-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S69kCvP6kpOGQ75JKkXxP9YGosC0KS5BPC6NtniwXD9959ebwRqKTr59+/qKDcBX jBCzcYGQxoHyiv33XqRAfg== 0000950123-97-008840.txt : 19971024 0000950123-97-008840.hdr.sgml : 19971024 ACCESSION NUMBER: 0000950123-97-008840 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971023 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVOSTE CORP /FL/ CENTRAL INDEX KEY: 0001012131 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 592787476 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-38573 FILM NUMBER: 97699751 BUSINESS ADDRESS: STREET 1: 4350-C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707170904 MAIL ADDRESS: STREET 1: 4350 C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 S-3 1 NOVOSTE CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- NOVOSTE CORPORATION (Exact name of registrant as specified in its charter) --------------------- FLORIDA 5047 59-2787476 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
4350-C INTERNATIONAL BLVD. NORCROSS, GEORGIA 30093 (770) 717-0904 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) THOMAS D. WELDON NOVOSTE CORPORATION 4350-C INTERNATIONAL BLVD. NORCROSS, GEORGIA 30093 (770) 717-0904 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: SETH I. TRUWIT, ESQ. LAWRENCE S. WITTENBERG, ESQ. EPSTEIN BECKER & GREEN, P.C. TESTA, HURWITZ & THIBEAULT, LLP 250 PARK AVENUE HIGH STREET TOWER NEW YORK, NEW YORK 10177 125 HIGH STREET (212) 351-4500 BOSTON, MASSACHUSETTS 02110 (617) 248-7000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this registration statement becomes effective. 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, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
========================================================================================================================= PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value......... 2,300,000 $18.75 $43,125,000 $14,871 =========================================================================================================================
(1) Includes 300,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for purposes of calculating the registration fee, based upon the average of the high and low sales prices of the Common Stock on the Nasdaq National Market on October 21, 1997, pursuant to Rule 457(c) under the Securities Act. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997 PROSPECTUS dated , 1997 2,000,000 SHARES [LOGO] COMMON STOCK Of the 2,000,000 shares of Common Stock offered hereby, 1,600,000 shares are being issued and sold by Novoste Corporation ("Novoste" or the "Company") and 400,000 shares are being offered by certain shareholders of the Company (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any proceeds from the shares being sold by the Selling Shareholders. The Common Stock is traded on The Nasdaq National Market under the symbol "NOVT." On October 21, 1997, the last sale price of the Common Stock on The Nasdaq National Market was $18.625 per share. See "Price Range of Common Stock." THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================================================= PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS - ----------------------------------------------------------------------------------------------------------------- Per Share.................... $ $ $ $ - ----------------------------------------------------------------------------------------------------------------- Total(3)..................... $ $ $ $ =================================================================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including under the Securities Act of 1933. See "Underwriting." (2) Before deducting offering expenses payable by the Company estimated at $350,000. (3) The Company and two Selling Shareholders have granted the Underwriters a 30-day option to purchase up to an aggregate of 300,000 shares of Common Stock solely to cover over-allotments, if any, at the Price to Public less the Underwriting Discount. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the Underwriters subject to prior sale when, as, and if delivered and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the certificates representing the shares of Common Stock will be made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1997. PIPER JAFFRAY INC. COWEN & COMPANY NATIONSBANC MONTGOMERY SECURITIES, INC. , 1997 3 [A/H diagram of Beta-Cath System device with a description of its anticipated benefits and its component parts. Also includes a rendering of a human heart with a close-up view of the Beta-Cath System catheter inside a coronary artery.] The Company's Beta-Cath System is an investigational device and has not been approved by the FDA for commercial sale in the United States. The Beta-Cath System is in the early stage of clinical testing and clinical data obtained to date are insufficient to demonstrate safety and efficacy. There can be no assurance that the Beta-Cath System will receive FDA approval if such approval is sought. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." Novoste(TM), Beta-Cath(TM) and the Novoste(TM) logo are trademarks of the Company. 2 4 AVAILABLE INFORMATION The Company is subject to the reporting requirements of 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 with the Commission can be inspected, without charge, and copies may be obtained upon payment of the fees prescribed by the Commission, from the Public Reference Section of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a Web site that contains reports, proxy and information statements and other information of registrants that file electronically with the Commission pursuant to the EDGAR system. The address of the Commission's Web site is http://www.sec.gov. The Company has filed with the Commission a Registration Statement (which term shall encompass any amendments thereto) on Form S-3 under the Securities Act with respect to the Common Stock offered by this Prospectus (the "Registration Statement"). This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto. For further information, reference is made to the Registration Statement and the exhibits thereto. Statements made in this Prospectus as to the contents of any contract or any other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement, including all exhibits thereto, may be obtained, upon payment of the fees prescribed by the Commission, from the Public Reference Rooms of the Commission's offices in Washington, D.C., Chicago and New York at the addresses set forth above, or may be examined without charge at those offices of the Commission. The Registration Statement, including the exhibits and schedules thereto, can also be accessed through the Commission's Web site at http://www.sec.gov. --------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's (i) Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 and (iii) Definitive Proxy Statement for the June 20, 1997 Annual Meeting of Shareholders, heretofore filed with the Commission, are incorporated in this Prospectus by reference. All reports and proxy statements filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of this Offering shall likewise be deemed to be incorporated in this Prospectus by reference from the respective dates of filing of such documents. Any statements contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Upon oral or written request, the Company will provide without charge a copy of any document incorporated in this Prospectus, exclusive of exhibits, to each person to whom this Prospectus is delivered. Requests for such documents should be directed to Cheryl Johnson, Vice President, Investors Relations and Business Development at the corporate headquarters of the Company, 4350-C International Blvd., Norcross, Georgia 30093 (telephone no. 770-717-0904). 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and the Financial Statements and the Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in the Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY Novoste Corporation ("Novoste" or the "Company") is developing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce the frequency of restenosis subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). The Beta-Cath System applies localized beta radiation to the site of the vascular injury caused by a PTCA procedure and is designed to inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling, each primary causes of restenosis. The Company has conducted feasibility trials at two U.S. medical centers under an Investigational Device Exemption ("IDE") granted by the U.S. Food and Drug Administration ("FDA") and at a Canadian and a European site. As of October 21, 1997, a total of 80 patients had been enrolled in these studies. Of the 35 patients which, as of September 25, 1997, had received six-month follow-up and analysis, 11% (four patients) were reported restenotic. This data suggests a 70% reduction in the rate of restenosis in patients who received treatment with the Beta-Cath System, when compared to a historical control group which received PTCA only. Of these 35 patients, treated arteries on average maintained 100% of the enlargement achieved with PTCA (a late loss index of 0%). Using data from these feasibility trials, the Company intends to submit by the end of the first quarter of 1998 an application for a CE mark to commence marketing of the Beta-Cath System in Europe. On July 31, 1997, the Company initiated a randomized, triple-masked, placebo-controlled, multicenter human clinical trial under an IDE granted by the FDA to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. The Company expects to enroll approximately 1,100 patients in the trial at 27 medical sites principally located in the United States. As of October 21, 1997, a total of 34 patients had been enrolled at 10 medical centers. Following eight-month follow-up patient evaluation, which the Company anticipates will be completed in the first half of 1999, the Company intends to submit an application to the FDA for pre-market approval ("PMA") for commercial sale of its Beta-Cath System in the United States. More than 13 million people in the United States currently suffer from coronary artery disease, the leading cause of death in the United States. Coronary artery disease is characterized by the progressive accumulation of plaque, which narrows the coronary artery and reduces blood flow to the heart muscle. Coronary artery bypass graft surgery ("CABG"), in which blood-vessel grafts are used to bypass the site of a blocked artery, has been shown to be highly effective in treating coronary artery disease. However, CABG is a highly invasive, traumatic and expensive surgical procedure. PTCA, in which a small balloon catheter is inflated in the narrowed section of a coronary artery, emerged as a highly effective, less invasive alternative to CABG. In 1996, approximately 400,000 CABG and approximately 500,000 PTCA procedures were performed in the United States. The principal limitation of PTCA is a high rate of restenosis, a renarrowing of the treated artery often requiring reintervention. Studies have shown restenosis to affect between 25% to 45% of patients within six months after a PTCA procedure. The use of coronary stents (expandable, implantable metal devices) to reduce the rate of restenosis has grown rapidly as an adjunctive therapy to PTCA. Studies have concluded that the rate of restenosis in patients who receive coronary stents following PTCA is approximately 30% lower than in patients treated only by PTCA. Restenosis can occur shortly after a PTCA procedure due to elastic recoil, or over a longer period of time due to hyperplasia or vascular remodeling of the arterial segment. Stents appear to be effective in reducing the frequency of restenosis resulting from elastic recoil, and appear to limit vascular remodeling, but increase, rather than decrease, hyperplasia. 4 6 The Beta-Cath System targets the primary causes of restenosis by attempting to prevent or inhibit hyperplasia and long-term vascular remodeling by applying localized beta radiation to the treated site in the coronary artery immediately following PTCA. Radiation has been used therapeutically in medicine for more than 50 years and is used extensively for the treatment of proliferative cell diseases, such as cancer. The Beta-Cath System has been designed to use beta rather than gamma radiation because the Company believes it is better suited for intraluminal use following PTCA, where the objective is to treat the wall of an artery with minimal radiation exposure to adjacent tissue. The Beta-Cath System is designed to be safe and to fit well with techniques currently employed by interventional cardiologists in the cardiac catheterization lab. The Company expects that the Beta-Cath System will provide significant cost savings, to the extent that it (i) reduces the need for reintervention often required following PTCA and coronary stenting and (ii) replaces coronary stents as a primary therapy. The Company's objective is to become the leader in the commercialization of intravascular radiation devices for the treatment of restenosis. Key elements of the Company's strategy include (i) achieving first-to-market position in the United States for an intracoronary beta radiation device, (ii) establishing beta radiation therapy as the standard therapy to reduce the frequency of restenosis following PTCA, (iii) seeking early commercialization in countries with favorable regulatory and market environments, and (iv) leveraging the Company's core catheter and radioactive isotope technologies to expand its product offerings to include peripheral angioplasty and other potential applications. Novoste, a development stage company with minimal revenues to date, was incorporated in Florida in January 1987 and was capitalized and commenced operations in May 1992. The Company's executive offices are located at 4350-C International Blvd., Norcross, Georgia 30093. 5 7 THE OFFERING Common Stock offered by the Company............................. 1,600,000 shares Common Stock offered by Selling Shareholders........................ 400,000 shares Common Stock to be outstanding after the Offering........................ 10,129,925 shares (1) Use of proceeds..................... To fund human clinical trials, to expand sales and marketing capabilities, to expand manufacturing activities, to conduct further research and development projects and for general corporate purposes, including working capital. See "Use of Proceeds." Nasdaq National Market symbol....... NOVT. SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM INCEPTION NINE MONTHS ENDED (MAY 22, 1992) SEPTEMBER 30, YEAR ENDED DECEMBER 31, THROUGH ------------------ --------------------------- SEPTEMBER 30, 1997 1996 1996 1995 1994 1997 -------- ------- ------- ------- ------- -------------- STATEMENT OF OPERATIONS DATA: Revenues.................................. $ 29 $ -- $ -- $ 17 $ 73 $ 320 Costs and expenses: Research and development................ 8,619 2,799 4,647 2,089 1,404 17,506 General and administrative.............. 1,342 1,092 1,575 466 526 5,430 Marketing............................... 575 341 581 659 292 2,107 -------- ------- ------- ------- ------- -------- Loss from operations...................... (10,507) (4,232) (6,803) (3,197) (2,149) (24,723) Net interest income (expense)............. 940 472 864 (21) (47) 1,750 -------- ------- ------- ------- ------- -------- Net loss.................................. $ (9,567) $(3,760) $(5,939) $(3,218) $(2,196) $(22,973) ======== ======= ======= ======= ======= ======== Net loss per share(1)..................... $ (1.14) $ (0.60) $ (0.88) $ (0.69) $ (0.54) ======== ======= ======= ======= ======= Shares used to compute net loss per share(2)................................ 8,376 6,275 6,748 4,671 4,031
SEPTEMBER 30, 1997 ------------------------ ACTUAL AS ADJUSTED(3) ------- -------------- BALANCE SHEET DATA: Working capital........................................... $18,066 $ 45,728 Total assets.............................................. 21,274 48,936 Deficit accumulated during development stage.............. (22,973) (22,973) Total shareholders' equity................................ 19,493 47,155
- --------------- (1) Based on the number of shares of Common Stock outstanding on October 22, 1997. Excludes 1,648,200 shares of Common Stock issuable upon exercise of outstanding options on such date, which had a weighted average exercise price of $3.28 per share. (2) See Note 1 to the Financial Statements for an explanation of the method used to determine net loss per share. (3) Gives effect to the sale of the 1,600,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $18.625 per share and the application of the estimated net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds" and "Capitalization." 6 8 SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain qualifying, forward-looking statements. Certain information included in this Prospectus and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as certain information included in oral statements or other written statements made or to be made by the Company) may contain statements that are forward-looking, such as statements relating to projected financial items and results, safety and efficacy of the Beta-Cath System, receipt and timing of regulatory approvals and availability and market acceptance of the Beta-Cath System. Such forward-looking information involves important risks and uncertainties that could significantly impact anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those described under "Risk Factors," below. RISK FACTORS An investment in the shares of Common Stock being offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following risk factors should be considered carefully. DEPENDENCE ON BETA-CATH SYSTEM The Company, which has not yet commercialized any of its products, anticipates that for the foreseeable future it will be solely dependent on the successful development and commercialization of the Beta-Cath System. The Beta-Cath System will require further development, as well as regulatory clearance or approval, before it can be marketed in the United States or internationally. There can be no assurance that the Company's development efforts will be successful or that the Beta-Cath System will be shown to be safe or effective, capable of being manufactured in commercial quantities at acceptable costs, cleared or approved by regulatory authorities or successfully marketed. In addition, there can be no assurance that demand for the Beta-Cath System will be sufficient to allow profitable operations. Failure of the Beta-Cath System to be successfully commercialized would have a materially adverse effect on the Company's business, financial condition and results of operations. See "Business -- The Beta-Cath System," " -- Sales and Marketing," " -- Manufacturing" and " -- Government Regulation." ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES Novoste has earned minimal revenues and experienced significant losses in each year since its inception in May 1992. The Company's losses are due primarily to substantial expenditures related to the development of its Beta-Cath System. At September 30, 1997, the Company had an accumulated deficit of approximately $23.0 million since its inception. The Company will incur significant additional operating losses through at least 1999 as the Company continues to expand its research and development, clinical trials, and marketing and sales efforts. The Company's ability to achieve profitable operations is dependent solely on successfully commercializing its Beta-Cath System. There can be no assurance that the Company will ever commercialize the Beta-Cath System or any of its other products or achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." EARLY STAGE OF CLINICAL TESTING; NO ASSURANCE OF SAFETY AND EFFICACY The Beta-Cath System is in an early stage of clinical testing, and there can be no assurance as to when, if ever, its safety and efficacy in reducing the frequency of restenosis will be demonstrated. The Company has commenced a randomized, triple-masked, placebo-controlled, multicenter, human clinical trial under an Investigational Device Exemption ("IDE") granted by the U.S. Food and Drug Administration ("FDA") to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. As of October 21, 1997, the Company had commenced enrollment of patients at 10 of the 27 medical sites expected to participate in the trial. Various factors, including difficulties in enrolling patients or physicians, and problems in producing the number of Beta-Cath Systems required to conduct the trial, could delay the start of 7 9 the trial at the balance of the sites for an indeterminate amount of time. The multicenter trial will require the treatment of a statistically significant number of patients, and clinical follow-ups with such patients after eight months. It is only after completion of these trials that the Company would apply for the regulatory approvals required to commence marketing of the Beta-Cath System in the United States. Moreover, even if FDA approval is granted to market the Beta-Cath System, subsequent experience may uncover unforeseen problems with the therapy which could require removal of the product from the market or additional testing. There can be no assurance that the Beta-Cath System or any of the Company's other products will prove to be safe and effective in clinical trials or ultimately will be approved for marketing by United States or foreign regulatory authorities. The Company does not expect to submit an application for pre-market approval ("PMA") for its Beta-Cath System for at least one year, and there can be no assurance that the Company will ever submit a PMA or that, if submitted, such PMA will be approved by the FDA. If the Beta-Cath System does not prove to be safe and effective in clinical trials, the Company's business, financial condition and results of operations will be materially adversely affected and could result in cessation of the Company's business. In addition, the clinical trials may identify significant technical or other obstacles to be overcome prior to obtaining necessary regulatory approvals. Even if such obstacles are identified and overcome, commercialization of the Beta-Cath System may be delayed. See "Business -- Clinical Status" and " -- Government Regulation." NO ASSURANCE OF TIMELY REGULATORY APPROVAL; GOVERNMENT REGULATION The Company will not be able to commence marketing or commercial sales of the Beta-Cath System in the United States until it receives approval from the FDA of a PMA application for the Beta-Cath System. The Company commenced the multicenter clinical trial necessary to support a PMA application in July 1997. The Company does not expect to file a PMA application until the end of the first half of 1999, and does not anticipate receiving approval for at least one year after a PMA application is accepted for filing, if at all. Even if the Company's PMA application is accepted for filing, there can be no assurance that the FDA will approve the PMA application. Accordingly, there can be no assurance as to when, or if, the Company will complete clinical trials of the Beta-Cath System, or that data from such trials, if completed, will be adequate to support approval of a PMA for the Beta-Cath System. Furthermore, there can be no assurance that the Company will be able to obtain approval of its PMA application on a timely basis, if at all, and delays in the receipt of or failure to receive such approvals would have a material adverse effect on the Company's business, financial condition and results of operations, and could result in cessation of the Company's business. Sales of the Beta-Cath System outside the United States will be subject to regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than required for FDA approval, and the requirements may differ. In addition, there may be foreign regulatory barriers other than PMA approval, and the export of medical devices must be in compliance with FDA regulations. In Europe, commencing in 1998 the Company will be required to obtain certifications necessary to enable the CE mark to be affixed to the Beta-Cath System to market devices throughout the European Union. Additionally, the Company may choose to maintain ISO 9001 and is required to maintain EN 460001 certification, subject to periodic surveillance audits. The Company may be required to spend significant capital and time to respond to requests for additional information by the FDA or foreign regulatory bodies, or may otherwise be required to spend significant amounts of capital and time to obtain FDA and foreign regulatory approvals. Any such events could substantially delay or preclude the Company from marketing the Beta-Cath System in the United States or foreign countries. Any devices manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA and certain state agencies and foreign regulatory authorities. Foreign and domestic regulatory approvals, if granted, may include significant limitations on the indicated uses for which the product may be marketed. FDA enforcement policy strictly prohibits the promotion and/or marketing of approved medical devices for unapproved uses. In addition, product approvals could be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following the initial marketing. In addition, the FDA and certain state and foreign regulatory authorities impose numerous other requirements with which medical device manufacturers must comply. The Company 8 10 is also required to adhere to applicable FDA regulations set forth in current Good Manufacturing Practices ("GMP") requirements, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements are monitored through periodic inspections by state and federal agencies, including the FDA, and by comparable agencies in other countries. Failure to comply with applicable regulatory requirements, including marketing products for unapproved uses, could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to clear pre-market notification or grant approval of the Company's PMA application for the Company's products, withdrawal of approvals and criminal prosecution. Changes in existing regulations or adoption of new regulations or policies could prevent the Company from obtaining, or affect the timing of, future regulatory approvals or clearances. Because the Beta-Cath System utilizes radiation sources, its manufacture, distribution, transportation, import/export, use and disposal will also be subject to federal, state and/or local laws and regulations relating to the use and handling of radioactive materials. Specifically, in addition to PMA approval, approval by the U.S. Nuclear Regulatory Commission ("NRC"), or an equivalent state agency, of the Company's radiation sources for certain medical uses will be required to distribute commercially the radiation sources to licensed recipients in the United States. Comparable, or perhaps more stringent, radiation regulatory requirements and/or approvals are required in markets outside the United States, including approvals prior to marketing the Beta-Cath System in Europe, or even after affixing the CE mark for marketing the device in Europe. In addition, the Company and/or its supplier of radiation sources must obtain a license from the NRC to distribute commercially such radiation sources as well as to comply with all applicable regulations. The Company and/or its supplier of radiation sources must also comply with NRC and U.S. Department of Transportation regulations on the labeling and packaging requirements for shipment of radiation sources to hospitals or other users of the Beta-Cath System. In addition, hospitals may be required to obtain or expand their licenses to use and handle beta radiation prior to receiving radiation sources for use in the Beta-Cath System. If any of the foregoing approvals are significantly delayed or not obtained, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Government Regulation." UNCERTAINTY OF MARKET ACCEPTANCE There can be no assurance that the Beta-Cath System will gain any significant market acceptance among physicians, patients and health care payors, even if required regulatory approvals are obtained. The Company believes that achieving market acceptance will depend heavily on the results of clinical trials and the Company's ability to demonstrate, through such trials, a significant reduction in restenosis rates using the Beta-Cath System. There can be no assurance that the Company's clinical trials will achieve such results. Market acceptance of the Beta-Cath System may also depend on educating physicians regarding the use of a new procedure, overcoming physician objections to the use of radiation in the cardiac catheterization laboratory ("cath lab") and convincing health care payors and health care providers that the benefits of using the Beta-Cath System outweigh its cost. There can be no assurance that the Company will be successful in achieving these goals. See "Business -- Sales and Marketing, " -- Government Regulation" and " -- Third-Party Reimbursement." UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY The Company has received a Notice of Allowance with respect to one United States patent application on the Beta-Cath System. The Company also has filed a related United States continuation-in-part application, and has a related United States continuation application and another United States application pending covering aspects of the Beta-Cath System. With respect to the allowed application, Novoste has counterpart applications pending in the European Patent Office and certain other countries. With respect to the continuation-in-part and other applications, Novoste has filed counterpart applications under the Patent Cooperation Treaty, preserving the Company's right to file applications in the European Patent Office and certain other countries. There can be no assurance that a United States patent, with respect to the application in which a notice of allowance has been received, will be issued or if issued, will offer any protection to the 9 11 Company or that it will not be reexamined, invalidated or circumvented. In addition, there can be no assurance that any claims under the other pending applications will be allowed, or if allowed, will offer any protection or that they will not be rejected, challenged, reexamined, invalidated or circumvented. In addition, there can be no assurance that competitors will not obtain patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products in either the United States or international markets. The Company received a letter from NeoCardia, L.L.C. ("NeoCardia") dated July 7, 1995, in which NeoCardia notified the Company that NeoCardia is the exclusive licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the Company confirm that its products did not infringe the claims of the Dake Patent. The Company has concluded based upon advice of patent counsel that the Company's Beta-Cath System would not infringe any valid claim of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent counsel responded that the Company did not infringe the Dake Patent. In June 1997, the United States Patent and Trademark Office ("USPTO") issued a final Office Action with respect to two consolidated reexamination requests relating to the Dake Patent. In the final Office Action, the patent examiner upheld the patentability of some of the original claims and certain new claims for the Dake Patent but rejected other claims. In August 1997, the holder of the Dake Patent filed an amendment in response to the final Office Action seeking, among other things, to add certain additional new claims, which appear to have been written in an attempt to cover the Beta-Cath System. In October 1997, the USPTO rejected these particular new claims, because they improperly attempted to broaden the scope of the Dake Patent and were inconsistent with the original patent claims. The holder of the Dake Patent has the right to appeal any final rejection of any claims presented. The validity of patent claims which survive a reexamination procedure may be more difficult to challenge in a later dispute than claims which have never been reexamined to the extent that the same prior art is relied upon. The Company continues to believe based upon advice of counsel that the Beta-Cath System would not infringe any valid claim of the Dake Patent. However, there can be no assurance that the Company's products will not infringe any original, amended or new claims of the Dake Patent which survive the reexamination proceeding. In May 1997, Guidant Corporation ("Guidant") acquired NeoCardia together with the rights under the Dake Patent. Guidant is a New York Stock Exchange-listed, medical device company which has significantly greater capital resources than the Company. There can be no assurance that Guidant will not sue the Company for patent infringement and obtain damages from the Company and/or injunctive relief restraining the Company from commercializing the Beta-Cath System in the U.S., or that the Company will not be required to obtain a license from Guidant to market the Beta-Cath System in the U.S., any of which could have a material adverse effect on the Company's business, financial condition and results of operations, or could result in cessation of the Company's business. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies in the medical device industry have employed intellectual property litigation to gain a competitive advantage. There can be no assurance that the Company will not become subject to patent infringement claims or litigation or interference proceedings declared by the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are both costly and time-consuming. Litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation or interference proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties or require the Company to redesign its products or processes to avoid infringement or prevent the Company from selling its products in certain markets, if at all. Although patent and intellectual property disputes regarding medical devices have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that the necessary licenses would be available to the Company on satisfactory terms, if at all, or that the 10 12 Company could redesign its products or processes to avoid infringement. Any adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company from manufacturing and selling its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. Patent applications in the United States are maintained in secrecy until patents issue, and patent applications in foreign countries are maintained in secrecy for a period after filing. Accordingly, there can be no assurance that current and potential competitors or other third parties have not filed or will not file applications for, or have not received or will not receive, patents and will not obtain additional proprietary rights relating to products made, used or sold or processes used or proposed to be used by the Company. The Company has developed certain of its patent and proprietary rights relating to the Beta-Cath System in conjunction with Emory University ("Emory"). To obtain the exclusive rights to commercialize the Beta-Cath System for the treatment of restenosis, the Company entered into a license agreement with Emory under which Emory will be entitled to royalty payments based upon net sales of the Beta-Cath System. If the agreement were terminated by Emory as a result of the Company's failure to pay such royalties or any other breach of its obligations under such agreement, the Company's rights to use jointly owned patents (including any patent issuing from the continuation-in-part application which has been filed) would become non-exclusive, the Company would have no rights to practice future patents owned exclusively by Emory and the Company could be required by Emory to cooperate in licensing the pending U.S. patent application and its foreign counterparts to third parties so that they would be able to commercialize and sell the Beta-Cath System. The Company typically obtains confidentiality and invention assignment agreements in connection with employment, consulting and advisory relationships. There can be no assurance, however, that these agreements will not be breached or that the Company will have adequate remedies for any breach. Furthermore, no assurance can be given that competitors will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's proprietary technology, or that the Company can meaningfully protect its rights in unpatented proprietary technology. See "Business -- Patents and Proprietary Technology." DEPENDENCE ON A KEY SUPPLIER To date, the Company has obtained all of its beta isotope requirements under an agreement, as amended (the "Supply Agreement"), with a single supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation (the "Supplier"). The Supply Agreement has an initial term ending in the year 2000 and renews automatically on a calendar year basis, unless notice of termination is given six months prior to the end of each calendar year. Under the Supply Agreement, the Company has agreed not to purchase more than 30% of its annual requirements for beta isotopes of a type similar to that manufactured by the supplier for use in restenosis therapy from any third party or parties other than the Supplier. Although the Supply Agreement permits the Company to use an alternative source for 30% of its annual beta isotope requirements or during any period in which the Supplier is unable to provide beta isotopes, the Company believes that because of the technical expertise and capital investment required to manufacture the isotopes, it would be extremely difficult to find an alternate source of supply in the event that the Supplier is unable to perform. In addition, portions of the process used to manufacture the materials may be proprietary to the Supplier. The Supplier has no obligation to make any of its know-how or technology available to any alternate source of supply. Although the Company has an option to purchase all of the Supplier's assets relating to the supply of beta isotopes, the exercise of such option and the transfer of the required technology and expertise to the Company or an alternative source would be costly, time consuming, and uncertain of success. Any inability of the Supplier to provide beta isotopes would limit the Company's ability to increase its business beyond its then existing inventory of beta isotopes. As a result of these factors, any failure or disruption in the ability of the Supplier to provide beta isotopes could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Business -- Manufacturing." 