technologies, product candidates or products that the Company
would not otherwise relinquish.
VOLATILITY OF NOTES AND STOCK PRICE
The market prices for securities of drug delivery companies (including
the Company's) have historically been highly volatile, and the market has from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Future
announcements concerning the Company or its competitors, including the results
of clinical trials, regulatory approvals, technological innovations or new
products, developments in patent or other proprietary rights and litigation, as
well as general market conditions, may have a significant effect on the market
price of the Securities. In addition, future trading prices of the Notes will
depend on other factors, such as prevailing interest rates, perceptions of the
Company's credit worthiness and the market for similar securities, and the
market price of the Notes may trade at a discount from their principal amount
based on such factors.
LIMITATIONS ON REPURCHASE UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control
and a Termination of Trading (each as defined herein), each holder of the Notes
("Holder") will have the right, at the Holder's option, to require the Company
to repurchase all or a portion of such Holder's Notes at a purchase price equal
to 100% of the principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, to, but excluding, the repurchase date. Future
credit agreements or other agreements relating to other indebtedness (including
other Senior Indebtedness) to which the Company becomes a party may contain
restrictions on or prohibitions of the repurchase of the Notes by the Company.
In the event a Repurchase Event occurs at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
the repurchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such consent or repay
such borrowings, the Company would remain prohibited from repurchasing Notes.
In such case, the Company's failure to repurchase the Notes would constitute an
Event of Default under the Indenture whether or not payment of the repurchase
price is permitted by the subordination provisions of the Indenture. Any such
default may, in turn, cause a default under Senior Indebtedness. Moreover, the
occurrence of a Repurchase Event in and of itself may constitute an event of
default under the Senior Indebtedness. As a result, in either case, payment of
the repurchase price of the Notes would, absent a waiver, be prohibited under
the subordination provisions of the Indenture until the Senior Indebtedness is
paid in full. Further, the ability of the Company to repurchase the Notes upon
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a Repurchase Event will be dependent on the availability of sufficient funds
and compliance with applicable securities laws. Accordingly, there can be no
assurance that the Company will be able to repurchase the Notes upon a
Repurchase Event. The term "Repurchase Event" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company or result in a downgrade of the credit
rating, if any, of the Notes, nor would the requirement that the Company offer
to repurchase the Notes upon a Repurchase Event necessarily afford the Holders
of the Notes protection in the event of a highly leveraged reorganization,
merger or similar transaction involving the Company. See "Description of Notes
- -- Certain Rights to Require Repurchase of Notes."
SUBORDINATION
The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all future Senior Indebtedness of the
Company. At September 30, 1997 the Company had less than $1 million of
indebtedness outstanding that would have constituted Senior Indebtedness. In
the event of bankruptcy, liquidation or reorganization of the Company, the
assets of the Company will be available to pay obligations on the Notes only
after the administrative expenses of the bankruptcy and all Senior
Indebtedness, if any, has been paid in full. There may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. The
holders of any indebtedness of the Company's subsidiaries will be entitled to
payment of the indebtedness from the assets of the subsidiaries prior to the
holders of any general unsecured obligations of the Company, including the
Notes. See "Description of Notes -- Subordination."
ABSENCE OF PUBLIC MARKET
The Notes were issued in November 1997 in a private placement to a
small number of institutional buyers. The Notes issued in the initial private
placement have been designated for trading on the Portal Market. Notes sold
pursuant to this Prospectus will not remain eligible for trading on the Portal
Market. The Company does not intend to list the Notes on any national
securities exchange or on The Nasdaq Stock Market. There can be no assurance
that an active trading market for the Notes will develop or, if one does
develop, that it will be maintained. If an active trading market for the Notes
fails to develop or be sustained, the trading price of such Notes could be
adversely affected, and holders of the Notes may experience difficulty in
reselling the Notes or may be unable to sell them at all. If a public trading
market develops for the Notes, future trading prices of the Notes will depend
upon many factors, including, among other things, prevailing interest rates and
the market price of the shares of Common Stock. See "Description of Notes
- -- Registration Rights; Liquidated Damages."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate
of Incorporation, Amended and Restated Bylaws and Delaware law may delay or
discourage a change of control of the Company, and, accordingly, adversely
effect the price of the Common Stock. These provisions include establishing a
classified board of directors, permitting cumulative voting in certain
circumstances, allowing the Board of Directors to issue and determine the
rights, powers and preferences of Preferred Stock (as defined herein) without
any vote or further action by the stockholders, establishing a process to
enlarge and fill vacancies on the Board of Directors and deterring certain
self-dealing transactions. These provisions may discourage certain types of
non-negotiated transactions which would result in a change of control of the
Company and are expected to encourage persons seeking to acquire control of the
Company to consult first with the Board of Directors to negotiate the terms of
any proposed business combination or offer. Under applicable Delaware law, the
Board of Directors has the ability to adopt additional anti-takeover measures
either in response to a specific threat or in furtherance of their general
fiduciary duties. The Board of Directors may, from time to time, consider the
adoption of such measures and may adopt additional anti-takeover provisions in
the future.
THE COMPANY
The Company is engaged in the research, development and
commercialization of a broad range of dental, medical and veterinary products
based on its proprietary sustained release biodegradable polymer drug delivery
system, trade- named ATRIGEL. In March 1997, the Company submitted a NDA with
the FDA for its lead product ATRIDOX, a minimally invasive subgingival
antibiotic therapy for periodontal disease employing the ATRIGEL system with
the antibiotic doxycycline. The Company filed the NDA based on the results of
pivotal Phase III trials
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involving the ATRIDOX product, which included data from 822 patients at 20
study sites across the United States. The trials demonstrated that treatment
with the ATRIDOX product was superior to placebo and oral hygiene, and
equivalent to scaling and root planing, a painful mechanical procedure that is
the current standard treatment for periodontal disease.
The Company currently markets the ATRISORB GTR Barrier, a
biodegradable film utilizing the ATRIGEL system, to aid in the guided tissue
regeneration of a tooth's support following periodontal surgery. The Company is
also developing the ATRISORB-DOXY product, a second-generation guided tissue
regeneration barrier which combines the benefits of the ATRISORB GTR Barrier
with the antibiotic doxycycline for improved clinical outcomes following
periodontal surgery. The Company expects to initiate pivotal trials of the
ATRISORB-DOXY product in the first half of 1998. In the veterinary field, the
Company has developed a product utilizing the ATRIGEL system to treat
periodontal disease in companion animals which is marketed by Heska
Corporation. A New Animal Drug Application ("NADA") was approved for this
product on November 19, 1997. The Company commercialized this product
immediately thereafter.
The Company's first three human products are designed to treat
periodontal disease. Based on published industry reports, the Company believes
there are in excess of 50 million Americans with periodontal disease, and this
number is increasing as a result of the increasing average age of the U.S.
population. Periodontal disease has no known cure and effective treatment is
currently possible only through periodic professional intervention. The most
common treatments are scaling and root planing and, in more advanced cases,
various forms of periodontal surgery. The Company believes that many
individuals do not seek treatment due to a number of factors including cost,
pain, potential medical complications associated with current therapies and
because the disease is asymptomatic in its early stages. The Company believes,
based on published industry reports, that over $6.5 billion is spent annually
on the treatment of periodontal disease.
In December 1996, the Company entered in the Block Agreement whereby
Block has acquired the exclusive North American rights to market the ATRIDOX
product, the ATRISORB GTR Barrier and the ATRISORB-DOXY product. The Block
Agreement provides for potential milestone payments to the Company totaling up
to $50 million over three to five years, as well as manufacturing margins and
royalties on sales. In addition, Block will advise, consult and may fund
various aspects of the Company's dental research and development programs. As
of September 30, 1997, the Company had received approximately $7.1 million in
milestone payments from Block.
The Company's patented ATRIGEL system is comprised of biodegradable
polymer formulations that are administered as flowable compositions (e.g.,
solutions, gels, pastes, and putties), which solidify in situ upon contact with
body fluids to form biodegradable implants. The ATRIGEL system is designed to
provide extended localized or systemic drug delivery in a single application,
without the need for surgical implantation or removal. Depending on the
intended use or the specific drug to be delivered via the ATRIGEL system, the
release and degradation rates of the system can be tailored. The Company
believes that the unique properties of the ATRIGEL system create the potential
for a wide variety of dental, medical and veterinary applications.
