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FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-43191
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0402207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 MIDPOINT DRIVE, FORT COLLINS, COLORADO 80525. (970) 482-5868
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
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BRIAN G. RICHMOND
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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. [ ]
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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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 December 31, 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 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 January 30, 1998, the last reported sale price of the
Common Stock was $12.75 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 February , 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, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
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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(R). In March 1997, the Company submitted a NDA with the FDA
for its lead product ATRIDOX(TM) , a minimally invasive subgingival antibiotic
therapy for periodontal disease employing the ATRIGEL(R) system with the
antibiotic doxycycline. The Company filed the NDA based on the results of
pivotal Phase III trials involving the ATRIDOX(TM) product, which included data
from 822 patients at 20 study sites across the United States. The trials
demonstrated that treatment with the ATRIDOX(TM) 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(R) GTR Barrier, a biodegradable
film utilizing the ATRIGEL(R)system, to aid in the guided tissue regeneration of
a tooth's support following periodontal surgery. The Company is also developing
the ATRISORB-DOXY(TM) product, a second-generation guided tissue regeneration
barrier which combines the benefits of the ATRISORB(R) GTR Barrier with the
antibiotic doxycycline for improved clinical outcomes following periodontal
surgery. The Company expects to initiate pivotal trials of the ATRISORB-DOXY(TM)
product in the first half of 1998. In the veterinary field, the Company has
developed a product utilizing the ATRIGEL(R) 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(TM)
product, the ATRISORB(R) GTR Barrier and the ATRISORB-DOXY(TM) 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(R) 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(R) 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(R) system, the release
and degradation rates of the system can be tailored. The Company believes that
the unique properties of the ATRIGEL(R) 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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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(TM) 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.
EARLY STAGE OF DEVELOPMENT
The Company has commenced commercial sales of only one product, the
ATRISORB(R) 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(TM) 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 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(TM) 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.
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DEPENDENCE ON RELATIONSHIP WITH BLOCK
The ability to commercialize the ATRIDOX(TM) 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(TM) 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(R) GTR Barrier,
the ATRIDOX(TM) product and the ATRISORB-DOXY(TM) 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(TM) product, the
ATRISORB(R) GTR Barrier or the ATRISORB-DOXY(TM) product could materially
adversely affect the Company.
DEPENDENCE ON THE ATRIDOX(TM) Product
The Company is dependent on its ability to obtain regulatory approval of
the ATRIDOX(TM) 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(TM) 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(TM) 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
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
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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(TM) product a minimally invasive subgingival antibiotic therapy for
periodontal disease employing the ATRIGEL(R) 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(TM) 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(TM) 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(R) 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(R) 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(R) system,
upon which the ATRISORB(R) GTR Barrier, the ATRIDOX(TM) 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 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.
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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(R) 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(R) 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(R) 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(R) 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(R) GTR Barrier, the ATRIDOX(TM) product, the
ATRISORB-DOXY(TM) 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(R) GTR Barrier on a commercial scale. There can be no
assurances that the Company will be able to manufacture the
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ATRISORB(R) 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(TM) 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(R)-GTR Barrier, the ATRIDOX(TM) product and the ATRISORB-DOXY(TM)
product in North America. In September 1997, Block elected not to exercise its
option to obtain the rights to market the ATRIDOX(TM) 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(R) GTR Barrier, the
ATRISORB-DOXY(TM) product and the ATRIDOX(TM) product in Europe. In order to
market successfully the ATRISORB(R) 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(R) 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(TM) 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(R) 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(R) 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 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
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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(R) GTR Barrier and expects to rely in varying
degrees on contract manufacturers for the ATRIDOX(TM) 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(TM) 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(TM) product and the
ATRISORB-DOXY(TM) product, if approved by the FDA.