11 13 COMPETITION Competition in the medical device industry, and specifically the markets for cardiovascular devices and devices to improve the outcome of coronary revascularization procedures, is intense. Several companies are developing devices to improve the outcome of coronary revascularization procedures, including several that have various radiation therapy products under development to reduce the frequency of restenosis. The radiation therapy devices under development by Novoste's competitors include intracoronary radiation therapy delivered through a variety of means including (i) a radioactive tipped guidewire, (ii) a radioactive stent or (iii) a radioactive fluid-filled balloon. These other devices (some of which use gamma and others beta radiation) are in varying stages of development or clinical trials. There can be no assurance that the Beta-Cath System, if approved by the FDA for marketing, will be the first device to be marketed in the U.S. as an intracoronary beta or gamma radiation device. In addition, there can be no assurance that the Beta-Cath System will prove more cost-effective and efficacious than the devices currently under development by Novoste's competitors. Many of the Company's competitors and potential competitors have substantially greater capital resources than does the Company, and also have greater resources and expertise in the areas of research and development, obtaining regulatory approvals, manufacturing and marketing. There can be no assurance that the Company's competitors and potential competitors will not succeed in developing, marketing and distributing technologies and products that are more effective than those developed and marketed by the Company, or that would render the Company's technology and products obsolete or noncompetitive. Additionally, there is no assurance that the Company will be able to compete effectively against such competitors and potential competitors in terms of manufacturing, marketing and sales. Any product developed by the Company that gains regulatory clearance or approval will have to compete for market acceptance and market share. An important factor in such competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which the Company can develop products, gain regulatory approval and reimbursement acceptance and supply commercial quantities of the product to the market are expected to be important competitive factors. In addition, the Company believes that the primary competitive factors for products addressing restenosis include safety, efficacy, ease of use, reliability, suitability for use in cath labs, service and price. The Company also believes that physician relationships, especially relationships with leaders in the interventional cardiology community, are important competitive factors. There can be no assurance that the Company will be first to market such a system in the United States or to market such a system effectively. See "Business -- Competition." LIMITATIONS ON THIRD-PARTY REIMBURSEMENT The Beta-Cath System, if approved for commercial sale, will be purchased primarily by hospitals. Hospitals and physicians bill various third-party payors, such as government health programs, private health insurance plans, managed care organizations and other similar programs, for the health care services provided to their patients. The FDA has classified the Beta-Cath System as an experimental device and accordingly its use in the human clinical trials will not be reimbursable under the Medicare program or by private insurers until after the PMA application is approved, if ever. The classification of the Beta-Cath System as experimental materially increases the costs of conducting clinical trials in the United States, and such costs could have a material adverse effect on the Company's business, financial condition and results of operations. Even if the Beta-Cath System were to receive approval for marketing by the FDA, there can be no assurance that third-party payors will cover procedures using the Beta-Cath System, or, if covered, that third-party payors will not place certain restrictions on the circumstances in which coverage will be available. In addition, payors may deny reimbursement if they determine that a product was not used in accordance with established payor protocol regarding cost-effective treatment methods, or was used for an unapproved indication. Third-party payors are also increasingly challenging the prices charged for medical products and services and, in some instances, have put pressure on medical device suppliers and health care providers to lower their prices. The Company is unable to predict what changes will be made in the reimbursement methods used by third-party health care payors. There can be no assurance that the Beta-Cath System will be considered cost effective by third-party payors or health care providers, that reimbursement for the Beta-Cath System will be available or, if available, that payors' reimbursement levels will not adversely affect the Company's ability to 12 14 sell the Beta-Cath System on a profitable basis. In addition, the cost of health care has risen significantly over the past decade, and there have been and may continue to be proposals by legislators, regulators, third-party payors and health care providers to curb these costs. Failure by hospitals and physicians to obtain reimbursement from third-party payors, changes in third-party payors' policies toward reimbursement for the Beta-Cath System or legislative action could have a material adverse effect on the Company's business, financial condition and results of operations. Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government managed health care systems that control reimbursement for new devices and procedures. In most markets there are private insurance systems as well as government managed systems. There can be no assurance that reimbursement for the Company's products will be available in international markets under either government or private reimbursement systems. See "Business -- Third-Party Reimbursement." LIMITED SALES AND MARKETING RESOURCES; RELIANCE ON DISTRIBUTORS AND CORPORATE PARTNERS At present, the Company has no sales and limited sales and marketing resources. The Company intends to sell its products in the United States directly and outside the United States through international distributors and corporate partners. There can be no assurance that the Company will be able to recruit and train adequate sales and marketing personnel to commercialize successfully the Beta-Cath System in the United States. The inability to recruit or retain suitable international distributors or corporate partners could also have a material adverse effect on the Company's business, financial condition and results of operations. The Company also intends to select one or more established market leaders in the radiation isotope business to inventory and deliver the radiation sources and provide related training, testing and support services to hospitals in both the United States and international markets. The inability to recruit or retain one or more such entities for this purpose could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Sales and Marketing." LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK To date, the Company has not yet commercialized any of its products, and its manufacturing activities have consisted of producing small quantities of its products for use in pre-clinical studies and clinical trials. To achieve profitability, the Company's products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. Production in commercial quantities will require the Company to expand its manufacturing capabilities and to hire and train additional personnel. The Company has no experience in manufacturing its products in commercial quantities. Manufacturers often encounter difficulties in scaling up production of new products, including problems involving production yields, quality control and assurance, component supply and shortages of qualified personnel. Difficulties encountered by Novoste in manufacturing scale-up could have a material adverse effect on its business, financial condition and results of operations. There can be no assurance that future manufacturing difficulties, which could have a material adverse effect on the Company's business, financial condition and results of operations, will not occur. See "Business -- Manufacturing." ADDITIONAL CAPITAL REQUIREMENTS The Company has expended and will continue to expend substantial funds on research, development and clinical trials of its products, the establishment of commercial-scale manufacturing facilities and sales and marketing of the Beta-Cath System in the United States and internationally. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's future liquidity and capital requirements will depend upon numerous factors, including the progress and costs of clinical trials, the potential requirement and the potential costs for product modifications, the timing and costs of various U.S. and foreign regulatory filings, and the timing or availability of various U.S. and foreign governmental approvals. If regulatory approvals are received, the Company's future liquidity and capital requirements will depend upon other factors, including the timing and extent to which the Company's products gain market acceptance, the timing and costs of product introduction, and the costs of developing marketing, servicing and 13 15 distribution capabilities. The Company may require additional funds which it would seek to raise through equity or debt financings, arrangements with corporate partners or from other sources. Issuance of additional equity securities could result in dilution of ownership and control to the then existing shareholders of the Company. There can be no assurance that any such funds will be available to the Company on acceptable terms, if at all. If adequate funds are not available from operations or additional sources of financing, the Company's business could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." EXPOSURE TO PRODUCT LIABILITY CLAIMS; LIMITED INSURANCE COVERAGE The use of the Company's products entails an inherent risk of adverse effects which could result in product liability claims against the Company. There can be no assurance that the Company would have sufficient resources to satisfy any liability resulting from such claims, that the Company's $4 million of insurance coverage would be adequate to cover the Company against potential liabilities, that any such insurance will continue to be available at acceptable costs, if at all, or that a product liability claim would not materially adversely affect the business or financial condition of the Company. See "Business -- Product Liability and Insurance." DEPENDENCE ON KEY PERSONNEL The Company's business and future operating results depend in significant part upon the continued contributions of its key technical personnel and senior management, many of whom would be difficult to replace. The Company's business and future operating results also depend in significant part upon its ability to attract and retain qualified management, manufacturing, technical, marketing and sales and support personnel for its operations. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The loss of key employees, the failure of any key employee to perform adequately or the Company's inability to attract and retain skilled employees, as needed, could materially adversely affect the Company's business, financial condition and results of operations. See "Management -- Executive Officers and Directors." CONCENTRATION OF OWNERSHIP AND CONTROL Following completion of this offering, the Company's executive officers, directors and shareholders presently owning more than 5% of the outstanding shares of Common Stock, collectively, will beneficially own approximately 45% of the outstanding Common Stock. See "Principal and Selling Shareholders." Accordingly, such persons, if acting together, would have significant voting power to influence the outcome of matters (including the election of a majority of the Board of Directors, and any merger, consolidation or sale of all or substantially all of the Company's assets) submitted to the shareholders for approval. As a result of such voting power, certain transactions may not be possible without the approval of such shareholders. These transactions include proxy contests, mergers involving the Company, tender offers, open-market purchase programs or other purchases of Common Stock that could give shareholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. See "Principal and Selling Shareholders." EFFECT OF ANTI-TAKEOVER PROVISIONS Under the Company's Amended and Restated Articles of Incorporation (the "Amended and Restated Articles of Incorporation"), the Company's Board of Directors has the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the Company's shareholders. 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 shares of Preferred Stock that may be issued in the future. In October 1996, the Company's Board of Directors authorized 1,000,000 shares of Series A Participating Preferred Stock of the Company in connection with its adoption of a Shareholder Rights Plan, under which 14 16 rights to purchase Series A Preferred Stock were issued to holders of the Common Stock. Upon certain triggering events, such rights become exercisable to purchase Common Stock at a price substantially discounted from the then current market price of the Common Stock. The Shareholder Rights Plan could generally discourage a merger or tender offer involving the securities of the Company that is not approved by the Company's Board of Directors by increasing the cost of effecting any such transaction and, accordingly, could have an adverse impact on shareholders who might want to vote in favor of such merger or participate in such tender offer. While the Company has no present intention to authorize any additional series of Preferred Stock, such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could also have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company, and may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. The Amended and Restated Articles of Incorporation provides for a classified Board of Directors. Furthermore, the Company is subject to the anti-takeover provisions of the Florida Business Corporation Act, the application of which would also have the effect of delaying or preventing a merger, takeover or other change of control of the Company and therefore could discourage attempts to acquire the Company. SUBSTANTIAL DILUTION Purchasers of the Common Stock offered hereby will incur an immediate and substantial dilution of approximately $13.96 per share in net tangible book value from the public offering price. Additional dilution is likely to occur upon the exercise of outstanding options. See "Dilution." STOCK PRICE VOLATILITY There can be no assurance that the market price of the Common Stock will not decline below the public offering price. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of technological innovations or new products by the Company or its competitors, governmental regulatory action, developments with respect to patents or proprietary rights, general conditions in the medical device or cardiovascular-device industries, changes in earnings estimates by securities analysts, or other events or factors, many of which are beyond the Company's control. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market prices of many medical device companies and which have often been unrelated to the operating performance of such companies. The Company's revenue or operating results in future quarters may be below the expectations of securities analysts and investors. In such event, the price of the Company's Common Stock would likely decline, perhaps substantially. These Company-specific factors or broad market fluctuations may materially adversely affect the market price of the Company's Common Stock. See "Underwriting." ABSENCE OF DIVIDENDS The Company has not paid any cash dividends and does not presently intend to pay cash dividends. It is not likely that any cash dividends will be paid in the foreseeable future. See "Dividend Policy." 15 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by it hereby are estimated to be approximately $27,662,000 ($30,638,000 if the Underwriters' over-allotment option is exercised in full) after deducting underwriting discount and estimated expenses of this Offering. The Company intends to use the net proceeds of this Offering to fund human clinical trials, to expand sales and marketing capabilities, to expand manufacturing activities and to conduct further research and development projects. The balance of the net proceeds of this Offering will be added to working capital. Exact allocation of the proceeds and the timing of such expenditures will depend on various factors, including the timing of the Company's regulatory applications and its clinical trials. A portion of the net proceeds of this Offering may also be used for investments in or acquisitions of complementary businesses, products or technologies, although no such transactions are currently under negotiation. Pending the use of the net proceeds of this Offering, the Company will invest the funds in short-term, interest-bearing, investment-grade securities. PRICE RANGE OF THE COMMON STOCK The Common Stock is quoted on The Nasdaq National Market under the symbol "NOVT." The following table sets forth the high and low closing sale prices of the Common Stock, as reported by The Nasdaq National Market, for the calendar quarters indicated from May 23, 1996, the date of the Company's initial public offering.
HIGH LOW ---- --- 1996: Second Quarter (from May 23)................................ $15 1/2 $8 3/4 Third Quarter............................................... $14 3/4 $ 7 Fourth Quarter.............................................. $19 1/4 $11 7/8 1997: First Quarter............................................... $19 $13 Second Quarter.............................................. $17 1/4 $13 1/4 Third Quarter............................................... $18 1/8 $14 7/8 Fourth Quarter (through October 21)......................... $19 3/8 $16
For a recent closing sale price for the Common Stock, see the cover page of this Prospectus. On October 21, 1997, there were approximately 144 holders of Common Stock, excluding beneficial owners of shares registered in nominee or street name. DIVIDEND POLICY While the Company has made a distribution of the Rights described in Note 6 to the Financial Statements, the Company has never declared or paid any cash dividends on its capital stock. The Board of Directors currently intends to retain all future earnings, if any, to fund the growth and development of the Company's business, and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 16 18 DILUTION The net tangible book value of the Company at September 30, 1997 was $19,493,000, or $2.29 per share. Net tangible book value per share is equal to the Company's total tangible assets less its total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of the shares of Common Stock offered by the Company hereby and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company at September 30, 1997 would have been approximately $47,155,000, or $4.67 per share. This represents an immediate increase in net tangible book value of $2.38 per share to existing shareholders and an immediate dilution in net tangible book value of $13.96 per share to purchasers of Common Stock in this Offering. The foregoing assumes no exercise of outstanding stock options. In the event the 1,679,975 shares subject to options to purchase shares of Common Stock outstanding as of September 30, 1997 at a weighted average exercise price of $3.29 per share, were exercised for cash and included in the foregoing calculations, the net tangible book value per share before the offering would be $2.46, the pro forma net tangible book value after the offering would be $4.47 per share, and the dilution to new investors would be $14.16. If the Underwriters' over-allotment option is exercised in full, the pro forma net tangible book value per share of the Common Stock after this Offering would be $4.88 per share, which would result in dilution to new investors in this offering of $13.75 per share. CAPITALIZATION The following table sets forth the Company's capitalization as of September 30, 1997, and as adjusted after giving effect to the sale of the 1,600,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $18.625 per share and the application of the estimated net proceeds therefrom after deducting underwriting discounts and commissions and estimated offering expenses. The information should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1997 -------------------------------- ACTUAL AS ADJUSTED(1) ------------ ----------------- Preferred Stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding.............. $ -- $ -- Common Stock, $.01 par value; 25,000,000 shares authorized, 8,502,930 shares issued, and 10,102,930 shares issued as adjusted.................................................. 85,029 101,029 Additional paid-in capital.................................. 42,405,272 70,051,272 Deficit accumulated during the development stage............ (22,973,164) (22,973,164) ------------ ------------ 19,517,137 47,179,137 Less treasury stock, 5,780 shares, at cost.................. (23,840) (23,840) ------------ ------------ Total shareholders' equity (deficit)........................ $ 19,493,297 $ 47,155,297 ============ ============
- --------------- (1) Excludes 1,679,975 shares of Common Stock subject to outstanding stock options under the Company's Stock Option Plans, as of September 30, 1997, which had a weighted average exercise price of $3.29 per share. 17 19 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table sets forth selected financial data of the Company. The selected financial data in the table as of and for the periods ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the financial statements of the Company, which have been audited by Ernst & Young LLP, independent auditors, as indicated in their report included elsewhere in this Prospectus. The selected financial data presented below for the nine-month periods ended September 30, 1997 and 1996, and the period from inception (May 22, 1992) to September 30, 1997 and as of September 30, 1997, are derived from the unaudited condensed financial statements of the Company included elsewhere in this Prospectus. In the opinion of management, such unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results of operations for such periods. Results of interim periods are not necessarily indicative of results to be expected for the full fiscal year. The data should be read in conjunction with the Financial Statements and Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus.