The Company's principal executive offices are located at 2579 Midpoint
Drive, Fort Collins, Colorado 80525 and its telephone number is (970) 482-5868.
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USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Securities
by the Selling Securityholders.
RATIO OF EARNINGS TO FIXED CHARGES
Earnings were insufficient (not taking into account the effect of
taxes) to cover fixed charges by $6.9 million, $3.7 million $1.0 million, $5.5
million, $12.7 and $11.4 million for the years ended September 30, 1992 and
1993, the three months ended December 31, 1993 and each of the years ended
December 31, 1994, 1995 and 1996, respectively, and by $7.9 million and $1.5
million for the nine-month periods ended September 30, 1996 and 1997,
respectively. For purposes of calculating the ratio of earnings to fixed
charges, earnings represent pre-tax earnings from continuing operations, plus
fixed charges, less interest capitalized. Fixed charges represent interest
(including amounts capitalized), portion of net rent expense (one third) deemed
representative of the interest factor.
SELLING SECURITYHOLDERS
The following table sets forth the name of certain of the Selling
Securityholders and (i) the amount of Notes owned by each such Selling
Securityholder as of December __, 1997 (assuming no Notes have been sold under
this Prospectus as of such date), (ii) the maximum amount of Notes which may be
offered for the account of such Selling Securityholder under this Prospectus,
(iii) the amount of Common Stock owned by each such Selling Securityholder as
of December ____, 1997, and (iv) the maximum amount of Common Stock which may
be offered for the account of such Selling Securityholder under this
Prospectus.
NAME OF SELLING SECURITYHOLDER Principal Amount of Principal Amount of Shares of Common Stock
------------------------------ ------------------- ------------------- ----------------------
Notes Owned Notes Offered Hereby Owned Prior to Offering
----------- -------------------- -----------------------
Unnamed holders of Notes or any future
transferees, pledgees, donees or
successors of or from any such unnamed
holders(3) . . . . . . . . . . . . . . . -------------- -------------
Total . . . . . . . . . . . . . . . . . .
============== ============== ======
- --------------------------
(1) Includes the shares of Common Stock into which the Notes held by such
Selling Securityholder are convertible at the initial conversion
price. The conversion price and the number of shares of Common Stock
issuable upon conversion of the Notes are subject to adjustment under
certain circumstances. See "Description of Notes -- Conversion
Rights." Accordingly, the number of shares of Common Stock issuable
upon conversion of the Notes may increase or decrease from time to
time.
(2) Assumes conversion into Common Stock of the full amount of Notes held
by such Selling Securityholder at the initial conversion price. The
conversion price and the number of shares of Common Stock issuable
upon conversion of the Notes are subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion Rights."
Accordingly, the number of shares of Common Stock issuable upon
conversion of the Notes may increase or decrease from time to time.
Fractional shares will not be issued upon conversion of the Notes;
rather, cash will be paid in lieu of fractional shares, if any.
(3) No such holder may offer Notes pursuant to this Prospectus until such
holder is included as a Selling Securityholder in a supplement to this
Prospectus in accordance with the Registration Rights Agreement (as
defined). Assumes that the unnamed holder of Notes or any future
transferees, pledgees, donees or successors of or from any such
unnamed holder do not beneficially own any Common Stock other than the
Common Stock issuable upon conversion of the Notes at the initial
conversion price.
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Because the Selling Securityholders may, pursuant to this Prospectus,
offer all or some portion of the Notes and Common Stock they presently hold or,
with respect to Common Stock, have the right to acquire upon conversion of such
Notes, no estimate can be given as to the amount of the Notes and Common Stock
that will be held by the Selling Securityholders upon termination of any such
sales. In addition, the Selling Securityholders identified above may have
sold, transferred or otherwise disposed of all or a portion of their Notes and
Common Stock since the date on which they provided the information regarding
their Notes and Common stock, in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the
Notes and Common Stock set forth opposite each such Selling Securityholder's
name in the foregoing table on the effective date of the Registration Statement
may sell such Notes and Common Stock pursuant to this Prospectus. The Company
may from time to time, in accordance with the Registration Rights Agreement (as
defined herein), include additional Selling Securityholders in supplements to
this Prospectus.
None of the Selling Securityholders listed above had any material
relationship with the Company other than as a result of ownership of the Notes,
within the three-year period ending on the date of this Prospectus.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000
shares of capital stock, of which 25,000,000 shares have been designated as
Common Stock, $.001 par value, and 5,000,000 shares have been designated as
Preferred Stock, $.001 par value ("Preferred Stock").
COMMON STOCK
As of September 30, 1997, there were 11,172,876 shares of Common Stock
outstanding and held of record by approximately 2,942 stockholders. Holders of
shares of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders of the Company. The Amended and Restated
Certificate of Incorporation of the Company (the "Certificate") provides for
cumulative voting for the election of directors on or after the date on which
the Company becomes aware that any stockholder has become the beneficial owner,
directly or indirectly, of 30% or more of the outstanding shares of capital
stock of the Company entitled to vote generally in the election of directors.
PREFERRED STOCK
Under its Certificate, the Company has authority to issue 5,000,000
shares of Preferred Stock, in one or more series as determined by the Board of
Directors. No shares of Preferred Stock are currently issued or outstanding.
The Board of Directors may, without further action by the stockholders of the
Company, issue series of Preferred Stock and fix the rights and preferences of
those shares, including the dividend rights, dividend rates, conversion rights,
exchange rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock issued by the Company in the future.
No class of the Company's stock carries with it any preemptive right
to subscribe for any securities of the Company.
PROVISIONS WHICH MAY DELAY A CHANGE OF CONTROL OF THE COMPANY
The Certificate contains certain provisions which may delay or
discourage a change of control of the Company, including provisions
establishing a classified board of directors, permitting cumulative voting in
certain circumstances, allowing the Board of Directors to issue and determine
the rights, powers and preferences of Preferred Stock without any vote or
further action by the stockholders, establishing a process to enlarge and fill
vacancies on the Board of Directors and deterring certain self-dealing
transactions. Certain of these provisions are
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designed to increase the likelihood that the Board of Directors, if presented
with a proposal for a business combination or other major transaction from a
third party that has acquired a block of the Company's stock, will have
sufficient time to review the proposal and possible alternatives to the
proposal and to act in what it believes to be in the best interests of the
stockholders. These provisions may discourage certain types of non-negotiated
transactions which would result in a change of control of the Company and are
expected to encourage persons seeking to acquire control of the Company to
consult first with the Board of Directors to negotiate the terms of any
proposed business combination or offer.
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of November 15, 1997
(the "Indenture") between the Company and State Street Bank and Trust Company
of California, N.A., as trustee (the "Trustee"). The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indenture including the definition therein of certain terms.
A copy of the form of Indenture is available from the Company or the Initial
Purchasers upon request. References in this section to the "Company" are solely
to Atrix Laboratories, Inc., a Delaware corporation, and not to its subsidiary.
GENERAL
The Notes are general, unsecured subordinated obligations of the
Company, limited to $50,000,000 in aggregate principal amount and will mature
on December 1, 2004 ("Maturity"). The Notes have an interest rate of 7% per
annum from November 15, 1997, or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semi-annually on June 1
and December 1 of each year, commencing June 1, 1998, to the Person in whose
name such Notes (or any predecessor Notes) are registered (individually, a
"Holder" and collectively, the "Holders") at the close of business on the
preceding May 15 or November 15, as the case may be (whether or not a Business
Day). Interest on the Notes will be paid on the basis of a 360-day year
consisting of twelve 30-day months.
Principal of, and premium if any, and interest on, and liquidated
damages with respect to, the Notes are payable (i) in respect of Notes held of
record by DTC or its nominee, in same day funds on or prior to the respective
payment dates and (ii) in respect of Notes held of record by Holders other than
DTC or its nominee, in same day funds, at the office or agency of the Trustee
in New York, New York, and the Notes may be surrendered for transfer, exchange
or conversion at the office or agency of the Trustee in New York, New York. In
addition, with respect to Notes held of record by holders other than DTC or its
nominee, payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto as it appears in the
Security Register for the Notes on the Regular Record Date for such interest.