ACCESS TO PHARMACEUTICAL COMPOUNDS
The Company's ability to successfully commercialize its ATRIGEL(R) 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(R) 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(R) 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(TM) 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(R) GTR Barrier and the potential ATRIDOX(TM) 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 could enhance competitors' financial, marketing and
other resources. Accordingly, the Company's competitors may
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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 a
Repurchase Event will be dependent on the availability of sufficient funds and
compliance with applicable
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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 December
31, 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.
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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 January 30, 1998 (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
January 30, 1998, and (iv) the maximum amount of Common Stock which may be
offered for the account of such Selling Securityholder under this Prospectus.
PRINCIPAL
AMOUNT OF
NOTES PRINCIPAL NUMBER OF SHARES OF
BENEFICIALLY AMOUNT OF CONVERSION COMMON STOCK
NAME OF SELLING OWNED NOTES OFFERED SHARES OFFERED
SECURITYHOLDER THAT MAY BE SOLD HEREBY THAT MAY BE SOLD HEREBY(1)
--------------- ---------------- ------------- ---------------- ------------
NationsBanc Montgomery Securities
LLC(3).......................... $10,500,000 $10,500,000 552,631 552,631
Putnam Convertible Income-Growth
Trust........................... $ 5,000,000 $ 5,000,000 263,157 263,157
Argent Classic Convertible
Arbitrage Fund (Bermuda)
L.P. ........................... $ 3,500,000 $ 3,500,000 184,210 184,210
Yield Strategies Fund II, L.P. ... $ 3,000,000 $ 3,000,000 157,894 157,894
Aim Balanced Fund................. $ 2,000,000 $ 2,000,000 105,263 105,263
Janus Capital Corporation......... $ 2,000,000 $ 2,000,000 105,263 105,263
Lakeshore International, Ltd. .... $ 2,000,000 $ 2,000,000 105,263 105,263
SoundShore Partners L.P. ......... $ 2,000,000 $ 2,000,000 105,263 105,263
Smith Barney Inc. ................ $ 1,500,000 $ 1,500,000 78,947 78,947
Forest Fulcrum Fd LP.............. $ 1,070,000 $ 1,070,000 56,315 56,315
HSBC Securities Inc. ............. $ 1,000,000 $ 1,000,000 52,631 52,631
Spear, Leeds & Kellogg............ $ 1,000,000 $ 1,000,000 52,631 52,631
Forest Global Convertible Fund
Series A-5...................... $ 900,000 $ 900,000 47,368 47,368
Van Kampen American Capital
Convertible Securities Fund..... $ 850,000 $ 850,000 44,736 44,736
Paloma Securities L.L.C. ......... $ 600,000 $ 600,000 31,578 31,578
TQA Leverage Fund, L.P. .......... $ 600,000 $ 600,000 31,578 31,578
Key Asset Management Inc., as
Agent for the Key SBSF
Convertible Securities Fund..... $ 500,000 $ 500,000 26,315 26,315
The Gleneagles Fund Co. .......... $ 500,000 $ 500,000 26,315 26,315
Silverton International Fund
Limited......................... $ 400,000 $ 400,000 21,052 21,052
TQA Vantage Plus, Ltd. ........... $ 400,000 $ 400,000 21,052 21,052
Palladin Overseas Fund Ltd. ...... $ 250,000 $ 250,000 13,157 13,157
Palladin Partners I. L.P. ........ $ 250,000 $ 250,000 13,157 13,157
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PRINCIPAL
AMOUNT OF
NOTES PRINCIPAL NUMBER OF SHARES OF
BENEFICIALLY AMOUNT OF CONVERSION COMMON STOCK
NAME OF SELLING OWNED NOTES OFFERED SHARES OFFERED
SECURITYHOLDER THAT MAY BE SOLD HEREBY THAT MAY BE SOLD HEREBY(1)
--------------- ---------------- ------------- ---------------- ------------
Arthur S. Demoss Foundation....... $ 200,000 $ 200,000 10,526 10,526
LLT Limited....................... $ 80,000 $ 80,000 4,210 4,210
Forest Global Convertible Fund
Series A-1...................... $ 50,000 $ 50,000 2,631 2,631
Unnamed holders of Notes or any
future transferees, pledgees,
donees or successors of or from
any such unnamed holders(2)..... $ 9,850,000 $ 9,850,000 518,421 518,421
----------- ----------- --------- ---------
Total................... $50,000,000 $50,000,000 2,631,564 2,631,564
=========== =========== ========= =========
- ---------------
(1) Assumes conversion into Common Stock of the full amount of Notes held by
such Selling Securityholder at the initial conversion price of $19.00 per
share. 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.