PERIOD FROM PERIOD FROM NINE MONTHS INCEPTION INCEPTION ENDED (MAY 22, 1992) (MAY 22, 1992) SEPTEMBER 30, YEAR ENDED DECEMBER 31, THROUGH THROUGH ----------------- ------------------------------------- DECEMBER 31, SEPTEMBER 30, 1997 1996 1996 1995 1994 1993 1992 1997 ------- ------- ------- ------- ------- ------- -------------- -------------- STATEMENT OF OPERATIONS DATA: Revenues.............. $ 29 $ -- $ -- $ 17 $ 73 $ -- $ 201 $ 320 Costs and expenses: Research and Development....... 8,619 2,799 4,647 2,089 1,404 545 202 17,506 General and Administrative.... 1,342 1,092 1,575 466 526 785 736 5,430 Marketing........... 575 341 581 659 292 -- -- 2,107 ------- ------- ------- ------- ------- ------- ------ -------- Loss from operations.......... (10,507) (4,232) (6,803) (3,197) (2,149) (1,330) (737) (24,723) Net interest income (expense)........... 940 472 864 (21) (47) 5 9 1,750 ------- ------- ------- ------- ------- ------- ------ -------- Net loss.............. $(9,567) $(3,760) $(5,939) $(3,218) $(2,196) $(1,325) $ (728) $(22,973) ======= ======= ======= ======= ======= ======= ====== ======== Net loss per share(1)............ $ (1.14) $ (0.60) $ (0.88) $ (0.69) $ (0.54) $ (0.38) $(0.24) ======= ======= ======= ======= ======= ======= ====== Shares used to compute net loss per share(1)............ 8,376 6,275 6,748 4,671 4,031 3,443 3,030
DECEMBER 31, SEPTEMBER 30, ---------------------------------------------- 1997 1996 1995 1994 1993 1992 ------------- ------- ------- ------- ------- ------ BALANCE SHEET DATA: Working capital................................. $ 18,066 $26,849 $ (906) $(1,267) $ (149) $ 455 Total assets.................................... 21,274 29,255 2,057 982 1,583 1,157 Total liabilities............................... 1,781 821 1,739 1,396 976 306 Deficit accumulated during the development stage......................................... (22,973) (13,406) (7,467) (4,249) (2,053) (728) Total shareholders' equity...................... 19,493 28,434 318 (413) 608 851
- --------------- (1) See Note 1 to the Financial Statements for an explanation of the method used to determine net loss per share. 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Novoste commenced operations as a medical device company in May 1992. Commencing in 1994, the Company has devoted substantially all of its efforts to developing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce the frequency of restenosis subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). For the period since its capitalization through September 30, 1997 the Company has earned minimal non-recurring revenues and experienced significant losses in each period. At September 30, 1997 the Company had an accumulated deficit of approximately $23.0 million. Novoste expects to continue to incur significant operating losses through at least 1999 as the Company continues research and development projects, conducts its clinical trials in the United States, Canada and Europe, seeks regulatory approval or clearance for its products, expands its sales and marketing efforts in contemplation of product introduction and market development, and increases its administrative activities to support growth of the Company. There can be no assurance that the Company's research and development efforts will be successfully completed. There can be no assurance that clinical trials will demonstrate the safety and efficacy of the Beta-Cath System. Additionally, there can be no assurance that the Beta-Cath System will be approved by the FDA or any domestic or foreign governmental agency, or that the Beta-Cath System or any other product developed by Novoste will be successfully introduced or attain any significant level of market acceptance. There can be no assurance that the Company will ever achieve either significant revenues from sales of its Beta-Cath System or ever achieve or sustain profitability. See "Risk Factors -- Early Stage of Clinical Testing; No Assurance of Safety and Efficacy," "-- No Assurance of Timely Regulatory Approval; Government Regulation," "-- Uncertainty of Market Acceptance" and "-- Dependence on Beta-Cath System." RESULTS OF OPERATIONS Comparison of Nine Months Ended September 30, 1997 and 1996 Net loss for the nine months ended September 30, 1997 was $9,567,000, or ($1.14) per share, as compared to $3,760,000 or ($0.60) per share for the year earlier period. The increase in net loss for the nine months ended September 30, 1997, compared to the year earlier period, was due primarily to increased spending for research and development as well as increased marketing, general and administrative expenses related to the Company's development of its Beta-Cath System, offset by increased interest income earned from the investment of the net proceeds from the initial public offering in May 1996. Revenues. Miscellaneous revenues were $29,000 for the nine months ended September 30, 1997. No revenue was earned in the same period in 1996. This increase was due to the sale of a product line (see Note 5 to the Unaudited Condensed Financial Statements). Research and Development Expenses. Research and development expenses increased 208%, to $8,619,000, for the nine months ended September 30, 1997, from $2,799,000 for the same period in 1996. These increases were primarily a result of (a) the cost of manufacturing the Beta-Cath System, (b) a milestone payment of 617,000 DM ($360,000) in June 1997 to the Company's radioactive-isotope supplier upon meeting delivery requirements, (c) monthly reimbursement of approximately $65,000, to the same supplier of costs to increase production capacity, (d) the increased size of the Company's research and development staff and (e) services provided by outside consultants in the development of the Beta-Cath System. The Company expects research and development expenses to continue to increase in the immediate future as the Company conducts additional clinical trials of its Beta-Cath System in both the U.S. and selected foreign countries, and it continues the development and design of the Beta-Cath System and component parts. General and Administrative Expenses. General and administrative expenses increased 23% to $1,342,000 for the nine months ended September 30, 1997, from $1,092,000 for the same period in 1996. This 19 21 increase for the nine-month period was primarily a result of additional personnel, higher salaries and increased costs associated with being a public company such as directors' and officers' liability insurance, legal and accounting fees. The Company expects general and administrative expenses to increase in the future, in support of a higher level of operations. Marketing Expenses. Marketing expenses increased 69% to $575,000 for the nine months ended September 30, 1997, from $341,000 for the same period in 1996. These increases were primarily the result of increased trade show costs, consulting fees and higher salaries. The Company expects marketing expenses to significantly increase in the future as the Company prepares for marketing of the Beta-Cath System in the U.S. and other countries. Interest Income. Net interest income increased 99% to $940,000 for the nine months ended September 30, 1997, from $472,000 for the same period in 1996. The increase in interest income was primarily due to larger cash equivalents and short-term investment balances after the Company's initial public offering in May 1996. Comparison of Years Ended December 31, 1996 and 1995 Net loss for the year ended December 31, 1996 was $5,939,000, or ($0.88) per share, as compared to $3,218,000, or ($0.69) per share, for the year ended December 31, 1995. The increase in net loss in the year ended December 31, 1996, compared to the year earlier, was due to increased spending for research and development and general and administrative expenses related to the Company's development of its Beta-Cath System, offset by increased interest income earned from the investment of the net proceeds of the initial public offering in May 1996. Revenues. No revenues were earned in the year ended December 31, 1996, as compared to $17,000 of miscellaneous sales in the year ended December 31, 1995. Research and Development Expense. Research and development expenses increased 122% to $4,647,000 for the year ended December 31, 1996, from $2,089,000 for the year ended December 31, 1995. These increases were primarily a result of continued product development and the Company's Phase I clinical trials of the Beta-Cath System, which were initiated in 1996. General and Administrative Expenses. General and administrative expenses increased 238% to $1,575,000 for the year ended December 31, 1996, from $466,000 for the year ended December 31, 1995. These increases were primarily a result of increased personnel, higher salaries, accrued severance and increased costs associated with being a public company, such as directors' and officers' liability insurance. Marketing Expenses. Marketing expenses decreased 12% to $581,000 for the year ended December 31, 1996, from $659,000 for the year ended December 31, 1995, due to a start-up bonus and relocation allowance paid in 1995 to a new management employee. Interest Income and Expense. Net interest income was $864,000 for the year ended December 31, 1996, whereas net interest expense of $21,000 was incurred during the year ended December 31, 1995. The increase in interest income were primarily due to investing the proceeds of the Company's initial public offering in cash equivalents and short-term investments. Comparison of Years Ended December 31, 1995 and 1994 Net loss for the year ended December 31, 1995 was $3,218,000, or ($0.69) per share, as compared to $2,196,000, or ($0.54) per share, for the year ended December 31, 1994. The increase in net loss in the year ended December 31, 1995, compared to the year earlier, was due to increased spending for research and development and general and administrative expenses related to the Company's development of its Beta-Cath System. Revenues. Revenues decreased to $17,000 in 1995 from $73,000 in 1994 as the Company did not receive any contract or license fee revenue in 1995. 20 22 Research and Development Expenses. Research and development expenses increased 49%, to $2,089,000, for the year ended December 31, 1995 from $1,404,000 for the year ended December 31, 1994. This increase in expenses was due to the hiring of additional personnel, an increase in outside consulting and services attributable to the development of the Beta-Cath System, and the support of pre-clinical studies. General and Administrative Expenses. General and administrative expenses decreased 11%, to $466,000, for the year ended December 31, 1995, from $526,000 for the year ended December 31, 1994. There were no significant changes in any one expense category. Marketing Expenses. Marketing expenses increased 126% to $659,000 for the year ended December 31, 1995 from $292,000 for the year ended December 31, 1994 due to additions to the Company's management to support increased marketing efforts. Interest Income and Expense. Net interest expense decreased 55% to $21,000 for the year ended December 31, 1995 from $47,000 for the year ended December 31, 1994. This was due to increased interest income during the year ended December 31, 1995 from amounts invested in money market accounts and certain government securities arising from additional equity financing. LIQUIDITY AND CAPITAL RESOURCES The Company financed its activities since inception up to May 23, 1996, the date of the Company's initial public offering, through private placements of its Common Stock, Class B Common Stock and promissory notes. Since inception through September 30, 1997, the Company obtained funds aggregating approximately $38.7 million in net proceeds from the issuance of Common Stock and Class B Common Stock (including approximately $30.6 million in net proceeds from its initial public offering), and approximately $1.8 million in net proceeds from the issuance of convertible promissory notes. During the nine months ended September 30, 1997 and 1996 the Company used cash to fund operations of $8.0 million and $3.3 million, respectively. Cash used to fund operations since inception was approximately $18.8 million. The increase in cash used in operations was due primarily to higher expenses associated with increased research and development activities and general and administrative expenses to support increased operations. The Company's expenditures for equipment and improvements have aggregated $1.9 million since inception. Future cash needs for operating activities are anticipated to be higher than historical levels because of the development, manufacturing scale-up and commercialization of the Beta-Cath System, subject to the factors discussed in "Risk Factors." The Company's principal source of liquidity at September 30, 1997 consisted of cash, cash equivalents and short-term investments of $19.7 million. The Company did not have any established credit lines or outstanding borrowings at September 30, 1997. The Company anticipates that its operating losses will continue through 1999 as it expends substantial resources in funding clinical trials in support of regulatory approvals, and continues to expand research and development and marketing activities. Novoste believes that the net proceeds from this Offering, together with the current cash balances and short-term investments, and the interest thereon, will be sufficient to meet the Company's operating and capital requirements through 2000. However, the Company's future liquidity and capital requirements will depend upon numerous factors, including: the progress of the Company's clinical research and product-development programs; the receipt of and the time required to obtain regulatory clearances and approvals; the resources required to gain approvals; the resources the Company devotes to the development, manufacture and marketing of its products; the resources required to hire and develop a direct sales force in the United States, to develop distributors internationally, and to expand manufacturing capacity; market acceptance and demand for its products; and other factors. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. There can be no assurance that additional financing, if required, will be available on satisfactory terms, or at all. 21 23 BUSINESS Novoste Corporation ("Novoste" or the "Company") is developing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce the frequency of restenosis subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). The Beta-Cath System applies localized beta radiation to the site of the vascular injury caused by a PTCA procedure and is designed to inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling, each primary causes of restenosis. The Company has conducted feasibility trials at two U.S. medical centers under an Investigational Device Exemption ("IDE") granted by the U.S. Food and Drug Administration ("FDA") and at a Canadian and a European site. As of October 21, 1997, a total of 80 patients had been enrolled in these studies. Of the 35 patients which, as of September 25, 1997, had received six-month follow-up and analysis, 11% (four patients) were reported restenotic. This data suggests a 70% reduction in the rate of restenosis in patients who received treatment with the Beta-Cath System, when compared to a historical control group which received PTCA only. Of these 35 patients, treated arteries on average maintained 100% of the enlargement achieved with PTCA (a late loss index of 0%). Using data from these feasibility trials, the Company intends to submit by the end of the first quarter of 1998 an application for a CE mark to commence marketing of the Beta-Cath System in Europe. On July 31, 1997, the Company initiated a randomized, triple-masked, placebo-controlled, multicenter human clinical trial under an IDE granted by the FDA to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. The Company expects to enroll approximately 1,100 patients in the trial at 27 medical sites principally located in the United States. As of October 21, 1997, a total of 34 patients had been enrolled at 10 medical centers. Following eight-month follow-up patient evaluation, which the Company anticipates will be completed in the first half of 1999, the Company intends to submit an application to the FDA for pre-market approval ("PMA") for commercial sale of its Beta-Cath System in the United States. INDUSTRY OVERVIEW Coronary Artery Disease. Coronary artery disease is the leading cause of death in the United States. More than 13 million people in the United States currently suffer from coronary artery disease, which is generally characterized by the progressive accumulation of plaque as a result of the deposit of cholesterol and other fatty materials on the walls of the arteries. The accumulation of plaque leads to a narrowing of the interior passage, or lumen, of the arteries, reducing blood flow to the heart muscle. When blood flow to the heart muscle becomes insufficient, oxygen supply is restricted and a heart attack and death may result. Each year more than 1 million revascularization procedures are performed in the United States, and approximately 1.8 million of such procedures are performed worldwide, to treat coronary artery disease to increase blood flow to the heart muscle. Coronary Artery Bypass Graft. Coronary artery bypass graft ("CABG") surgery was introduced as a treatment for coronary artery disease in the 1950s. CABG is a highly invasive, open surgical procedure in which blood vessel grafts are used to bypass the site of a blocked artery, thereby restoring blood flow. CABG, still considered the most effective and long-lasting treatment for coronary artery disease, is generally the primary treatment for severe coronary artery disease involving multiple vessels. In addition, CABG is often a treatment of last resort for patients who have undergone other less invasive procedures but require reintervention. However, CABG has significant limitations, including medical complications such as stroke, multiple organ dysfunction, inflammatory response, respiratory failure and post-operative bleeding, each of which may result in death. In addition, CABG is a very expensive procedure, and requires a long recovery period. In the United States, the average cost of undergoing CABG is approximately $36,000, the average postoperative hospital stay following CABG is approximately five to seven days and the average recuperation period following discharge from the hospital is approximately six to eight weeks. In 1995, approximately 400,000 CABG procedures were performed in the United States. Several new minimally invasive surgical 22 24 techniques have been commercialized which attempt to lessen the cost and trauma of CABG procedures while maintaining efficacy. PTCA. Since its introduction in the late 1970s, PTCA has emerged as the principal less invasive alternative to CABG. PTCA is a procedure performed in a cath lab by an interventional cardiologist. During PTCA, a guidewire is inserted into a blood vessel through a puncture in the leg (or arm, in some cases) and guided through the vasculature to a diseased site in the coronary artery. A balloon-tipped catheter is then guided over the wire to the deposit of plaque ("lesion") occluding the artery. Once the balloon is positioned across the lesion inside the vessel, the balloon is inflated and deflated several times. Frequently, successively larger balloons are inflated at the lesion site, requiring the use of multiple balloon catheters. The inflation of the balloon cracks or reshapes the plaque and the arterial wall, thereby expanding the arterial lumen. Though injury to the arterial wall often occurs under balloon pressure, PTCA typically results in increased blood flow. In 1996, it is estimated that more than 500,000 PTCA procedures were performed in the United States and approximately another 450,000 procedures were performed outside the United States. The average cost of each PTCA procedure in the United States is approximately $15,000, or less than one-half of the average cost of CABG, and the length of stay and recuperation period are substantially less than those required for CABG. Though PTCA has grown rapidly as a highly effective, less invasive therapy to treat coronary artery disease, the principal limitation of PTCA is the high rate of restenosis, a re-narrowing of a treated artery, which often requires reintervention. Due to the effects of restenosis, the long-term cost-effectiveness of PTCA has not proven greater than that of CABG for multi-vessel diseases. Studies have indicated that, within six months after PTCA, between 25% and 45% of PTCA patients experience restenosis. In addition, 45% of patients with multi-vessel coronary artery disease who received PTCA have been shown to require reintervention within three years of treatment. Finally, although the average cost of PTCA is less than one-half of that of CABG, a study indicated that three years after the procedure, PTCA has no cost advantage over CABG due to the need for subsequent interventional treatment. Pathology of Restenosis. Restenosis is typically defined as a renarrowing of a coronary artery within six months of a revascularization treatment to less than 50% of its original size. Restenosis is a vascular response to arterial injury and occurs frequently after a revascularization procedure, which stretches coronary arteries or otherwise damages the treated segment of the artery. Due to multiple mechanisms controlling vascular repair, restenosis may occur within a short period after a revascularization procedure or may develop over the course of months or years. Restenosis that occurs shortly after a revascularization procedure is usually attributed to elastic recoil (acute loss of lumen diameter) of the artery. Longer term, restenosis may result from excessive proliferation of cells at the treatment site ("hyperplasia"), or from a generalized geometric remodeling of the arterial segment, the causes of which are not well understood. Hyperplasia is a physiological response to injury, similar to scarring, which occurs in wound healing. In response to an arterial injury from revascularization, the body sets off a biochemical response to repair the injury site and protect it from further harm. This response will include a signal to adjacent cells of the arterial wall to multiply. Often this cell proliferation goes unchecked, resulting in a much thicker and inelastic arterial wall and in reduced blood flow. Hyperplasia and vascular remodeling are responsible for a large portion of the overall effect of restenosis. Coronary Stenting and Other Catheter-Based Technologies. Coronary stents are expandable, implantable metal devices permanently deployed at a lesion site. Stents maintain increased lumen diameter by mechanically supporting the diseased site in a coronary artery. Of all the non-surgical treatments which have sought to improve upon PTCA, stents have demonstrated the best results in reducing the rate of restenosis. In a typical stent procedure, the artery is pre-dilated at the lesion site with a balloon catheter and the stent is delivered to the site of the lesion and deployed with the use of a second balloon catheter, which expands the stent and firmly positions it in place. This positioning is often followed by a third dilatation, using a high pressure balloon to fully expand and secure the stent. Once placed, stents exert radial force against the walls of the coronary artery to enable the artery to remain open and functional. 