The Notes were issued only in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge
will be made for any transfer or exchange of the Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to issue,
register the transfer of or exchange of any Notes during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the day of such mailing, (ii)
to register the transfer of or exchange of any Note selected for redemption in
whole or in part, except the unredeemed portion of Notes being redeemed in part
or (iii) to register the transfer or exchange of any Notes surrendered for
conversion or repurchase (and not withdrawn) upon the occurrence of a
Repurchase Event.
All monies paid by the Company to the Trustee or any Paying Agent for
the payment of principal of, and premium and interest on, any Note which remain
unclaimed for two years after such principal, premium or interest becomes due
and payable may be repaid to the Company. Thereafter, the Holder of such Note
may, as an unsecured general creditor, look only to the Company for payment
thereof.
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The Indenture does not contain any provisions that would provide
protection to Holders of the Notes against a sudden and dramatic decline in
credit quality of the Company resulting from any takeover, recapitalization or
similar restructuring, except as described below under "Certain Rights to
Require Repurchase of Notes."
CONVERSION RIGHTS
The Notes are convertible into Common Stock prior to maturity, unless
previously redeemed or repurchased, initially at the conversion price of $19.00
per share. The right to convert Notes which have been called for redemption
will terminate at the close of business on the business day preceding the
Redemption Date, unless the Company defaults on a redemption payment. See
"Optional Redemption" below. A Note for which a Holder has delivered a
Repurchase Event purchase notice exercising the option of such Holder to
require the Company to repurchase such Note may be converted only if such
notice is withdrawn by a written notice of withdrawal delivered by the Holder
to the Company prior to the close of business on the business day immediately
preceding the date fixed for repurchase.
The conversion price is subject to adjustment upon the occurrence of
any of the following events: (i) the subdivision, combination or
reclassification of outstanding shares of Common Stock; (ii) the payment of a
dividend or distribution on Common Stock exclusively in shares of Common Stock
or the payment of a dividend or distribution on any class of capital stock of
the Company in shares of Common Stock; (iii) the issuance of rights or warrants
to all holders of Common Stock entitling them to acquire shares of Common Stock
(or securities convertible into Common Stock) at a price per share less than
the Current Market Price; (iv) the distribution to holders of Common Stock of
shares of capital stock (other than Common Stock), evidences of indebtedness,
cash or assets (including securities, but excluding dividends or distributions
paid exclusively in cash and dividends, distributions, rights and warrants
referred to above); (v) the distribution to all or substantially all holders of
Common Stock of rights or warrants to subscribe for its securities (other than
those referred to in (iii) above); (vi) a distribution consisting exclusively
of cash (excluding any cash distributions referred to in (iv) above) to all
holders of Common Stock in an aggregate amount that, together with (A) all
other cash distributions (excluding any cash distributions referred to in (iv)
above) made within the 12 months preceding the date fixed for determining the
stockholders entitled to such distribution and (B) any cash and the fair market
value of other consideration payable in respect of any tender offer by the
Company or a subsidiary of the Company for the Common Stock consummated within
the 12 months preceding such date of determination, exceeds 10% of the
Company's market capitalization (being the product of the Current Market Price
times the number of shares of Common Stock then outstanding) on such date of
determination entitled to such distribution; (vii) the consummation of a tender
offer made by the Company or any subsidiary of the Company for all or any
portion of the Common Stock which involves an aggregate consideration that,
together with (X) any cash and other consideration payable in respect of any
tender offer by the Company or a subsidiary of the Company for the Common Stock
consummated within the 12 months preceding the consummation of such tender
offer and (Y) the aggregate amount of all cash distributions (excluding any
cash distributions referred to in (iv) above) to all holders of the Common
Stock within the 12 months preceding the consummation of such tender offer,
exceeds 10% of the product of the Current Market Price immediately prior to the
date of consummation of such tender offer times the number of shares of Common
Stock outstanding at the date of consummation of such tender offer; (viii)
payment in respect of a tender offer or exchange offer by a person other than
the Company or any subsidiary of the Company in which, as of the closing date
of the offer, the Board of Directors is not recommending rejection of the
offer; and (ix) the issuance of Common Stock or securities convertible into, or
exchangeable for, Common Stock at a price per share (or having a conversion or
exchange price per share) that is less than the then Current Market Price of
the Common Stock (but excluding, among other things, issuances: (a) pursuant to
any bona fide plan for the benefit of employees, directors or consultants of
the Company now or hereafter in effect; (b) to acquire all or any portion of a
business in an arm's-length transaction between the Company and an unaffiliated
third party including, if applicable, issuances upon exercise of options or
warrants assumed in connection with such an acquisition; (c) in a bona fide
public offering pursuant to a firm commitment underwriting or sales at the
market pursuant to a continuous offering stock program; (d) pursuant to the
exercise of warrants, rights (including, without limitation, earnout rights) or
options, or upon the conversion of convertible securities, which are issued and
outstanding on the date hereof, or which may be issued in the future at a fair
value and with an exercise price or conversion price at least equal to the
Current Market Price of the Common Stock at the time of issuance of such
warrant, right, option or convertible security; and (e) pursuant to a dividend
reinvestment
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plan or other plan hereafter adopted for the reinvestment of dividends or
interest provided that such Common Stock is issued at a price at least equal to
95% of the Current Market Price of the Common Stock at the time of such
issuance). The adjustment referred to in this clause (viii) will only be made
if the tender offer or exchange is for an amount which increases the offeror's
ownership of Common Stock to more than 25% of the total shares of Common Stock
outstanding, and if the cash and value of any other consideration included in
such payment per share of Common Stock exceeds the Current Market Price per
share of Common Stock on the business day next succeeding the last date on
which tenders or exchanges may be made pursuant to such tender or exchange
offer. The adjustment referred to in this clause (viii) will generally not be
made, however, if, as of the closing of the offer, the offering documents with
respect to such offer disclose a plan or an intention to cause the Company to
engage in a consolidation or merger of the Company or a sale of all or
substantially all of the Company's assets. No adjustment of the conversion
price will be required to be made until cumulative adjustments amount to at
least one percent of the conversion price, as last adjusted. Any adjustment
that would not otherwise be sufficient to require a change to be made pursuant
to the immediately preceding sentence shall be carried forward and taken into
account in any subsequent adjustment.
The Indenture provides that if the Company implements a stockholders'
rights plan, such rights plan must provide that upon conversion of the Notes
the Holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In addition to the foregoing adjustments, the Company is permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the Common Stock or, if that is
not possible, to diminish any income taxes that are otherwise payable because
of such event. See "Certain United States Federal Income Tax Considerations."
In the case of any consolidation or merger of the Company with any
other corporation (other than one in which no change is made in the Common
Stock), or any sale or transfer of all or substantially all of the assets of
the Company, the Holder of any Note then outstanding will, with certain
exceptions, have the right thereafter to convert such Note only into the kind
and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Note might have been converted immediately prior
to such consolidation, merger, sale or transfer; and adjustments will be
provided for events subsequent thereto that are as nearly equivalent as
practical to the conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon the
then Closing Price at the close of business on the day of conversion (or, if
such day is not a Trading Day, on the Trading Day immediately preceding such
day). If any Notes are surrendered for conversion during the period from the
opening of business on any Regular Record Date to the close of business on the
business day immediately preceding such Interest Payment Date (except any such
Notes called for redemption during the period from the opening of business on
any Regular Record Date to the close of business on the second business day
next succeeding the following Interest Payment Date), such Notes when
surrendered for conversion must instead be accompanied by payment of an amount
equal to the interest thereon which the registered Holder on such Regular
Record Date is to receive; provided however that the Notes or portions thereof
which have been called for redemption and the conversion rights of which
terminate during such period must be accompanied by payment of an amount equal
to the interest which would have accrued on the principal amount of the Notes
being surrendered for conversion for the period from the conversion date to
such Interest Payment Date. Except as described in the preceding sentence, no
interest will be payable by the Company on converted Notes with respect to any
Interest Payment Date subsequent to the date of conversion. No other payment or
adjustment for interest or dividends is to be made upon conversion.