(2) 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.
(3) Acted as an underwriter in a public offering of the Common Stock on May 2,
1996, and as initial purchaser in the Rule 144A private placement
convertible subordinated note offering on November 21, 1997.
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.
Except as noted above, none of the Selling Securityholders 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.
The preceding table has been prepared based upon the information furnished
to the Company by the Selling Securityholders named therein.
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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 January 30, 1998, there were 11,299,161 shares of Common Stock
outstanding and held of record by approximately 3,240 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 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.
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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.
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
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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 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
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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.
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
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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 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."
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The Indenture does not limit or prohibit the incurrence of additional
indebtedness including Senior Indebtedness, by the Company or its subsidiaries.
As of December 31, 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:
REDEMPTION
YEAR 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
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Company shall deposit with the Trustee or 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 of Notes upon a Repurchase
Event may be
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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
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principal of Notes 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.
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.
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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 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
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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 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.
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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 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
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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.
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
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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.
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
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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.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock 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................. 2
Incorporation of Certain Documents by
Reference........................... 2
Additional Information................ 2
The Company........................... 3
Risk Factors.......................... 4
Use of Proceeds....................... 12
Ratio of Earnings to Fixed Charges.... 12
Selling Stockholders.................. 12
Description of Capital Stock.......... 14
Description of Notes.................. 15
Certain United States Federal Income
Tax Consequences.................... 24
Plan of Distribution.................. 28
Legal Matters......................... 29
Experts............................... 29
===============================================================================
===============================================================================
$50,000,000
ATRIX LABORATORIES, INC.
7% CONVERTIBLE SUBORDINATED
NOTES DUE 2004
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
---------------------
PROSPECTUS
---------------------
February , 1998
===============================================================================
32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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.
2.1* -- Seventh Amended and Restated Bylaws of the Company.
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* -- 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 -- 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).
25.1** -- 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.
** Previously filed.
(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.
II-1
33
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 January 30, 1998.
ATRIX LABORATORIES, INC.
By: /s/ JOHN E. URHEIM
----------------------------------
John E. Urheim,
Chief Executive Officer
II-2
34
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
--------- ----- ----
* Director January 30, 1998
- -----------------------------------------------------
David R. Bethume
* Director January 30, 1998
- -----------------------------------------------------
H. Stuart Campbell
* Director January 30, 1998
- -----------------------------------------------------
Dr. D. Walter Cohen
* Director January 30, 1998
- -----------------------------------------------------
Dr. Jere E. Goyan
* Director January 30, 1998
- -----------------------------------------------------
Dr. R. Bruce Merrifield
* Director January 30, 1998
- -----------------------------------------------------
C. Rodney O'Connor
* Chairman of the Board January 30, 1998
- -----------------------------------------------------
William C. O'Neil, Jr.
* Vice President, Finance and January 30, 1998
- ----------------------------------------------------- Assistant Secretary
Brian G. Richmond
* President, Chief Scientific January 30, 1998
- ----------------------------------------------------- Officer and Director
Dr. G. Lee Southard
/s/ JOHN E. URHEIM Vice Chairman, Chief January 30, 1998
- ----------------------------------------------------- Executive Officer and
John E. Urheim Director
*By: /s/ JOHN E. URHEIM
- -----------------------------------------------------
John E. Urheim
Attorney-in-Fact
II-3
35
EXHIBIT INDEX
2.1* -- Seventh Amended and Restated Bylaws of the Company.
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* -- 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 -- 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).
25.1** -- 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.
** Previously filed.
(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.