23 25 Studies have concluded that the rate of restenosis in patients who receive coronary stents following PTCA is approximately 30% lower than in patients treated only by PTCA. Additional clinical studies with new stent designs may show a greater reduction in the rate of restenosis than stents which are currently available. Stents appear to be effective in reducing the frequency of restenosis resulting from elastic recoil and vascular remodeling, but they increase hyperplasia. The use of stents has grown rapidly since commercial introduction in the United States in 1994, and it is estimated that they were utilized in approximately 45% of the approximately 950,000 PTCA procedures performed worldwide in 1996. Despite their rapid adoption, stents have certain drawbacks. Not only are they permanent implants which may result in unforeseen, long-term adverse effects, but they cannot be used in cases where the coronary arteries are too tortuous or too narrow. In addition, the use of stents significantly increases the cost of a PTCA procedure, especially as is often the case when two or more stents are used. Further, restenosis may still occur and reintervention options for stent patients are limited. A variety of other catheter-based, minimally invasive, interventional devices for coronary artery disease have been developed in an attempt to reduce the frequency of restenosis following PTCA. These devices include atherectomy devices (catheter devices that cut and remove plaque from the arterial wall), rotational ablation devices (catheter devices which use a rotating burr to remove plaque), and laser catheter devices (devices that use laser energy to reduce plaque in arteries). Although these new approaches to coronary artery disease have been found to be effective in certain lesion types and in certain locations in the coronary arteries, like PTCA they also exhibit high rates of restenosis. THE NOVOSTE SOLUTION The Company's Beta-Cath System is designed to reduce the frequency of restenosis following PTCA by applying localized beta radiation to the treatment site in the coronary artery. The Beta-Cath System is designed to be safe and cost-effective and to fit well with techniques currently used by interventional cardiologists in the cardiac catheterization lab. The Beta-Cath System targets the primary causes of restenosis by attempting to prevent or inhibit hyperplasia and long-term vascular remodeling. The Beta-Cath System, which delivers localized beta radiation, can be handled with little risk to the health care workers or to the patients because the penetration of electrons associated with beta radiation is quite limited and easily shielded by the device. The Company expects that the Beta-Cath System will provide significant cost savings, to the extent that it (i) reduces the need for reintervention often required following PTCA and coronary stenting and (ii) replaces coronary stents as a primary therapy. The Beta-Cath System is founded on the Company's belief, based on recent clinical and pre-clinical studies, that localized beta radiation is likely to reduce coronary artery restenosis rates by inhibiting cell proliferation which occurs in response to PTCA. Radiation has been used therapeutically in medicine for more than 50 years, and is extensively used for the treatment of proliferative cell diseases, such as cancer. Cancer therapy has primarily involved the use of gamma radiation, which is highly penetrating and may be dangerous unless handled and used with great care. The Company has designed the Beta-Cath System to use beta radiation, which is much less penetrating and thus easier to use and control than gamma radiation. Beta radiation has been used less frequently in medicine (primarily in a topical application to treat certain skin and eye disorders) because of its more limited depth of penetration, but is viewed by the Company as well-suited for intraluminal use following PTCA, where the objective is to treat the small diameter coronary artery with minimal exposure to adjacent tissues. CLINICAL TRIAL AND REGULATORY STATUS The Company has conducted a feasibility trial of the Beta-Cath System at Emory University Hospital in Atlanta and Rhode Island Hospital in Providence under an IDE granted by the FDA. A total of 23 patients were enrolled from January through October 1996, each of whom had a single-vessel de novo (previously untreated) lesion. The patients were treated with standard PTCA and immediately thereafter with intracoronary beta radiation using the Beta-Cath System. To examine the safety of different dosing parameters, patients received dosage ranging from 12 Gy to 16 Gy for vessels ranging from at least 2.5 to 3.5 24 26 millimeters. A follow-up review of the patients 30 days after treatment and a follow-up angiogram six months after the initial treatment were performed to observe the treated artery. During 1997, the Company also performed two isolated, demonstration cases at two other medical centers in the U.S. using the same IDE protocol utilized in the trials at Emory University Hospital and Rhode Island Hospital. In February 1997, the Company commenced a similar 30-patient feasibility study in Canada, enrollment for which was completed in June 1997. In April 1997, another similar 30-patient feasibility study was initiated in The Netherlands and as of October 21, 1997, 25 patients had been enrolled in that study. As of October 21, 1997, a total of 80 patients had been enrolled in the U.S. and international feasibility studies. Of the 35 patients which, as of September 25, 1997, had received six-month angiographic follow-up analyzed in a core lab, 11% (four patients) were reported restenotic. This data suggests a 70% reduction in the rate of restenosis in patients who received treatment with the Beta-Cath System, when compared to a historical control group (the Lovastatin Restenosis Trial) which received PTCA only and had been selected based upon inclusion and exclusion criteria similar to those utilized by the Company. Of these 35 patients, treated arteries on average maintained 100% of the enlargement achieved with PTCA (a "late loss index" of 0%). The following table compares the Company's data on the 35 patients to the historical control group:
NOVOSTE FEASIBILITY LOVASTATIN STUDIES PLACEBO GROUP ----------- ------------- No. of Treated Patients................................... 35 161 Restenosis Rate........................................... 11% 42% Late Loss Index........................................... 0% 43%
Using data from these feasibility trials, the Company intends to submit by the end of the first quarter of 1998 an application for a CE mark to commence marketing of the Beta-Cath System in Europe. On July 31, 1997, the Company initiated a randomized, triple-masked, placebo-controlled, multicenter human clinical trial under an IDE granted by the FDA to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. The Company expects to enroll approximately 1,100 patients in the trial at 27 medical sites principally located in the United States. The patients will be divided into two approximately equal subgroups, one for PTCA alone and one with coronary stenting. Each subgroup of the trial will be randomized to a placebo control. In both subgroups, patients who receive the beta radiation will receive dosages of 14Gy for vessels ranging from at least 2.7 to 3.35 millimeters and with 18Gy for vessels ranging from 3.35 to 4.0 millimeters. A follow-up review of patients 30 days after treatment and a follow-up angiogram eight months after the initial treatment will be performed to observe the treated artery. The angiograms will be analyzed to determine whether there has been an incidence of restenosis and to measure the late loss index (the extent of the loss in the enlargement of lumen achieved with PTCA). As of October 21, 1997, a total of 34 patients had been enrolled at 10 medical centers. The trials are administered by the Company's clinical and regulatory staff of eight people. The Company uses consultants to monitor the clinical sites and to assist in training. The Company also has engaged an independent contract research organization to compile data from the trial and to perform statistical analysis. Following completion of the multicenter trial, the Company intends to submit an application to the FDA for pre-market approval ("PMA") for commercial sale of its Beta-Cath System in the United States. 25 27 THE BETA-CATH SYSTEM The Beta-Cath System depicted below is currently being used in the multicenter trial. The Company anticipates that the design of the system to be commercialized in Europe, if and when pre-market approvals are obtained, will be substantially similar. [A drawing of the Beta-Cath System with its component parts labeled.] The primary components of the Beta-Cath System are: Radiation Source Train. The beta radiation administered by the Beta-Cath System emanates from a "train" of several miniature cylindrical sealed sources ("radiation sources") containing Strontium 90 (Strontium/Yttrium), a beta-emitting radioisotope. The use of beta, rather than gamma, radiation is intended to make the Beta-Cath System safer, less penetrating and easier to use in the cath lab environment. The activity of the Company's radiation sources has been validated by the U.S. Department of Commerce National Institute of Standards and Technology, enabling a physician to accurately determine appropriate dosing levels. In addition, due to the long half-life (approximately 28 years) of Strontium 90, and because the source train will not come into contact with a patient's blood or tissue, the radiation sources are expected to be reused for numerous patients. Beta radiation from the Strontium 90 source can be easily shielded from health care workers by the use of approximately one-half-inch-thick quartz in the transfer device. Transfer Device. The transfer device is a multiple-use, hand-held instrument used to deliver and then store the radiation sources when not in use. The transfer device (i) transfers the radiation sources to and from the delivery catheter via a hydraulic delivery system, (ii) contains a switching device that uses a mechanical gating system to contain and then release the radiation sources and (iii) completely shields the beta radiation energy from health care workers when the radiation source train is housed inside it. 26 28 Delivery Catheter. The delivery catheter is a single-use, disposable, multi-lumen catheter that provides a pathway for the radiation sources to be rapidly delivered and retrieved from the coronary arterial segment to be treated. The delivery catheter is positioned by advancing it over the same guidewire used during the immediately preceding PTCA procedure. The radiation sources are delivered and retrieved through a dual-lumen closed hydraulic circuit, which uses a standard syringe. The Beta-Cath System is intended to be used in a cath lab by an interventional cardiologist immediately after a PTCA procedure. The cardiologist uses a previously positioned guidewire used in the PTCA procedure to direct the delivery catheter into the vasculature of the patient until the treatment zone of the delivery catheter reaches the targeted site. A radiation oncologist then delivers the radiation sources hydraulically from the transfer device to the target site, in a matter of seconds, through the radiation source train lumen of the delivery catheter. The radiation sources remain at the targeted site for less than five minutes to deliver a predetermined dose of radiation. They are then returned, through the same lumen, by the use of positive hydraulic pressure applied through the delivery catheter's fluid lumen. Upon completion of each procedure, the train of radiation sources is stored safely inside the transfer device. At the end of the day, the transfer device is delivered to a designated radiation storage site within the hospital for safekeeping. While the need for a cardiologist and a radiation oncologist is expected to result in higher physician fees, the Company believes the Beta-Cath System will be cost-effective, principally by reducing the need for reinterventional procedures. The Company believes the Beta-Cath System, when fully developed and tested, will have the following advantages: - Non-implantable, Site-specific Therapy. The Beta-Cath System was designed to treat accurately only the area required to prevent restenosis, without leaving a permanent implant in the body. - Short Procedure Times. The Beta-Cath System was designed to enhance patient safety and comfort, as well as to promote efficiency in the cath lab, by delivering the recommended dosage in less than five minutes of radiation exposure time per lesion. - Utilization of Existing PTCA Techniques. Although intracoronary radiation is a new concept in coronary artery disease treatment, the hand-held Beta-Cath System was designed to be easily adopted and used by the cardiologist. The delivery catheter is very similar to a balloon angioplasty catheter, and it is positioned by advancing it over the guidewire already in place from the previous PTCA procedure. - Flexibility. The cylinders that make up the Beta-Cath System's radiation-source train, as well as the Beta-Cath System's delivery catheter material, are designed to be very flexible, giving the Beta-Cath System a very tight radius of curvature and the capability of navigating tortuous coronary anatomies. - Multiple-Use System. The radiation source train can be reused for numerous patients, due to the long half-life of the isotope and because the source train does not come into contact with the patient's blood. As a result, inventory planning will be very straightforward, procedure costs will be attractive and last minute treatment decisions can be made. - Ease and Accuracy of Dosing. Because of the long half-life of the Company's radiation sources, prescribed treatment times will remain stable over the approved shelf life of the isotope. Intracoronary radiation systems that utilize short half-life isotopes are likely to require complex case-by-case dose calculations based on the current decay state of the isotope. - Designed for Safety. The Beta-Cath System utilizes localized beta radiation, which results in total body radiation exposure significantly less than that received during routine x-ray during PTCA. Other safety mechanisms include: a closed-source train lumen, special locking mechanisms to connect the delivery catheter to the transfer device and sufficient shielding in the transfer device to protect health care workers from radiation exposure. 27 29 THE NOVOSTE BUSINESS STRATEGY The Company's objective is to become the leader in the commercialization of intravascular radiation devices for the treatment of restenosis. Elements of the Company's strategy include: - Achieve First-to-Market Position in the United States. Novoste intends to be the first to market in the United States an intracoronary beta radiation device to treat coronary restenosis. - Establish Beta Radiation Therapy as the Standard Therapy to Prevent Restenosis. The Company's strategy is to introduce the Beta-Cath System into the cath lab as standard therapy to reduce the frequency of restenosis following PTCA, either on a stand-alone basis or in conjunction with coronary stenting. The Company seeks to establish interventional cardiologists as the primary providers of this therapy, and plans to target top-tier medical institutions and leading cardiologists for sale of the Beta-Cath System. In addition, the Company intends to conduct intensive physician-training seminars to familiarize the cardiologists with the use of the Beta-Cath System. - International Commercialization. The Company intends to seek regulatory approval to commence marketing the Beta-Cath System in Europe by submitting an application for a CE mark by the end of the first quarter of 1998. If such approval is obtained, the Company anticipates marketing the Beta-Cath System in Europe through international distributors or a corporate partner. - Establish Radiation Therapy for Peripheral Vascular Applications. Restenosis is common following angioplasty of the peripheral arteries. In addition, a similar phenomena frequently occurs in veins adjacent to an arterial-venous shunt used for patients undergoing hemodialysis for end-stage renal disease. The Company intends to leverage its core catheter and localized radiation technologies to expand its product offerings to other vascular markets where cell proliferation is of clinical significance. - Protect and Enhance Proprietary Technology. The Company believes that its patent position may offer a competitive advantage. The Company has received a Notice of Allowance stating that the Company's first patent application covering aspects of the Beta-Cath System has been allowed for issuance of a United States patent. The Company has also filed a counterpart application under the Patent Cooperation Treaty, preserving the Company's right to file applications in the European Patent Office and certain other countries. The Company intends to obtain further protection of its proprietary technology and to defend its intellectual property rights against infringement. PRODUCT DEVELOPMENT Research and development activities are performed by a 25-person product-development team. The Company has also retained consultants to assist in many research and development activities, including design of the Beta-Cath System, designing, conducting and monitoring the clinical trials relating to the Beta-Cath System and advising on key aspects of radiation health physics and dosimetry. On June 27, 1996 the Company signed an agreement with a medical engineering, development and design company to provide products and services to be used in the Company's product development. The focus of the Company's current development efforts is the design of future generation components of the Beta-Cath System. The Company would like to introduce a delivery catheter with a smaller outer diameter so that arteries smaller than 2.7 millimeters could be treated, thereby expanding the Company's market opportunity. Likewise, the transfer device will be modified to have a more ergonomic design and to incorporate additional features. Additional future development efforts will focus on modifying the Beta-Cath System for use in peripheral applications, such as arterial-venous shunts and the femoral arteries. In addition, the capability of modifying the length of the radiation-source trains to correspond with varying lesion lengths is potentially a desired feature of future systems. There can be no assurance that the Company will be successful in developing these or other products. Research and development expenses for the years ended December 31, 1996, 1995, and 1994 and for the nine months ended September 30, 1997 were approximately $4.6 million, $2.1 million, $1.4 million and $8.6 million, respectively. 