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SUBORDINATION
The payment of the principal of, and premium, if any, and interest on
the Notes is, to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior Indebtedness. If there is
a payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
or provision for such payment in money or money's worth before the Holders of
the Notes will be entitled to receive any payment in respect of the principal
of, or premium, if any, or interest on the Notes. In the event of the
acceleration of the Maturity of the Notes, the holders of all Senior
Indebtedness will first be entitled to receive payment in full in cash of all
amounts due thereon or provision for such payment in money or money's worth
before the Holders of the Notes will be entitled to receive any payment for the
principal of, or premium, if any, or interest on the Notes. The Company also
may not make any payment (whether by redemption, purchase, retirement,
defeasance or otherwise) to the Holders upon or in respect of the Notes if (i)
a default in the payment of the principal of, or premium, if any, or interest
on any Designated Senior Indebtedness (a "Payment Default") occurs or (ii) any
other default occurs and is continuing with respect to any Designated Senior
Indebtedness which permits holders of Designated Senior Indebtedness as to
which that default relates to accelerate its maturity (a "Nonpayment Default")
and the Trustee receives notice of that default (a "Payment Blockage Notice")
from (a) if such Nonpayment Default shall have occurred under any debt facility
referred to in the description of "Designated Senior Indebtedness" below, the
representative of the debt facility, as the case may be, or (b) if such
Nonpayment Default shall have occurred with respect to any other issue of
Designated Senior Indebtedness, the holders, or a representative of the
holders, of at least 20% of such Designated Senior Indebtedness. The payments
on or in respect of the Notes shall be resumed (i) in the case of a Payment
Default respecting Designated Senior Indebtedness, on the date on which that
default is cured or waived or ceases to exist and (ii) in the case of a
Nonpayment Default respecting Designated Senior Indebtedness, the earliest of
(a) the date on which that Nonpayment Default is cured or waived or ceases to
exist, (b) the date the applicable Payment Blockage Notice is retracted by
written notice to the Trustee from a representative of the holders of the
Designated Senior Indebtedness which have given that Payment Blockage Notice
and (c) 179 days after the date on which the applicable Payment Blockage Notice
is received by the Trustee, unless any Payment Default has occurred and is
continuing or an Event of Default of the type referred to in clause (g) of the
first sentence under "-- Events of Default" has occurred with respect to the
Company. No Nonpayment Default which existed or was continuing on the date of
any Payment Blockage Notice may be made the basis for giving a second Payment
Blockage Notice and only one such Payment Blockage Notice with respect to a
Nonpayment Default may be given in any 365-day period.
"Senior Indebtedness" is defined in the Indenture as (a) all
indebtedness of the Company for money borrowed under the Company's credit
facilities and any predecessor or successor credit facilities thereto, whether
outstanding on the date of execution of the Indenture or thereafter created,
incurred or assumed, (b) indebtedness of the Company for money borrowed,
whether outstanding on the date of execution of the Indenture or thereafter
created, incurred or assumed, except any such other indebtedness that by the
terms of the instrument or instruments by which such indebtedness was created
or incurred expressly provides that it (i) is junior in right of payment to the
Notes or (ii) ranks pari passu in right of payment with the Notes, and (c) any
amendments, renewals, extensions, modifications, refinancings and refundings of
any of the foregoing. The term "indebtedness for money borrowed" when used with
respect to the Company is defined to mean (i) any obligation of or any
obligation guaranteed by, the Company for the repayment of borrowed money
(including, without limitation, fees, penalties and other obligations in
respect thereof), whether or not evidenced by bonds, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument and (iii) any obligation of,
or any such obligation guaranteed by, the Company for the payment of rent or
other amounts under a lease of property or assets which obligation is required
to be classified and accounted for as a capitalized lease on the balance sheet
of the Company under generally accepted accounting principles. As used in the
Indenture, "Designated Senior Indebtedness" means principal, interest,
premiums, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any indebtedness (a) under any debt
facility with banks or other lenders which provides for revolving credit loans,
term loans, receivables financing (including through the sale of receivables)
or letters of credit to the Company or any of its subsidiaries and (b) any
other Senior Indebtedness the principal
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amount of which is $5,000,000 million or more and, in each case, that has been
designated by the Company as "Designated Senior Indebtedness."
The Indenture does not limit or prohibit the incurrence of additional
indebtedness including Senior Indebtedness, by the Company or its subsidiaries.
As of September 30, 1997, the Company had less than $1,000,000 of indebtedness
outstanding which constitutes Senior Indebtedness or to which the Notes are
effectively subordinated. The Company also expects to incur Senior Indebtedness
from time to time in the future.
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or from
time to time in part, at any time on or after December 5, 2000, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Notes to be
redeemed at its address appearing in the Security Register and prior to
Maturity at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued and unpaid interest and liquidated damages, if
any, to, but excluding, the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date).
If redeemed during the 12-month period beginning December 1 (beginning
December 5, 2000 and ending November 30, 2001 in the case of the first such
period), the Redemption Price shall be:
Year Redemption Price
---- ----------------
2000 103.00%
2001 102.25
2002 101.50
2003 100.75
2004 100.00
in each case together with accrued and unpaid interest and liquidated damages,
if any, to, but excluding, the Redemption Date. No sinking fund is provided for
the Notes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company will not permit any Person to
consolidate with or merge into the Company unless: (a) the Person formed by
such consolidation or into which the Company is merged or the Person or
corporation which acquires the properties and assets of the Company
substantially as an entirety is a corporation, partnership or trust organized
and validly existing under the laws of the United States or any state thereof
or the District of Columbia and expressly assumes payment of the principal of
and premium, if any, and interest and liquidated damages, if any, on the Notes
and performance and observance of each obligation of the Company under the
Indenture; (b) after consummating such consolidation, merger, transfer or
lease, no Default or Event of Default will occur and be continuing, (c) such
consolidation, merger, conveyance, transfer or lease does not adversely affect
the validity or enforceability of the Notes and (d) the Company has delivered
to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease complies with
the provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF NOTES
In the event of any Repurchase Event occurring after the date of
issuance of the Notes and on or prior to Maturity, each Holder of Notes will
have the right, at the Holder's option, to require the Company to repurchase
all or any part of the Holder's Notes on the date (the "Repurchase Date") that
is 30 days after the date the Company gives notice of the Repurchase Event as
described below at a price (the "Repurchase Price") equal to 100% of the
principal amount thereof, together with accrued and unpaid interest and
liquidated damages, if any, to, but excluding, the Repurchase Date. On or prior
to the Repurchase Date, the Company shall deposit with the Trustee or
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a Paying Agent an amount of money in same day funds sufficient to pay the
Repurchase Price of the Notes which are to be repaid on or promptly following
the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event,
as provided for below, or to repurchase the Notes when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event,
the Company is obligated to mail to all Holders of Notes a notice of the
occurrence of such Repurchase Event and identifying the Repurchase Event, the
Repurchase Date, the date by which the repurchase right must be exercised, the
Repurchase Price for Notes (which shall equal 100% of the principal amount
thereof, together with accrued and unpaid interest and liquidated damages, if
any, but excluding, the Repurchase Date) and the procedures which the Holder
must follow to exercise this right. To exercise the repurchase right, the
Holder of a Note must deliver, on or before the close of business on the
Repurchase Date, written notice to the Company (or an agent designated by the
Company for such purpose) and to the Trustee of the Holder's exercise of such
right, together with the certificates evidencing the Notes with respect to
which the right is being exercised, duly endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a
Change in Control (as defined below) or a Termination of Trading (as defined
below).
A "Change in Control" shall occur when: (i) all or substantially all
of the Company's assets are sold as an entirety to any person or related group
of persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to
the effectiveness thereof are changed into or exchanged for the same
consideration) or (B) pursuant to which the Common Stock would be converted
into cash, securities or other property, in each case, other than a
consolidation or merger of the Company in which the holders of the Common Stock
immediately prior to the consolidation or merger have, directly or indirectly,
at least a majority of the total voting power of all classes of capital stock
entitled to vote generally in the election of directors of the continuing or
surviving corporation immediately after such consolidation or merger in
substantially the same relative proportion as their ownership of Common Stock
immediately before such transaction; (iii) any person, or any persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Exchange Act, together with any affiliates thereof, shall beneficially own (as
defined in Rule 13d-3 under the Exchange Act) at least 50% of the total voting
power of all classes of capital stock of the Company entitled to vote generally
in the election of directors of the Company; (iv) at any time during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3%
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (v) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution.
A "Termination of Trading" shall occur if the Common Stock (or other
common stock into which the Notes are then convertible) is neither listed for
trading on a U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States.
If a Repurchase Event were to occur, there can be no assurance that
the Company would have sufficient funds to repurchase the Notes tendered by the
Holders thereof. The Company's future Senior Indebtedness may provide that a
change in control of the Company would constitute an event of default
thereunder, the occurrence of which would cause any repurchase of the Notes,
absent a waiver, to be blocked by the subordination provisions of the Notes. In
addition, even if such event of default did not occur or was waived, the right
to require the Company to repurchase Notes as a result of the occurrence of a
Repurchase Event could create an event of default under Senior Indebtedness of
the Company, as a result of which any repurchase could, absent a waiver, be
blocked by the subordination provisions of the Notes. See "Subordination"
above. The Company's ability to pay cash to the Holders
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of Notes upon a Repurchase Event may be limited by certain financial covenants
contained in the Company's Senior Indebtedness. Failure by the Company to
repurchase the Notes when required will result in an Event of Default with
respect to the Notes whether or not such repurchase is permitted by the
subordination provisions thereof.
In the event a Repurchase Event occurs and the Holders exercise their
rights to require the Company to repurchase Notes, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Common Stock
or a non-negotiated tender or exchange offer for such stock and, accordingly,
may limit a stockholder's ability to realize a premium over the market price of
the Common Stock in connection with any such transaction.
RULE 144A INFORMATION REQUIREMENT
The Company has agreed to furnish to the Holders or beneficial holders
of the Notes and prospective purchasers of the Notes designated by the holders
of the Notes, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act until such time as the
Company registers the Notes and the underlying Common Stock for resale under
the Securities Act. In addition, the Company has agreed to furnish such
information if at any time while the Notes or the Common Stock issuable upon
conversion of the Notes are restricted securities within the meaning of the
Securities Act or the Company is not subject to the informational requirements
of the Exchange Act.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect
to the Notes: (a) default in the payment of the principal of, or the premium,
if any, on any Note when due (even if such payment is prohibited by the
subordination provisions of the Indenture); (b) default in the payment of any
interest and liquidated damages, if any, on any Note when due, which default
continues for 30 days (even if such payment is prohibited by the subordination
provisions of the Indenture); (c) failure to provide timely notice of a
Repurchase Event as required by the Indenture; (d) default in the payment of
the Repurchase Price in respect of any Note on the Repurchase Date therefor
(even if such payment is prohibited by the subordination provisions of the
Indenture); (e) default in the performance, or breach, of any other covenant or
warranty of the Company in the Indenture which continues for 60 days after
written notice as provided in the Indenture; (f) default under one or more
bonds, notes or other evidences of indebtedness for money borrowed by the
Company or any subsidiary of the Company or under one or more mortgages,
indentures or instruments under which there may be issued or by which there may
be secured or evidenced any indebtedness for money borrowed by the Company or
any subsidiary of the Company, whether such indebtedness now exists or shall
hereafter be created, which default individually or in the aggregate shall
constitute a failure to pay the principal of indebtedness in excess of
$5,000,000 when due and payable after the expiration of any applicable grace
period with respect thereto or shall have resulted in indebtedness in excess of
$5,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after there shall have been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Notes a written notice specifying
such default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled; and (g)
certain events in bankruptcy, insolvency or reorganization of the Company or
any subsidiary of the Company.
If an Event of Default with respect to the Notes (other than as
specified in clause (g) in the immediately preceding paragraph with respect to
the Company) shall occur and be continuing, the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Outstanding Notes may
declare the principal of, and premium, if any, on all such Notes to be due and
payable immediately, but if the Company cures all Events of Default and has
paid or deposited with the Trustee a sum sufficient to pay all interest on,
premium, if any, and principal of Notes
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then due and certain other conditions are met, such declaration may be canceled
and past defaults may be waived by the holders of a majority in principal
amount of Outstanding Notes. If an Event of Default shall occur as a result of
an event of bankruptcy, insolvency or reorganization of the Company, the
principal of, premium, if any, and any accrued and unpaid interest on, the
Notes shall automatically become due and payable. The Company is required to
furnish to the Trustee annually a statement as to the performance by the
Company of certain of its obligations under the Indenture and as to any default
in such performance. The Indenture provides that the Trustee may withhold
notice to the Holders of the Notes of any continuing default (except in the
payment of the principal of, or premium, if any, or interest on any Notes) if
the Trustee considers it in the interest of Holders of the Notes to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of Outstanding Notes; provided, however, that no
such modification or amendment may without consent of the Holder of each
Outstanding Note affected thereby (i) change the maturity of the principal of,
or any installment of interest on, any Note; (ii) reduce the principal amount
of, or the premium or interest on, any Note; (iii) change the place of payment
where, or currency in which, any Note or any premium or interest thereof is
payable; (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note; (v) adversely affect the right to
convert the Notes; (vi) adversely affect the right to cause the Company to
repurchase the Notes; (vii) modify the subordination provisions in a manner
adverse to the Holders of the Notes; (viii) reduce the above stated percentage
of aggregate principal amount of outstanding Notes necessary for waiver or
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
The Indenture may also be modified or amended without the consent of
the Holders: (i) to cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended; (ii) to evidence the succession of another
Person to the Company as otherwise permitted by the Indenture; (iii) to add to
the covenants of the Company for the benefit of the Holders of the Notes or to
surrender any power conferred upon the Company; (iv) to add any Events of
Default; (v) to permit or facilitate the issuance of securities in
uncertificated form; (vi) to secure the Notes; (vii) to make provision with
respect to the conversion rights of Holders pursuant to Section 1311 of the
Indenture or the repurchase rights of Holders pursuant to Section 1407 of the
Indenture; (viii) to provide for successor additional trustees; or (ix) to cure
any ambiguity, to correct or supplement any provision which may be inconsistent
with any other provision or to make any other provisions with respect to
matters or questions arising under the Indenture; provided such action shall
not adversely affect the interest of Holders of Notes in any material respect
and the Trustee may rely upon the opinion of counsel to that effect.
The Holders of a majority in aggregate principal amount of Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of a majority in aggregate principal amount of
Outstanding Notes may waive any past default or right under the Indenture,
except (i) a default in payment of principal, premium or interest, (ii) the
right of a Holder to redeem or convert the Note, or (iii) with respect to any
covenant or provision of the Indenture that requires the consent of the Holder
of each outstanding Note affected.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture, other
than its obligation to pay the principal of and interest on the Notes and
certain other obligations (including its obligation to deliver shares of Common
Stock upon conversion of the Notes), while Notes remain Outstanding if (a) all
Outstanding Notes have become due and payable or will become due and payable at
their scheduled maturity within one year, or (b) all Outstanding Notes are
scheduled for redemption within one year or are delivered to the Trustee for
conversion in accordance with the Indenture, and in either case the Company has
irrevocably deposited with the Trustee an amount sufficient to pay and
discharge all Outstanding Notes on the date of their scheduled maturity or the
scheduled date of redemption.
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PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Notes
(including principal, premium, if any, and interest) held of record by DTC
(including Notes evidenced by the Global Notes) be made in same day funds.
Payments in respect of the Notes held of record by holders other than DTC may,
at the option of the Company, be made by check and mailed to such holders of
record as shown on the register for the Notes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Under the terms of a Registration Rights Agreement between the Company
and the Initial Purchasers, the Company is permitted to prohibit offers and
sales of Transfer Restricted Securities pursuant to the Registration
Statement, of which this Prospectus is a part, under certain circumstances and
subject to certain conditions (any period during which offers and sales are
prohibited being referred to as a "Suspension Period"). "Transfer Restricted
Securities" means each Note and any underlying share of Common Stock until the
date on which such Note or underlying share of Common Stock has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement, the date on which such Note or underlying
share of Common Stock is distributed to the public pursuant to Rule 144 under
the Securities Act or the date on which such Note or share of Common Stock may
be sold or transferred pursuant to Rule 144(k) (or any similar provisions then
in force).