28 30 In addition to the resources dedicated to the product-development process, the Company has an internal regulatory affairs and clinical monitoring staff, which has responsibility for establishing, monitoring, collecting and analyzing data relating to clinical trials and regulatory approvals for the Beta-Cath System in the United States and abroad. MARKETING AND DISTRIBUTION The Company anticipates marketing the Beta-Cath System through a direct sales force in the United States and through a combination of international distributors and corporate marketing partners outside the United States. If marketing approval is obtained, the Company plans to focus its United States marketing efforts on a top tier of approximately 200 hospitals, where the Company believes a vast majority of the PTCA procedures in the United States are performed, and on leading cardiologists at those institutions. Through this effort the Company initially aims to identify well-respected clinical supporters for the Beta-Cath System and to leverage their reputation in the clinical community to generate wider demand. The Company will also conduct seminars to educate physicians about the Beta-Cath System. The Company believes that it can market the Beta-Cath System to these hospitals and cardiologists with a moderately sized direct-sales organization, initially consisting of the Vice President of Marketing and Sales and approximately 8 to 10 sales representatives, augmented by a small number of clinical specialists. The Company's business and future operating results will depend in significant part upon its ability to attract and retain skilled sales and marketing personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The Company's inability to attract and retain skilled sales and marketing personnel, as needed, could materially adversely affect the Company's business, financial condition and results of operations. The Company believes such distribution or corporate partnering arrangements will be cost-effective, will be implemented more quickly than a direct-sales force established by the Company in such countries, and will enable the Company to capitalize on local marketing expertise in such countries. The Company intends to select one or more established market leaders in the radiation-isotope business to inventory and deliver the radiation sources and to provide related training, delivery, testing and disposal services to the purchasing hospital. Novoste does not intend to inventory or deliver the radiation sources housed inside the transfer device of the Beta-Cath System. There can be no assurance that the Company will be able to secure any arrangements with international distributors, corporate marketing partners or radiation isotope providers on satisfactory terms or at all. MANUFACTURING AND MATERIALS The Company soon will focus its manufacturing resources on the production of the Beta-Cath System. The Company anticipates that it will manufacture the delivery-catheter component of the Beta-Cath System directly and manufacture the transfer device jointly with third parties. The radiation-source trains are being supplied by a third party. The Company is in the process of purchasing equipment and validating its manufacturing processes to commence manufacturing of its catheter in 1998. The Company intends to manufacture its products at its 25,600-square-foot facility in Norcross, Georgia through the end of 1999. The Company believes that, if marketing approvals of the Beta-Cath System are obtained, it will be able to utilize its existing facility and the expertise of its management to manufacture commercial quantities of the catheter-based components of the Beta-Cath System at a reasonable cost. However, to date, the Company has not yet commercialized any of its products, and its manufacturing activities have consisted of building a small number of prototypes of the Beta-Cath System for use in pre-clinical and clinical trials, and the Company does not have experience in manufacturing the Beta-Cath System in commercial quantities. The Company currently executes all critical assembly operations in controlled-environment rooms, in which bacterial and airborne particulate levels are monitored. The Company believes that its current space will be sufficient to serve its needs through at least 1998. The Company could rely on some outside sources for catheter components, and from time to time the Company could experience shortages of certain supplied materials that could significantly affect its ability to produce enough product to satisfy market demand. As the Company grows, it will be required to scale up its production and to increase its manufacturing capacity. 29 31 Any products of the Company, for which FDA clearances or approvals have been obtained, must be manufactured and designed in accordance with Good Manufacturing Practices ("GMP") regulations which would impose certain procedural and documentation requirements upon the Company with respect to manufacturing and quality assurance activities. The Company will rely on independent suppliers for certain components of the Beta-Cath System. Such components are either standard throughout the industry or will be built to the Company's specifications. All suppliers of such components also must be in compliance with GMP regulations. The Company has obtained all of its requirements of radiation source materials pursuant to an agreement, as amended (the "Supply Agreement"), with a single supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation (the "Supplier"). Under the Supply Agreement, as amended, the Company agreed to advance the Supplier a monthly investment grant of 100,000 DM (approximately $65,000) for a period of 15 months from November 1996 through January 1998, to equip a production site for the exclusive production of radioactive materials for the Company. As of September 30, 1997, 11 payments totalling approximately $715,000 have been made. In June 1997 the Company also made a milestone payment of 617,000 DM (approximately $360,000) to the Supplier upon its meeting certain delivery requirements. The Company is further obligated to make a payment of 737,000 DM (approximately $415,000 upon the Supplier meeting certain production volumes by March 1998. The Supplier has agreed to manufacture radiation source "trains" at an agreed-upon base price. The Supplier is required to comply with various regulatory requirements with respect to the supply of radiation sources. The Supply Agreement has an initial term ending in the year 2000, and renews automatically on a calendar year basis unless notice of termination is given six months prior to the end of each calendar year. Under the Supply Agreement, the Supplier has agreed not to sell, lease, license or otherwise transfer radioactive sources of a similar isotope to any other party for use in the treatment of restenosis. The Company, in turn, has agreed not to purchase, lease, or otherwise acquire directly or indirectly more than 30% of its annual requirement for radioactive sources of "like" isotope for use in the treatment of restenosis from any other party unless the Supplier is unable to provide the radioactive source materials required by the Company. Although the Supply Agreement permits the Company to use an alternative source for 30% of its annual isotope requirements, the Company believes that, because of the technical expertise and capital investment required to manufacture the radiation source materials, it would be extremely difficult and expensive to find an alternate source of supply in the event that the Supplier is unable to provide the materials. In addition, portions of the process used to manufacture the materials may be proprietary to the Supplier, who has no obligation to make any of its know-how or technology available to any potentially alternate source of supply. The Company holds an option to purchase those tangible and intangible assets of the Supplier used or useful in producing the radioactive isotopes sold to the Company by the Supplier in connection with the Beta-Cath System. The option is exercisable at any time on or prior to August 22, 2002, for $5,000,000, 50% of which is payable upon exercise and the balance in 12 equal consecutive monthly installments following such exercise, and provides that the $90,000 payment made to obtain the option and the aforementioned aggregate investment grants of 1.5 million Deutsche Marks, to the extent paid at the time of exercise, will be credited against the purchase price of the assets. Upon the exercise of the option, the Supplier is obligated, for a period of up to three months, to assign personnel to assist the Company in facilitating the transfer of the assets, both for purposes of technical training and operations and for administrative and regulatory matters relating to licensing and governmental approvals. Nevertheless, the exercise of such option and the transfer of the required technology and expertise to the Company or an alternative source would be costly, time consuming, and uncertain of success. While the Company anticipates that the radiation source materials it purchases from the Supplier will be able to be used for numerous patients, the inability of the Supplier to provide radiation source materials would limit the Company's ability to increase its business beyond its then existing inventory of such radiation source material. As a result of the foregoing, any failure or disruption in the ability of the Supplier to provide the radiation source materials could have a material adverse effect on the business, financial condition and results of operation of the Company. 30 32 PATENTS AND PROPRIETARY TECHNOLOGY The Company's policy is to protect its proprietary position by, among other methods, filing United States and foreign patent applications. On February 25, 1997 the Company received a Notice of Allowance from the U.S. Patent and Trademark Office ("USPTO"), stating that the Company's first patent application covering aspects of the Beta-Cath System has been allowed for issuance of a United States patent. The Company also has filed a related United States continuation-in-part application, and has a related United States continuation application and another United States application pending covering aspects of its Beta-Cath System. With respect to the allowed application, Novoste has counterpart applications pending in the European Patent Office and certain other countries. With respect to the continuation-in-part and other applications, Novoste has filed counterpart applications under the Patent Cooperation Treaty, preserving the Company's right to file applications in the European Patent Office and certain other countries. There can be no assurance that a United States patent, with respect to the applications in which a notice of allowance or preliminary indication of allowability has been received, will be issued, or if issued, will offer any protection to the Company or that it will not be reexamined, invalidated or circumvented. In addition, there can be no assurance that any claims under the other pending applications will be allowed, or if allowed, will offer any protection or that they will not be rejected, challenged, reexamined, invalidated or circumvented. In addition, there can be no assurance that competitors will not obtain patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products in either the United States or international markets. The Company received a letter from NeoCardia, L.L.C. ("NeoCardia"), dated July 7, 1995, in which NeoCardia notified the Company that NeoCardia is the exclusive licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the Company confirm that its products did not infringe the claims of the Dake Patent. The Company has concluded, based upon advice of patent counsel, that the Company's Beta-Cath System would not infringe any valid claim of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent counsel responded that the Company did not infringe the Dake Patent. In June 1997 the USPTO issued a final Office Action with respect to two consolidated reexamination requests relating to the Dake Patent. In the final Office Action, the patent examiner upheld the patentability of some of the original claims and certain new claims for the Dake Patent but rejected other claims. In August 1997 the holder of the Dake Patent filed an amendment in response to the final Office Action seeking, among other things, to add certain additional new claims, which appear to have been written in an attempt to cover the Beta-Cath System. In October 1997 the USPTO, rejected these particular new claims, because they improperly attempted to broaden the scope of the Dake Patent and were inconsistent with the original patent claims. The holder of the Dake Patent has the right to appeal any final rejection of any claims presented. The validity of patent claims which survive a reexamination procedure may be more difficult to challenge in a later dispute than claims which have never been reexamined to the extent that the same prior art is relied upon. The Company continues to believe, based upon advice of counsel that the Beta-Cath System would not infringe any valid claim of the Dake Patent. However, there can be no assurance that the Company's products will not infringe any original, amended or new claims of the Dake Patent which survive the reexamination proceeding. In May 1997 Guidant Corporation ("Guidant") acquired NeoCardia together with the rights under the Dake Patent. Guidant is a New York Stock Exchange-listed, medical device company, which is a competitor of Novoste. Guidant has significantly greater capital resources than the Company. There can be no assurance that Guidant will not sue the Company for patent infringement and obtain damages from the Company and/or injunctive relief restraining the Company from commercializing the Beta-Cath System in the U.S., or that the Company will not be required to obtain a license from Guidant to market the Beta-Cath System in the U.S., any of which could have a material adverse effect on the Company's business, financial condition and results of operations, or could result in cessation of the Company's business. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights and companies in the medical device industry have employed intellectual property 31 33 litigation to gain a competitive advantage. There can be no assurance that the Company will not become subject to patent-infringement claims or litigation or interference proceedings declared by the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are both costly and time-consuming. Litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation or interference proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties or require the Company to redesign its products or processes to avoid infringement or prevent the Company from selling its products in certain markets, if at all. Although patent and intellectual property disputes regarding medical devices have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that the necessary licenses would be available to the Company on satisfactory terms, if at all, or that the Company could redesign its products or processes to avoid infringement. Any adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company from manufacturing and selling its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. Patent applications in the United States are maintained in secrecy until patents issue, and patent applications in foreign countries are maintained in secrecy for a period after filing. Accordingly, there can be no assurance that current and potential competitors or other third parties have not or will not file applications for, or have not or will not receive, patents and will not obtain additional proprietary rights relating to products made, used or sold or processes used or proposed to be used by the Company. The Company has developed certain of its patent and proprietary rights relating to the Beta-Cath System in conjunction with Emory University Hospital, a leader in the use of intravascular radiation therapy. To obtain the exclusive rights to commercialize the Beta-Cath System for the treatment of restenosis, the Company entered into a license agreement with Emory, under which Emory assigned to the Company all of Emory's rights to one pending U.S. patent application, as to which Emory made no representation or warranty with respect to its ownership thereof, and licensed other technology thereunder relating to the Beta-Cath System, but made only limited representations as to the ownership of such other technology. Under the agreement Emory will be entitled to royalty payments based upon net sales of the Beta-Cath System. The term of the agreement runs through the later of (i) the date the last patent covered by the agreement expires or (ii) January 2016 (unless earlier terminated as provided in the agreement). Any inventions developed jointly by personnel of the Company and Emory during the term of the license agreement are owned jointly by the Company and Emory. If the agreement were terminated by Emory as a result of the Company's failure to pay such royalties or any other breach of its obligations under such agreement, the Company's rights to use jointly owned patents (including any patent issuing from the continuation-in-part application which has been filed) would become non-exclusive, it would have no rights to use future patents owned exclusively by Emory, and the Company could be required by Emory to cooperate in licensing the pending U.S. patent application and its foreign counterparts to third parties so that they would be able to commercialize and sell the Beta-Cath System. All of the physicians on staff at Emory who were involved in the development of the Beta-Cath System, including Spencer B. King, III M.D., have assigned their rights in the technology, if any, to Novoste and/or Emory. In addition, the Company has entered into a license agreement with Dr. King pursuant to which Dr. King is entitled to receive a royalty on the net sales of the Beta-Cath System (excluding consideration paid for the radioactive isotope), subject to a maximum of $5,000,000 to be paid to Dr. King, in exchange for the right granted thereunder to the Company to use his name in connection with sales and marketing of the Beta-Cath System. The Company employs a full time manager of intellectual property to prepare invention records and to coordinate the prosecution of new intellectual property. The Company typically obtains confidentiality and 32 34 invention assignment agreements in connection with employment, consulting and advisory relationships. These agreements generally provide that all confidential information developed or made known to the individual by the Company during the course of the individual's relationship with the Company, is to be kept confidential and not disclosed to third parties, except in specific circumstances. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the Company in the event of unauthorized use, transfer or disclosure of such information or inventions. Furthermore, no assurance can be given that competitors will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to the Company's proprietary technology, or that the Company can meaningfully protect its rights in unpatented proprietary technology. COMPETITION Competition in the medical device industry, and specifically the markets for cardiovascular devices and devices to improve the outcome of coronary revascularization procedures, is intense. Several companies are developing devices to improve the outcome of coronary revascularization procedures, including several that have various radiation therapy products under development to reduce the frequency of restenosis. The radiation therapy devices under development by Novoste's competitors include intracoronary radiation therapy delivered through a variety of means, including: (i) a radioactive-tipped guidewire, (ii) a radioactive stent or (iii) a radioactive fluid-filled balloon. In addition, the radiation sources being developed by the Company's competition vary between gamma, beta and x-ray. Most of the companies developing radioactive guidewires, which may use either gamma or beta radiation, have also developed specialized computerized equipment to automatically calculate treatment times, control movement of the guidewire, and to store the guidewire when not in use (an "afterloader"). This equipment may be large, complex, and expensive. Guidewires with gamma-emitting radioactive tips have been used for some time in cancer therapy, and some researchers have used them in clinical trials to deliver intracoronary radiation to prevent restenosis. Gamma radiation is more penetrating and therefore more hazardous than beta radiation. As an example, during administration of gamma radiation, health care workers must leave the cath lab to ensure their safety by limiting their ongoing exposure to gamma radiation. Some companies are also investigating the use of beta-emitting wires, which would be more easily shielded and safer to use, although these are also used in conjunction with afterloaders. Companies using the guidewire approach include Neocardia, which is owned by Guidant, Best Medical, Inc., which is currently conducting a multicenter clinical trial of a gamma-emitting radioactive guidewire, U.S. Surgical and Pfizer through its Schneider AG subsidiary. Novoste is also aware of one company, Isostent, Inc., developing a beta-emitting stent. In theory, such a stent would address both elastic recoil and vascular remodeling and inhibit longer-term hyperplasia. However, this method retains the problems inherent in leaving a permanent implant in the coronary artery. In addition, this approach might not effectively treat areas of the artery beyond the ends of the stent, areas which have been known to be restenotic. Finally, because it is a permanent implant, a radioactive stent would likely require the use of a radiation source with a short half-life. As a result, a hospital would have difficulty keeping an inventory of stents that have sufficient radioactivity at the time of implant. Another method of delivering intraluminal radiation being investigated by a number of physicians and companies is a radioactive fluid-filled balloon catheter. This approach would involve injecting a short half-life radioactive liquid down a catheter to inflate a balloon. The main disadvantages of this approach are the risk of balloon rupture and disposal of the catheter and fluid as radioactive waste. Many of the Company's competitors and potential competitors have substantially greater capital resources than does the Company and also have greater resources and expertise in the areas of research and development, obtaining regulatory approvals, manufacturing and marketing. There can be no assurance that the Company's competitors and potential competitors will not succeed in developing, marketing and distributing technologies and products that are more effective than those developed and marketed by the Company or that would render the Company's technology and products obsolete or noncompetitive. 33 35 Additionally, there is no assurance that the Company will be able to compete effectively against such competitors and potential competitors in terms of manufacturing, marketing and sales. Any product developed by the Company that gains regulatory clearance or approval will have to compete for market acceptance and market share. An important factor in such competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which the Company can develop products, gain regulatory approval and reimbursement acceptance and supply commercial quantities of the product to the market are expected to be important competitive factors. In addition, the Company believes that the primary competitive factors for products addressing restenosis include safety, efficacy, ease of use, reliability, suitability for use in cath labs, service and price. The Company also believes that physician relationships, especially relationships with leaders in the interventional cardiology community, are important competitive factors. Although the Company believes that it is the first in the United States to have initiated an FDA-approved human clinical trial of a radiation system for reducing the frequency of restenosis, there can be no assurance that the Company will be first to market such a system in the United States or to market such a system effectively. GOVERNMENT REGULATION United States The Company's Beta-Cath System is regulated in the United States as a medical device. As such, the Company is subject to extensive regulation by the FDA and by foreign governments. The FDA regulates the clinical testing, manufacture, labeling, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing approvals, a recommendation by the FDA that the Company not be permitted to enter into government contracts, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. In the United States, medical devices are classified into one of three classes (Class I, II or III) on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and efficacy. Under FDA regulations Class I devices are subject to general controls (for example, labeling, premarket notification and adherence to GMPs) and Class II devices are subject to general and special controls (for example, performance standards, patient registries, and FDA guidelines). Generally, Class III devices are those that must receive premarket approval by the FDA after evaluation of their safety and efficacy (for example, life-sustaining, life-supporting and implantable devices, or new devices that have not been found substantially equivalent to other Class II legally marketed devices). The Beta-Cath System is a Class III device, which will require pre-market approval ("PMA") by the FDA prior to its commercialization. A PMA application must be supported by valid scientific evidence, which typically includes extensive data, including preclinical and human clinical trial data to demonstrate safety and efficacy of the device. If human clinical trials of a device are required and the device presents a "significant risk," the sponsor of the trial (usually the manufacturer or the distributor of the device) is required to file an IDE application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards ("IRBs"), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. The PMA application must also contain the results of all relevant bench tests, laboratory and animal studies, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission should include the proposed labeling, advertising literature and training methods (if required). Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit such substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing and begin an in-depth review of the PMA 34 36 application. An FDA review of a PMA application generally takes one to two years from the date the PMA application is accepted for filing, but may take significantly longer. The review time is often significantly extended by the FDA asking for more information or clarification of information previously submitted. During the review period an advisory committee, primarily comprised of clinicians, will likely be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by those recommendations. During the review process of the PMA application, the FDA generally will conduct an inspection of the manufacturer's facilities to ensure that the facilities are in compliance with the applicable GMP requirements. If the FDA's evaluations of the PMA application is favorable, the FDA will either issue an approval letter or an "approvable letter," containing a number of conditions which must be satisfied in order to secure the final approval of the PMA application. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a letter approving a PMA application authorizing commercial marketing of the device for certain indications. If the FDA's evaluation of the PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA application or issue a "not approvable letter." The FDA may also determine that additional clinical trials are necessary, in which case approval of the PMA application could be delayed for several years while additional clinical trials are conducted and submitted in an amendment to the PMA application. The PMA application process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. On July 19, 1995, 29 days after submission of the application, the Company obtained an IDE to conduct clinical feasibility trial to collect data necessary to gain FDA approval to begin the multi center, randomized, prospective clinical trial needed to support a PMA application. The trial initially commenced at Emory University Hospital. On April 18, 1996, 31 days after submission of an application to broaden that IDE, the Company was granted the authority to begin enrolling patients also at Rhode Island Hospital. Then, in July 1997, 29 days after submission of the Company's application for an IDE for a multi center trial using a modified transfer device, the FDA approved an IDE for the multi center trial currently in progress. There can be no assurance as to when, or if, the Company will complete clinical trials of its Beta-Cath System or that data from such trials, if completed, will be adequate to support approval of a PMA application. Furthermore, there can be no assurance that the Company will be able to obtain approval of its PMA application on a timely basis, or at all, and delays in the receipt of, or failure to receive, such approvals would have a material adverse effect on the Company's business, financial condition and results of operations, and could result in cessation of the Company's business. Any products manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA and certain state agencies, and are subject to periodic inspections by the FDA and those state agencies. The FDA requires devices to be manufactured in accordance with GMP regulations, which impose certain procedural and documentation requirements upon the Company with respect to manufacturing and quality-assurance activities. Because the Beta-Cath System uses radiation sources, its manufacture, distribution, transportation, import/export, use and disposal will also be subject to federal, state and/or local laws and regulations relating to the use and handling of radioactive materials. Specifically, even if approval of a PMA application is obtained, approval by the U.S. Nuclear Regulatory Commission ("NRC"), or an equivalent state agency, of the Company's radiation sources for certain medical uses will be required to distribute commercially the radiation sources to licensed recipients in the United States. In addition, the Company and/or its supplier of radiation sources must obtain a license from the NRC to commercially distribute such radiation sources as well as to comply with all applicable regulations. The Company and/or its supplier of radiation sources must also comply with NRC and U.S. Department of Transportation regulations on the labeling and packaging requirements for shipment of radiation sources to hospitals or other users of the Beta-Cath System. In 35 37 addition, hospitals may be required to obtain or expand their licenses to use and handle beta radiation prior to receiving radiation sources for use in the Beta-Cath System. Comparable, or perhaps more stringent, requirements and/or approvals regulating radiation are anticipated in markets outside the United States. If any of the foregoing approvals are significantly delayed or not obtained, the Company's business, financial condition and results of operations could be materially adversely affected. The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire-hazard control and disposal of hazardous or potentially hazardous substances. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws and regulations now or in the future, or that such laws or regulations will not have a material adverse effect upon the Company's ability to do business. Changes in existing requirements or adoption of new requirements or policies could adversely affect the ability of the Company to comply with regulatory requirements. Failure to comply with regulatory requirements could have a material adverse effect on the Company's business, financial condition or results of operations. There can be no assurance that the Company will not be required to incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. International Sales of the Beta-Cath System outside the United States are subject to regulatory requirements that vary from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA approval, and the requirements may differ. In addition, there may be foreign regulatory barriers other than premarket approval (including regulations concerning the distribution, use and handling of the radiation sources), and the export of devices must be in compliance with FDA regulations. In Europe, commencing in 1998 the Company will be required to obtain certifications necessary to enable the CE mark to be affixed to the Beta-Cath System, to market the Beta-Cath System throughout the European Union. Additionally, to market products in Europe, the Company may choose to maintain ISO 9001 and is required to maintain EN 46001 certification subject to periodic surveillance audits. Using data from its feasibility studies, the Company intends to submit an application by the end of the first quarter of 1998 for a CE mark to commence marketing of the Beta-Cath System in Europe. Other countries in which the Company intends to market the Beta-Cath System may adopt regulations in the future that could prevent the Company from marketing its Beta-Cath System in those countries. In addition, the Company may be required to spend significant amounts of capital in order to respond to requests for additional information by foreign regulatory bodies, or may otherwise be required to spend significant amounts of capital in order to obtain foreign regulatory approvals. Any such events could substantially delay or preclude the Company from marketing the Beta-Cath System in foreign countries. THIRD-PARTY REIMBURSEMENT The Beta-Cath System, if approved for commercial sale, will be purchased primarily by hospitals. Hospitals and physicians bill various third-party payors, such as government health programs, private health insurance plans, managed care organizations and other similar programs, for the health care services provided to their patients. The FDA has classified the Beta-Cath System as an experimental device and accordingly its use in the human clinical trials will not be reimbursable under the Medicare program or by private insurers until after the PMA approval is achieved, if ever. The classification of the Beta-Cath System as experimental will materially increase the costs of conducting clinical trials in the United States, and such costs could have a material adverse effect on the Company's business, financial condition and results of operations. Even if the Beta-Cath System were to receive approval for marketing by the FDA, there can be no assurance that third-party payors will cover the Beta-Cath System, or, if covered, that third-party payors will not place certain restrictions on the circumstances in which coverage will be available. In addition, payors may deny reimbursement if they determine that a product was not used in accordance with established payor protocol regarding cost-effective treatment methods, or was used for an unapproved indication. Third-party payors are 36 38 also increasingly challenging the prices charged for medical products and services and, in some instances, have put pressure on medical device suppliers to lower their prices. The Company is unable to predict what changes will be made in the reimbursement methods used by third-party health care payors. There can be no assurance that the Beta-Cath System will be considered cost effective by third-party payors, that reimbursement for the Beta-Cath System will be available or, if available, that payors' reimbursement levels will not adversely affect the Company's ability to sell the Beta-Cath System on a profitable basis. In addition, the cost of health care has risen significantly over the past decade, and there have been and may continue to be proposals by legislators, regulators and third-party payors to curb these costs. Failure by hospitals and physicians to obtain reimbursement from third-party payors, changes in third-party payors' policies toward reimbursement for the Beta-Cath System or legislative action could have a material adverse effect on the Company's business, financial condition and results of operations. Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government managed health care systems that control reimbursement for new devices and procedures. In most markets there are private insurance systems as well as government managed systems. There can be no assurance that reimbursement for the Company's products will be available in international markets under either government or private reimbursement systems. PRODUCT LIABILITY AND INSURANCE The business of the Company entails the risk of product liability claims. Although the Company has not experienced any product liability claims to date, there can be no assurance that such claims will not be asserted or that the Company will have sufficient resources to satisfy any liability resulting from such claims. The Company maintains product liability insurance with coverage of an annual aggregate maximum of $4 million. There can be no assurance that product liability claims will not exceed such insurance coverage limits, that such insurance will continue to be available on commercially reasonable terms or at all, or that a product liability claim would not materially adversely affect the business, financial condition or results of operations of the Company. FACILITIES The Company leases approximately 25,600 square feet of space in an office park in Norcross, Georgia under a five-year lease expiring in 2000. All of the Company's operations (other than clinical research activities and services of its consultants) are conducted in that facility. The Company believes that its facility is adequate to serve its needs through at least 1998, but additional facilities may be needed thereafter to commercialize the Beta-Cath System. EMPLOYEES AND CONSULTANTS As of October 21, 1997 the Company directly employed 42 full-time individuals. Most of the Company's employees have prior experience with medical device or pharmaceutical companies. The Company believes it maintains good relations with its employees. None of the Company's employees is represented by a union or covered by a collective bargaining agreement. The Company's success will depend in large part upon its ability to attract and retain qualified employees. The Company faces competition in this regard from other companies, research and academic institutions and other organizations. The Company maintains continuing relationships with a number of independent consultants that have contributed to the development of the Company's products and work on specific development projects. These relationships are integral to the continued success of the Company and the generation of new products from the research and development departments. 37 39 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ---- --- -------- Thomas D. Weldon.......................... 42 President, Chief Executive Officer and Director Charles E. Larsen......................... 46 Senior Vice President, Chief Technical Officer and Director David N. Gill............................. 42 Chief Operating Officer, Vice President of Finance and Treasurer Thomas K. Brooks.......................... 41 Vice President, Sales and Marketing Joan M. MacDonald, Ph.D................... 39 Vice President, Regulatory and Clinical Affairs Cheryl R. Johnson......................... 35 Vice President, Investor Relations and Business Development and Secretary Norman R. Weldon, Ph.D.................... 63 Chairman of the Board of Directors J. Stephen Holmes......................... 54 Director(1) Richard M. Johnston....................... 62 Director(1)(2) Pieter J. Schiller........................ 59 Director(2) Jack R. Kelly, Jr......................... 63 Director(1) Stephen I. Shapiro........................ 52 Director William E. Whitmer........................ 64 Director(2)