If the Registration Statement ceases to be effective (without being
succeeded immediately by an additional registration statement filed and
declared effective) or useable for the offer and sale of Transfer Restricted
Securities for a period of time (including any Suspension Period) which shall
exceed 60 days in the aggregate in any 12-month period "Registration Default"),
the Company will pay liquidated damages to each Holder of Transfer Restricted
Securities. The amount of liquidated damages payable during any period during
which a Registration Default shall have occurred and be continuing is that
amount which is equal to one-quarter of one percent (25 basis points) per annum
per $1,000 principal amount and, if applicable, on an equivalent basis per
share of Common Stock (subject to adjustment in the event of stock splits,
stock recombinations, stock dividends and the like) constituting Transfer
Restricted Securities for each 90-day period until the Registration Statement
again becomes effective or useable up to a maximum amount of liquidated damages
of one and one-quarter percent (125 basis points) per annum per $1,000
principal amount of Notes and, if applicable, on an equivalent basis per share
of Common Stock (subject to adjustment as set forth above) constituting
Transfer Restricted Securities. All accrued liquidated damages shall be paid to
Record Holders by wire transfer of immediately available funds or by federal
funds check by the Company on each Damages Payment Date (as defined in the
Registration Rights Agreement). Following the cure of all Registration
Defaults, liquidated damages will cease to accrue with respect to such
Registration Default.
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The Company has agreed to cause the Registration Statement to be
effective for a period of two years from the effective date thereof or such
shorter period that will terminate when each of the Transfer Restricted
Securities covered by the Shelf Registration Statement ceases to be a Transfer
Restricted Security.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the provisions of the Registration Rights
Agreement. Copies of the Registration Rights Agreement are available from the
Company or the Initial Purchasers upon request.
GOVERNING LAW
The Indenture and, except as may otherwise be required by mandatory
provisions of law, the Notes are governed by and construed in accordance with
the laws of the State of New York, without giving effect to such state's
conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., is the
Trustee under the Indenture. The Company and its subsidiaries may maintain
deposit accounts and conduct other banking transactions with the Trustee in the
ordinary course of business.
In case an Event of Default shall occur (and shall not be cured or
waived in a timely manner), the Trustee is required to use the degree of care
of a prudent person in the conduct of his own affairs in the exercise of its
powers. Subject to such provisions, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the Holders of Notes, unless they shall have offered to the Trustee
reasonable security or indemnity.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain material United
States federal income tax consequences to holders of the Notes and Common Stock
into which the Notes may be converted. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service ("IRS") rulings, and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations. There can be no assurance that the IRS will not
successfully challenge one or more of the tax consequences described herein,
and the Company has not obtained, nor does it intend to obtain, a ruling from
the IRS with respect to the U.S. federal income tax consequences of acquiring
or holding Notes or Common Stock.
This discussion does not deal with all aspects of United States
federal income taxation that may be important to holders of the Notes or shares
of Common Stock and does not deal with tax consequences arising under the laws
of any foreign, state or local jurisdiction. This discussion is for general
information only, and does not purport to address all tax consequences that may
be important to a particular holder in light of their personal circumstances
(such as holders subject to the alternative minimum tax provisions of the
Code), or to certain types of
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purchasers (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities or persons who hold the Notes or
Common Stock in connection with a straddle) that may be subject to special
rules. This discussion is limited to original purchasers of Notes who acquire
the Notes at their original issue price within the meaning of Section 1273 of
the Code, and who hold the Notes and the shares of Common Stock received upon
conversion thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
holder who is not a United States person. The term "United States person" or
"U.S. Holder" means a citizen or resident (as defined in Section 7701(a) of the
Code) of the United States, a corporation or partnership created or organized
in the United States or any state thereof, an estate, the income of which is
subject to U.S. federal income tax regardless of its source and, in general, a
trust, if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE NOTES
Interest on Notes. Interest paid on the Notes generally is taxable to
a holder as ordinary interest income at the time such interest is paid or
accrued, in accordance with the holder's method of tax accounting. The Notes
were not issued with original issue discount ("OID") within the meaning of the
Code. There are several circumstances under which the Company could make a
payment on a Note which would affect the yield to maturity of a Note, including
(as described under "Description of Notes") the payment of liquidated damages
pursuant to a failure to register the Notes, the redemption of a Note by the
Company, or the repurchase of a Note at the option of a Holder upon a
Repurchase Event. According to Treasury Regulations, the possibility of a
change in the interest rate will not affect the amount of interest income
recognized by a holder (or the timing of such recognition) if the likelihood of
the change, as of the date the debt obligations are issued, is remote. The
Company intends to report on the basis that the likelihood of a change in the
interest rate on the Notes is remote and does not intend to treat the
possibility of a change in the interest rate as affecting the yield to maturity
of any Note. Correspondingly, the Company intends to take the position that the
liquidated damages, if and when paid, will be taxable to a U.S. Holder as
ordinary income in accordance with such Holder's method of tax accounting. The
IRS, however, may take a different position, which could affect both a U.S.
Holder's income and the timing of the Company's deduction with respect to such
liquidated damages.
Constructive Dividend. Certain corporate transactions, such as
distributions of assets to holders of Common Stock may cause a deemed
distribution to the holders of the Notes if the conversion price or conversion
ratio of the Notes is adjusted to reflect such corporation transaction. Such
deemed distributions will be taxable as a dividend, return of capital, or
capital gain in accordance with the earnings and profits rules discussed under
"-- Distribution on Shares of Common Stock."
Sale or Exchange of Notes or Shares of Common Stock. In general, a
U.S. Holder of Notes will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of the Notes measured by the
difference between the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest
not previously included in income) and the holder's adjusted tax basis in the
Notes. A U.S. Holder's tax basis in Notes generally will equal the cost of the
Notes to the holder increased by the amount of market discount, if any,
previously taken in income by the holder or decreased by any bond premium
theretofore amortized by the holder with respect to the Notes and any payments
other than interest made on the Notes. (For the basis and holding period of
shares of Common Stock, see "-- Conversion of Notes.") In general, each U.S.
Holder of Common Stock into which the Notes have been converted will recognize
gain or loss upon the sale, exchange, redemption, or other disposition of the
Common Stock under rules similar to those applicable to the Notes. Special
rules may apply to redemptions of the Common Stock which may result in the
amount paid being
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treated as a dividend. Subject to the market discount rules discussed below,
the gain or loss on the disposition of the Notes or shares of Common Stock will
be capital gain or loss and will be long-term capital gain or loss if the Notes
or shares of Common Stock have been held for more than one year at the time of
such disposition. On August 5, 1997, legislation was enacted which, among other
things, reduces to 20% the maximum rate of tax on long-term capital gains on
most capital assets held by an individual for more than 18 months and under
which, gain on most capital assets held by an individual more than one year and
up to 18 months is subject to tax at a maximum rate of 28%. Holders are urged
to consult their own tax advisors regarding the legislation.
U.S. Holders should be aware that the resale of the Notes may be
affected by the "market discount" rules of the Code under which a purchaser of
a Note acquiring the Note at a market discount generally would be required to
include as ordinary income a portion of the gain realized upon the disposition
or retirement of such Note, to the extent of the market discount that has
accrued but has not been included in income while the debt instrument was held
by such purchaser.
Conversion of Notes. A U.S. Holder of Notes will not recognize gain or
loss on the conversion of Notes into shares of Common Stock except to the
extent the Common Stock is considered attributable to accrued interest not
previously included in income (which is taxable as ordinary income) or with
respect to cash received in lieu of a fractional share of Common Stock. The
U.S. Holder's tax basis in the shares of Common Stock received upon conversion
of the Notes will be equal to the holder's aggregate basis in the Notes
exchanged therefor (less any portion thereof allocable to cash received in lieu
of a fractional share). The holding period of the shares of Common Stock
received by the U.S. Holder upon conversion of Notes will generally include the
period during which the holder held the Notes prior to the conversion.
Cash received in lieu of a factional share of Common Stock should be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional shares generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional shares.
Distribution on Shares of Common Stock. Distributions, if any, on
shares of Common Stock will constitute dividends for United States federal
income tax purposes to the extent of current or accumulated earnings and
profits of the Company as determined under United States federal income tax
principles. Dividends paid to holders that are United States corporations may
qualify for the dividends-received deduction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO NON-U.S. HOLDERS
Interest on Notes. Generally, interest paid on the Notes to a Non-U.S.
Holder will not be subject to United States federal income tax pursuant to the
"portfolio interest exemption" if: (i) such interest is not effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Holder; (ii) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all classes of
stock of the Company entitled to vote; (iii) the Non-U.S. Holder is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; (iv) the Non-U.S. Holder is not a bank
extending credit pursuant to a loan agreement entered into in the normal course
of business; and (v) the beneficial owner, under penalties of perjury,
certifies that the beneficial owner is not a United States person and provides
the beneficial owner's name and address. The information required under clause
(v) above may be provided by a securities clearing organization, a bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business. For purposes of clause (ii) above, a Non-U.S.
Holder of Notes is deemed to own the Common Stock into which such Notes may be
converted. A Non-U.S. Holder that is not exempt from tax under these rules
generally will be subject to United States federal income tax withholding at a
rate of 30% (or lower applicable treaty rate). Interest effectively connected
with the conduct of a trade or business in the United States by such Non-U.S.
Holder will be subject to the United States federal income tax on net income
that applies to United States persons generally (and, with respect to corporate
holders under certain circumstances, may also be subject to the branch profits
tax). Non-U.S. Holders should consult applicable income tax treaties, which may
provide different rules. To claim the benefit of a tax treaty or to claim the
exemption from withholding for effectively connected income, a Non-U.S. Holder
must provide a properly executed Form 1001 or 4224, as applicable, prior to
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the payment of interest. Under recently issued Treasury Regulations, these
forms will be replaced after 1998 by Form W-8, subject to certain transition
rules. Special rules are provided in the Treasury Regulations for payments
through qualified intermediaries.
Sales or Exchange of Notes of Shares of Common Stock. A Non-U.S.
Holder generally will not be subject to United States federal income tax on
gain recognized upon the sale or other disposition of the Notes or shares of
Common Stock unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder, (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual, such holder is
present in the United States for 183 or more days in the taxable year of the
sale or disposition and either has a "tax home" (as defined for United States
federal income tax purposes) in the United States or an office or other fixed
place of business in the United States to which the sale or disposition is
attributable, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates, or
(iv) in the case of the disposition of Common Stock, the Company is a United
States real property holding corporation.
The Company believes that it has not been, and does not expect to
become, a United States real property holding corporation. Non-U.S. Holders
should consult applicable income tax treaties, which may provide different
rules.
Conversion of Notes. A Non-U.S. Holder generally will not be subject
to United States federal income tax on the conversion of Notes into shares of
Common Stock. To the extent a Non-U.S. Holder receives cash in lieu of a
fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described above with respect to the sale or exchange of a
Note or Common Stock. Cash or Common Stock treated or issued for accrued
interest will be treated as interest under the rules described above.
Distribution on Shares of Common Stock. Generally, any distribution on
shares of Common Stock to a Non-U.S. Holder will be subject to United States
federal income tax withholding at a rate of 30% unless the dividend is
effectively connected with the conduct of trade or business within the United
States by the Non-U.S. Holder, in which case the dividend will be subject to
the United States federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders, and under
certain circumstances, the branch profits tax). Non-U.S. Holders should
consult any applicable income tax treaties, which may provide for a lower rate
of withholding or other rules different from those described above. Currently,
dividends paid to an address in a foreign country generally are presumed
(absent actual knowledge to the contrary) to be paid to a resident of such
country for purposes of the withholding rules and for determining the
applicability of a tax treaty rate. Under recently issued Treasury Regulations,
effective after 1998, a Non-U.S. Holder may be required to satisfy certain
certification requirements in order to claim a reduction or of exemption from
withholding under the foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting will apply to payments of interest
or dividends on or the proceeds of the sale or other disposition of the Notes
or shares of Common Stock made by the Company with respect to certain
noncorporate U.S. Holders, and backup withholding at a rate of 31% may apply
unless the recipient of such payment supplies a taxpayer identification number,
certified under penalties of perjury, as well as certain other information, or
otherwise establishes, in the manner prescribed by law, an exemption from
backup withholding. The Company may nevertheless institute backup withholding
with respect to a holder for payments made on the Notes if instructed to do so
by the IRS. Any amount withheld under backup withholding is allowable as a
credit against the U.S. Holder's federal income tax, providing that the
required information is provided to the IRS.
Non-U.S. Holders. The Company must report annually to the IRS and to
each Non-U.S. Holder any interest or dividend that is subject to withholding,
or that is exempt from U.S. withholding tax pursuant to a tax treaty, or
interest that is exempt from U.S. tax under the portfolio interest exemption.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
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Currently, backup withholding and information reporting will not apply
to payments of principal on the Notes by the Company to a Non-U.S. Holder if
the holder certifies as to its Non-U.S. Person status under penalties of
perjury or otherwise establishes an exemption (provided that neither the
Company nor its Paying Agent has actual knowledge that the holder is a U.S.
Person or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds on the disposition of Note or shares of
Common Stock to or through the United States office of a United States or
foreign broker will be subject to information reporting and backup withholding
unless the owner provides the certification described above or otherwise
establishes an exemption. The proceeds of the disposition by a Non-U.S. Holder
of Notes or shares of Common Stock to or through a foreign office of a broker
will not be subject to backup withholding. However, if such broker is a U.S.
Person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a United States
trade or business, information reporting requirements will apply unless such
broker has documentary evidence in its files of the owner's Non-U.S. Holder
status and has no actual knowledge to the contrary or unless the owner
otherwise establishes an exemption. Both backup withholding and information
reporting will apply to the proceeds from such dispositions if the broker has
actual knowledge that the payee is a U.S. Holder.
DEDUCTIBILITY OF INTEREST TO THE COMPANY
Under recent tax legislation, interest on debt "payable in equity" of
the issuer or certain related parties is not deductible to the issuer. For this
purpose, debt payable in equity includes (i) an obligation which is part of an
arrangement designed to result in payment of the obligation with or by
reference to equity of the issuer or certain related parties as well as (ii)
certain obligations convertible at the option of the holder where the holder is
substantially certain to convert. Legislative history provides, among other
things, that the new legislation is not expected to affect convertible debt
with a conversion price significantly higher than the market price for the
stock to be received upon conversion on the date of issuance of the debt.
Because the conversion price for the Common Stock to be received upon
conversion of the Notes will exceed the market price for the Common Stock on
the date of issuance of the Notes, the Company intends to take the position
that the interest on the Notes is deductible to the Company. However, if the
interest deduction is disallowed pursuant to the new legislation, the
disallowance is not expected to materially impact the Company because of its
substantial net operating losses (as discussed under "Management's Discussion
and Analysis of Financial Condition and Results of Operations").
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISER WITH RESPECT TO THE TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF A NOTE AND OF
COMMON STOCK INTO WHICH A NOTE MAY BE CONVERTED (INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement, a Registration
Statement, of which this Prospectus forms a part was filed with the Commission
covering the resale of the Securities. The Company has agreed to use all
reasonable efforts to keep the Registration Statement effective until two years
from the date of this Prospectus (or such earlier date when the holders of the
Securities are able to sell all such Securities immediately without restriction
pursuant to Rule 144(k) under the Securities Act of 1933 or any successor rule
thereto or otherwise). The Company will be permitted to suspend the use of
this Prospectus (which is a part of the Registration Statement) in connection
with sales of Securities by holders during certain period of time under certain
circumstances set forth in the Registration Rights Agreement. The specific
provisions relating to the registration rights described above are contained in
the Registration Rights Agreement, and the foregoing summary is qualified in
its entirety by reference to the provisions of such agreement.
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Sales of the Securities may be effected by or for the account of the
Selling Securityholders from time to time in transactions (which may include
block transactions in the case of the Conversion Shares) on any exchange or
market on which such Securities are listed or quoted, as applicable, in
negotiated transactions, through a combination of such methods of sale, or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to prevailing market price, or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling the Notes or the Conversion Shares directly to purchasers, through
broker-dealers acting as agents for the Selling Securityholders, or to
broker-dealers who may purchase Securities as principals and thereafter sell
the Notes or Conversion Shares from time to time in transactions (which may
include block transactions in the case of the Conversion Shares) on any
exchange or market on which Securities are listed or quoted, as applicable, in
negotiated transactions, through a combination of such methods of sale or
otherwise. In effecting sales, broker-dealers engaged by Selling
Securityholders may arrange for other broker-dealers to participate. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Notes or Conversion Shares for whom such broker-dealers may
act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions).
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution Notes or Conversion Shares may be deemed to be "underwriters"
within the meaning of the Securities Act. Any commissions paid or any
discounts or concessions allowed to any such persons, and any profits received
on the resale of the Notes or Conversion Shares offered hereby and purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act of 1933.
In addition, any Notes or Conversion Shares covered by this Prospectus
which qualify for sale pursuant to Rule 144 or Rule 144A under the Securities
Act may be sold under Rule 144 or Rule 144A rather than pursuant to this
Prospectus. There is no assurance that any Selling Securityholder will sell
any Notes or Conversion Shares described herein, and any Selling Securityholder
may transfer, devise or gift the Notes or Conversion Shares by other means not
described herein.
At the time a particular offering of the Notes and/or the Conversion
Shares is made and to the extent required, the aggregate principal amount of
Notes and number of Conversion Shares being offered, the name or names of the
Selling Securityholders and the terms of the offering, including the name or
names of any underwriters, broker-dealers or agents, any discounts, concessions
or commissions and other terms constituting compensation from the Selling
Securityholders, and any discounts, concessions or commissions allowed or
reallowed or paid to broker-dealers, will be set forth in an accompanying
Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed
to bear all expenses (other than selling commissions) in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders, estimated to be approximately $45,750. The Company has
agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Securities Act.
To comply with the securities laws of certain jurisdictions, if
applicable, the Notes and Conversion Shares offered hereby will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states the Securities may not be sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualifications requirement is available and
is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Notes or the Conversion Shares may be
limited in its ability to engage in market activities with respect to the Notes
or the Conversion Shares. In addition and without limiting the foregoing, each
Selling Securityholder will be subject to applicable provision of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Notes and Conversion Shares by the
Selling Securityholders. The foregoing may affect the marketability of the
Notes and the Conversion Shares.
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LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby
will be passed upon for the Company by Morrison & Foerster LLP, Denver,
Colorado.
EXPERTS
The financial statements and the related financial statement schedules
incorporated into this Prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING,
OTHER THAN THOSE MADE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE 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 WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . 3
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE . . . . . . . . 3
ADDITIONAL INFORMATION . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . 4
THE COMPANY . . . . . . . . . . . . . . 11
USE OF PROCEEDS . . . . . . . . . . . . . 13
SELLING STOCKHOLDERS . . . . . . . . . . 13
DESCRIPTION OF CAPITAL STOCK . . . . . . 14
DESCRIPTION OF NOTES . . . . . . . . . . 15
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES . . . . . . . 24
PLAN OF DISTRIBUTION . . . . . . . . . . 28
LEGAL MATTERS . . . . . . . . . . . . . . 30
EXPERTS . . . . . . . . . . . . . . . . . 30
================================================================================
================================================================================
$50,000,000
ATRIX LABORATORIES, INC.
7% CONVERTIBLE SUBORDINATED NOTES DUE 2004
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
---------------
PROSPECTUS
JANUARY __, 1998
================================================================================
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant,
in connection with the sale of securities being registered.
Payable by the
Registrant
----------
SEC registration fee . . . . . . . . . . . . . . . . . $ 14,750
Nasdaq National Market listing fee 17,500
Accounting fees and expenses . . . . . . . . . . . . . 2,000
Legal fees and expenses . . . . . . . . . . . . . . . . 10,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 1,500
Total . . . . . . . . . . . . . . . . . . . . . . $ 45,750
The foregoing items, except for the SEC registration fee, are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides generally
and in pertinent part that a Delaware corporation may indemnify its directors
and officers against expenses, judgments, fines and settlements actually and
reasonably incurred by them in connection with any civil suit or action, except
actions by or in the right of the corporation, or any administrative or
investigative proceeding if, in connection with the matters in issue, they
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation, and in connection with any
criminal suit or proceeding, if in connection with the matters in issue, they
had no reasonable cause to believe their conduct was unlawful. Section 145
further provides that in connection with the defense or settlement of any
action by or in the right of the corporation, a Delaware corporation may
indemnify its directors and officers against expenses actually and reasonably
believed to be in, or not opposed to, the best interests of the corporation.
Section 145 permits a Delaware corporation to grant its directors and officers
additional rights of indemnification through bylaw provisions and otherwise and
to purchase indemnity insurance on behalf of its directors and officers.
Article Ten, Section 2 of the Amended and Restated Certificate of
Incorporation of the Registrant requires the Registrant to indemnify, to the
fullest extent permitted by Section 145 of the Delaware General Corporation
Law, all directors and officers of the Registrant, which it has the power to
indemnify, from and against any and all expenses, liabilities or other matters
referred to in Section 145.
The Registrant's Amended and Restated Certificate of Incorporation
also provides in Article Ten, Section 1 that directors shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of a
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
Article Ten, Section 10.1 of the Registrant's By-laws provides, in
general, that the Registrant shall indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law.
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The Registrant maintains liability insurance coverage for its directors and
officers.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
4.1(1) Indenture, dated as of November 15, 1997, by and among Atrix
Laboratories, Inc. and State Street Bank and Trust Company of
California, N.A., as trustee thereunder.
4.2 Form of Note (included in Indenture, see Exhibit 4.1).
4.3(1) Registration Rights Agreement, dated as of November 15, 1997,
by and among Atrix Laboratories, Inc. and NationsBanc
Montgomery Securities, Inc. and SBC Warburg Dillon Read Inc.
5.1(2) Opinion of Morrison & Foerster, LLP as to the legality of the
Securities being registered.
12.1* Statement Regarding computation of Ratio of Earnings to Fixed
Charges.
23.1(2) Consent of Morrison & Foerster, LLP (see Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included in the signature page).
25.* Statement of Eligibility Under Trust Indenture Act of 1939 of
State Street Bank and Trust Company of California, N.A., as
Trustee, on Form T-1.
- ----------------
* Filed herewith.
(1) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated November 6, 1997, and incorporated herein by reference.
(2) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities
offered (if the total dollar value of securities offered would not
exceed what was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
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Provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the undersigned pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Collins, Colorado
on December 23, 1997.
ATRIX LABORATORIES, INC.
By: /s/ John E. Urheim
----------------------------------
John E. Urheim, Chief Executive
Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John E. Urheim, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to this Registration Statement on Form S-3 and file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, to all intents and purposes and as full as they might or could do in
person, hereby ratifying and confirming all that such attorney-in-fact and
agent, or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David R. Bethume Director December 23, 1997
- --------------------------
David R. Bethume
/s/ H. Stuart Campbell Director December 23, 1997
- --------------------------
H. Stuart Campbell
/s/ Dr. D. Walter Cohen Director December 23, 1997
- --------------------------
Dr. D. Walter Cohen
Director December , 1997
- --------------------------
Dr. Jere E. Goyan
/s/ Dr. R. Bruce Merrifield Director December 23, 1997
- --------------------------
Dr. R. Bruce Merrifield
/s/ C. Rodney O'Connor Director December 23, 1997
- --------------------------
C. Rodney O'Connor
/s/ William C. O'Neil, Jr. Chairman of the Board December 23, 1997
- --------------------------
William C. O'Neil, Jr.
/s/ Brian G. Richmond Vice President, December 23, 1997
- -------------------------- Finance and Assistant Secretary
Brian G. Richmond
/s/ Dr. G. Lee Southard President, Chief December 23, 1997
- -------------------------- Scientific Officer and Director
Dr. G. Lee Southard
/s/ John E. Urheim Vice Chairman, December 23, 1997
- -------------------------- Chief Executive Officer
John E. Urheim and Director
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EXHIBIT INDEX
4.1(1) Indenture, dated November 15, 1997, by and among Atrix Laboratories, Inc. and State Street Bank and
Trust Company of California, N.A., as trustee thereunder.
4.2 Form of Note (included in Indenture, see Exhibit 4.1).
4.3(1) Registration Rights Agreement, dated as of November 15, 1997, by and among Atrix Laboratories, Inc. and
NationsBanc Montgomery Securities, Inc. and SBC Warburg Dillon Read Inc.
5.1(2) Opinion of Morrison & Foerster, LLP as to the legality of the Securities being registered.
12.1* Statement Regarding computation of Ratio of Earnings to Fixed Charges.
23.1(2) Consent of Morrison & Foerster, LLP (see Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included in the signature page).
25.* Statement of Eligibility Under Trust Indenture Act of 1939 of State Street Bank and
Trust Company of California, N.A., as Trustee, on Form T-1.
- ---------------
* Filed herewith.
(1) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated November 6, 1997, and incorporated herein by reference.
(2) To be filed by amendment.