- --------------- (1) Member of Stock Option and Compensation Committee. (2) Member of Audit Committee. Thomas D. Weldon. Mr. Weldon co-founded the Company and has served as its President and Chief Executive Officer and as a Director since its capitalization in May 1992. Mr. Weldon co-founded and was President, Chief Executive Officer and a Director of Novoste Puerto Rico Inc. ("Novoste Puerto Rico"), a manufacturer of disposable cardiovascular medical devices, from 1987 to May 1992, prior to its sale. Previous responsibilities included management positions at Arthur Young & Company and Key Pharmaceuticals. Mr. Weldon received a B.S. in Industrial Engineering from Purdue University and an M.B.A. in Operations and Systems Management from Indiana University. Charles E. Larsen. Mr. Larsen co-founded the Company and has served as its Senior Vice President and as a Director since its capitalization in May 1992. Since February 28, 1997, Mr. Larsen has been Chief Technical Officer of the Company, having served from May 1992 through February 1997 as its Chief Operating Officer. Mr. Larsen co-founded and was Vice President and Director of Novoste Puerto Rico from 1987 to May 1992. From 1983 through 1987, Mr. Larsen was a manager of manufacturing engineering at Cordis Corporation. Mr. Larsen received a B.S. in Mechanical Engineering from New Jersey Institute of Technology. David N. Gill. Mr. Gill has served as the Company's Vice President of Finance, Chief Financial Officer and Treasurer since July 1996 and as Chief Operating Officer since February 28, 1997. From August 1995 to June 1996, Mr. Gill served as Chief Financial Officer of SPEA Software AG prior to its sale. From 1992 to 1995, Mr. Gill served as President and Director of Dornier Medical Systems, Inc., and from 1990 to 1992 as its Vice President of Finance. Mr. Gill received an M.B.A. from Emory University and a B.S. degree in Accounting from Wake Forest University. Thomas K. Brooks. Mr. Brooks has served as the Company's Vice President, Sales, Marketing and Business Development from January 1995 to July 1996 and as Vice President, Sales and Marketing since July 1996. From 1986 through December 1994, Mr. Brooks served in various sales, marketing, and business development positions with Boston Scientific Corporation, a manufacturer of medical devices, most recently as manager of new business development. From 1983 through 1986, Mr. Brooks held various sales positions 38 40 for Ethicon Endo-Surgery Division of Johnson & Johnson. Mr. Brooks received a B.A. in Business Administration from Monmouth College. Joan M. Macdonald, Ph.D. Dr. Macdonald joined the Company in January 1994, as its Director of Regulatory Affairs, and has been its Vice President, Regulatory and Clinical Affairs since January 1996. From February 1991 through September 1993, Dr. Macdonald worked for CIBA Vision Corporation, a manufacturer of ophthalmic products, having served most recently as Director, Worldwide Regulatory Strategy. Dr. Macdonald received a Ph.D. degree in Physiology from the Medical College of Wisconsin and M.S. and B.S. degrees in Zoology from the University of Wisconsin. Cheryl R. Johnson. Ms. Johnson joined the Company in July 1992 as Director of Marketing and Business Development and Secretary, served as Director of Administration and Business Development of the Company from January 1996 until July 1996 and as Vice President, Investor Relations and Business Development from July 1996. From August 1989 to June 1992, Ms. Johnson worked in planning and business development capacities at BOC Health Care, most recently as its business development manager. Ms. Johnson received an M.B.A. from the Kellogg School at Northwestern University and a B.S. degree in Chemical Engineering from the Georgia Institute of Technology. Norman R. Weldon, Ph.D. Dr. Weldon co-founded the Company and has been Chairman of the Board since its capitalization in May 1992. Dr. Weldon is Treasurer and Managing Director of Partisan Management Group, a venture capital fund he co-founded in 1993. From 1986 until May 1996, Dr. Weldon served as President and Chief Executive Officer and as a Director of Corvita Corporation, a medical device company Dr. Weldon co-founded in 1986. In July 1996 Pfizer Inc. consummated its acquisition of Corvita. From 1979 to 1987, Dr. Weldon served as President and Chief Executive Officer of Cordis Corporation. From 1964 to 1979, Dr. Weldon served CTS Corporation in various capacities, including as its President and Chief Executive Officer beginning in 1976. Dr. Weldon received, from Purdue University, a Ph.D. in Economics, a M.S. in Industrial Management and a B.S. in Biochemistry. J. Stephen Holmes. Mr. Holmes has served as a Director of the Company since October 1992. Mr. Holmes is currently Executive Manager of Saber Endoscopy, LLC, a medical device company, and has served as Founder and Manager since its inception in February 1996. From 1992 through 1995, Mr. Holmes was a private investor, having founded several start-ups from 1979 through 1991, including Adler Instrument Company, Inc., SOLOS Ophthalmology, Inc. and SOLOS Endoscopy, Inc., which he founded in 1982, 1988 and 1990, respectively, and in which he sold his interests in 1988, 1991 and 1991, respectively. From 1970 through 1979, Mr. Holmes served in various marketing and sales positions with Baxter/American Hospital Supply. Mr. Holmes received a B.S. in Marketing from the University of Evansville. Richard M. Johnston. Mr. Johnston has served as a Director of the Company since December 1993. Mr. Johnston has been employed by The Hillman Company, an investment holding company with diversified operations, since 1961 and has been Vice-President -- Investments since 1970 and a Director since 1993. The Hillman Company is controlled by a principal shareholder of the Company, the trust for the benefit of Henry L. Hillman. Since February 1996 Mr. Johnston has served as Chairman of the Board of Metrocall, Inc. Mr. Johnston has also served as Chairman of the Board of Western Pennsylvania Healthcare System since 1978. Mr. Johnston received a M.B.A. from the Wharton School of Finance and Commerce, University of Pennsylvania and a B.S. in Commerce from Washington & Lee University. Pieter J. Schiller. Mr. Schiller has served as a Director of the Company since March 1996. Mr. Schiller has served as a Director of CollaGenex Pharmaceuticals, Inc. since September 1995. Since 1987, Mr. Schiller has been a general partner of a principal shareholder of the Company, ATV, a venture capital firm located in Boston, Massachusetts, where he specializes in health care investing. Mr. Schiller served Allied Signal and its predecessor companies from 1961 through 1986 in various capacities, including Treasurer and Vice-President, Planning and Development. From 1983 to 1986, he served as Executive Vice-President of Allied Health and Scientific Products Company, a multi-national manufacturer of biomedical and analytical instruments and supplies. Mr. Schiller received his M.B.A. from New York University and a B.A. in Economics from Middlebury College. 39 41 Jack R. Kelly, Jr. Mr. Kelly has served as a Director of the Company since January 1995. Since July 1983, Mr. Kelly has been a member of the general partner of Noro-Moseley Partners III, L.P., a venture capital fund and a principal shareholder of the Company. From 1958 through 1983, Mr. Kelly was the Chief Operating Officer and a Director of Scientific-Atlanta, Inc. Mr. Kelly is a Director of Syntellect, Inc. Mr. Kelly earned a B.S. in Physics from Georgia State University. Stephen I. Shapiro. Mr. Shapiro has served as a Director of the Company since October 1996. Mr. Shapiro previously served as a Director of the Company from August 1995 until his resignation in March 1996. Since 1982, he has been a Managing Principal of The Wilkerson Group (International Business Machines Corporation), a management consulting group with clients in the health care industry. From 1970 to 1982, Mr. Shapiro held a variety of technical management and strategic planning positions with Union Carbide Clinical Diagnostics and Becton Dickinson and Company. Mr. Shapiro received a B.S. degree in Chemical Engineering from the Massachusetts Institute of Technology and a M.S. degree in Chemical Engineering from the University of California at Berkeley. William E. Whitmer. Mr. Whitmer has served as a Director of the Company since October 1992. Mr. Whitmer is a certified public accountant and management consultant. From 1989 until his retirement in 1992, he was a partner of Ernst & Young, having served as the Associate Managing Director of that firm's southern U.S. management consulting group. From 1968 through 1989, Mr. Whitmer was a partner of Arthur Young & Company, having served as the Managing Partner of its East and Southeast U.S. regions of the management consulting practice from 1975 through 1989. Mr. Whitmer received a B.A. in Economics from Denison University. Dr. Norman R. Weldon is the father of Mr. Thomas D. Weldon. The Company's Board of Directors is divided into three classes, each of which will serve a term of three years, with one class being elected each year. Each of the Company's directors has been elected to serve until his successor has been elected and duly qualified. The terms of Richard M. Johnston, Pieter J. Schiller and Jack R. Kelly, Jr. will expire at the annual meeting of shareholders in 1998; the terms of Thomas D. Weldon, Charles E. Larsen and Norman R. Weldon will expire at the annual meeting of shareholders in 1999; and the terms of J. Stephen Holmes, William E. Whitmer and Stephen I. Shapiro will expire at the annual meeting of shareholders in 2000. The Board of Directors has a Stock Option and Compensation Committee, comprised of Richard M. Johnston, Jack R. Kelly, Jr. and J. Stephen Holmes. The Stock Option and Compensation Committee establishes compensation policies and determines compensation for the executive officers of the Corporation, as well as administering the Company's 1992 Amended and Restated Stock Option Plan. The Board itself administers the Non-Employee Director Stock Option Plan. The Board of Directors also has an Audit Committee, comprised of Messrs. William E. Whitmer, Pieter J. Schiller and Richard M. Johnston. The Audit Committee reviews the audit and financial procedures of the Company and recommends any changes with respect thereto to the Board of Directors. Officers are elected annually and serve at the pleasure of the Board of Directors. The Company has obtained key-man life insurance policies on the lives of Mr. Thomas D. Weldon and Mr. Larsen in the amount of $1,000,000 and $750,000, respectively, under each of which the Company is the sole beneficiary. 40 42 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth as of October 20, 1997, information with respect to the beneficial ownership of the Common Stock by (i) each person known by the Company to own beneficially five percent or more of such Common Stock, (ii) each director of the Company, (iii) each person named in the Summary Compensation Table in the Company's Definitive Proxy Statement for its June 20, 1997 Annual Meeting of Shareholders, (iv) each Selling Shareholder and (v) all executive officers and directors as a group, together with their respective percentage ownership of such shares before this Offering and as adjusted to reflect the sale of the Common Stock offered hereby:
SHARES OWNED BEFORE SHARES OWNED AFTER THE OFFERING THE OFFERING ------------------------- SHARES ---------------------- NAME AND ADDRESS NUMBER(1) PERCENTAGE BEING SOLD NUMBER(1) PERCENTAGE - ---------------- ---------- ---------- ---------- --------- ---------- Thomas D. Weldon(2)(3)(4)........... 930,402 10.4% 100,000 830,402 7.9% Charles E. Larsen(4)................ 776,161 8.7% 100,000 676,161 6.4% Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees(5)(6)(12)................ 449,087 5.1% -- 449,087 4.4% C.G. Grefenstette and Thomas G. Bigley, Trustees(5)(7)............ 582,112 6.8% -- 582,112 5.7% Venhill Limited Partnership(8)...... 236,574 2.8% -- 236,574 2.3% 158 Main Street New Canaan, Connecticut 06840 Advanced Technology Ventures IV, L.P............................... 794,043 9.3% 100,000(9) 694,043 6.9% 10 Post Office Square #970 Boston, MA 02109 Noro-Moseley Partners III, L.P...... 537,037 6.3% 100,000(9) 437,037 4.3% 4200 Northside Parkway N.W. Atlanta, GA 30327(10) T. Rowe Price Associates, Inc.(11).......................... 581,000 6.8% -- 581,000 5.7% Norman R. Weldon, Ph.D.(3)(12)...... 375,883 4.4% -- 375,883 3.7% Jonathan J. Rosen, Ph.D.(13)........ 10,575(13) * -- 10,575 * Cheryl R. Johnson................... 118,600 1.4% -- 118,600 1.2% Thomas K. Brooks.................... 54,850 * -- 54,850 * Stephen I. Shapiro.................. 13,250 * -- 13,250 * J. Stephen Holmes................... 22,500 * -- 22,500 * William E. Whitmer.................. 14,500 * -- 14,500 * Richard M. Johnston(14)............. 3,000 * -- 3,000 * Jack R. Kelly, Jr.(15).............. 3,000 * -- 3,000 * Pieter J. Schiller(16).............. 2,500 -- -- 2,500 -- David N. Gill....................... 16,250 * -- 16,250 * All executive officers and directors as a group (13 persons)(17)............ 2,256,675 23.7% 200,000 2,056,675 18.5%
- --------------- * Less than 1%. (1) A person is deemed to be the beneficial owner of Common Stock that can be acquired within 60 days from the Record Date upon the exercise of options, and that person's options are assumed to have been exercised (and the underlying shares of Common Stock outstanding) in determining such person's percentage ownership. Accordingly, the following shares issuable upon exercise of options have been included in the shares beneficially owned by the following persons: Thomas D. Weldon -- 391,875 shares; Charles E. Larsen -- 391,875 shares; J. Stephen Holmes -- 12,500 shares; William E. Whitmer -- 12,500 shares; Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees -- 12,500 shares; Noro-Moseley Partners III, L.P. -- 7,500 shares; Cheryl R. Johnson -- 118,200 shares; 41 43 Pieter J. Schiller -- 2,500 shares; Norman R. Weldon -- 2,500 shares; Stephen I. Shapiro -- 2,500 shares and David N. Gill -- 16,250 shares. (2) Includes 15,000 shares held in trust for the benefit of Mr. Weldon's children and 5,000 shares held by Mr. Weldon as custodian for his nephew. (3) Includes 122,571 shares held by The Weldon Foundation, Inc., a Florida not-for-profit corporation in which Thomas D. Weldon and Norman R. Weldon are directors. Mr. Weldon and Dr. Weldon disclaim beneficial ownership of all shares held by The Weldon Foundation, Inc. (4) Address is c/o Novoste Corporation, 4350-C International Blvd., Norcross, GA 30093. (5) Address is 2000 Grant Building, Pittsburgh, PA 15219. (6) Consists of 436,587 shares held by a trust for the benefit of Henry L. Hillman (the "HLH Trust") and 12,500 shares subject to options which were granted to Richard M. Johnston, an officer of The Hillman Company. Pursuant to an agreement with The Hillman Company, if Mr. Johnston exercises these options, he does so on behalf of The Hillman Company or a wholly owned subsidiary thereof. The Trustees of the HLH Trust are Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette (the "HLH Trustees"). The HLH Trustees share voting and investment power with respect to the shares of record held by the HLH Trust. Does not include an aggregate of 582,112 shares held by four trusts for the benefit of members of the Hillman family (see note 7 below) or 236,574 shares owned by Venhill Limited Partnership (see note 8 below), as to which shares the HLH Trustees (other than Mr. Grefenstette with respect to the shares described in note 7 below) disclaim beneficial interest. (7) Includes 145,528 shares held by each of four irrevocable trusts for the benefit of members of the Hillman family (the "Hillman Family Trusts"). Mr. Grefenstette and Thomas G. Bigley are trustees of these four trusts and share voting and dispositive power over the trusts' assets. (8) Consists of 236,574 shares held by Venhill Limited Partnership. Howard B. Hillman is the general partner of Venhill Limited Partnership and is a step-brother of Henry L. Hillman. (9) Does not include up to 100,000 shares and 30,000 shares which may be sold by Advanced Technology Ventures IV, L.P. and Noro-Moseley Partners III, L.P., respectively, upon exercise of the Underwriters' over-allotment option. (10) Includes 2,500 shares subject to options which were granted to Jack R. Kelly, Jr., a member of the general partner of Noro-Moseley III, L.P. ("Noro-Moseley") and 5,000 shares issuable upon options issued to Noro-Moseley. Pursuant to an agreement with Noro-Moseley, if Mr. Kelly exercises his options, he does so on behalf of Noro-Moseley. (11) Pursuant to a Schedule 13F, dated June 30, 1997, which was jointly filed with the Securities and Exchange Commission by T. Rowe Price Associates, Inc. ("T. Rowe Associates") and T. Rowe Price New Horizons Fund, Inc. ("T. Rowe Fund"). The address of T. Rowe Associates and T. Rowe Fund is 100 E. Pratt Street, Baltimore, MD 21202. Both entities disclaim beneficial ownership of all shares held. (12) Includes 14,250 shares held by Dr. Weldon's spouse but excludes all shares held by Dr. Weldon's adult children, none of whom reside with Dr. Weldon. (13) Resigned as an executive officer of the Company effective February 28, 1997. His ownership of shares is based upon the Company's records as of October 23, 1997. (14) Does not include shares held by the HLH Trust, the Hillman Family Trusts and Venhill Limited Partnership (collectively, the "Hillman Related Shareholders"), as to which Mr. Johnston disclaims beneficial ownership. Mr. Johnston is Vice President -- Investments and a Director of The Hillman Company, a private firm engaged in diversified investments and operations which is controlled by the HLH Trust. Also does not include 12,500 shares subject to options, which were granted to Mr. Johnston but to which he disclaims beneficial ownership. Pursuant to an agreement with The Hillman Company, if Mr. Johnston exercises these options, he does so on behalf of The Hillman Company or a wholly owned subsidiary thereof. See note 6 above. (15) Does not include shares held by Noro-Moseley, for which Mr. Kelly serves as a member of the general partner. Mr. Kelly disclaims beneficial ownership of such shares, except to the extent of his proportionate interest in Noro-Moseley. Also does not include 2,500 shares subject to options, which were granted to Mr. Kelley but to which he disclaims beneficial ownership. Pursuant to an agreement with Noro-Moseley, if Mr. Kelly exercises his options, he does so on behalf of Noro-Moseley. See Note 10 above. 42 44 (16) Does not include shares held by Advanced Technology Ventures IV, L.P. ("ATV"), for which Mr. Schiller serves as a general partner. Mr. Schiller disclaims beneficial ownership of such shares, except to the extent of his proportionate interest in ATV. (17) See notes 1, 2, 3 and 12 above. Also includes options to purchase 43,550 shares held by an executive officer not named in the Summary Compensation Table under "Executive Compensation" on page of this Prospectus. Does not include options to purchase 20,000 shares described in notes 14 and 15 above. Also does not include any shares held by Dr. Rosen, who resigned as an executive officer of the Company effective February 28, 1997. 43 45 UNDERWRITING The Company and the Selling Shareholders have entered into a Purchase Agreement (the "Purchase Agreement") with the underwriters listed in the table below (the "Underwriters"), for whom Piper Jaffray Inc., Cowen & Company and NationsBanc Montgomery Securities, Inc. are acting as representatives (the "Representatives"). Subject to the terms and conditions set forth in the Purchase Agreement, the Company and the Selling Shareholders have agreed to sell to the Underwriters, and each of the Underwriters has severally agreed to purchase from the Company and the Selling Shareholders in relative proportion to the number of shares of Common Stock offered by them hereby, the following number of shares of Common Stock set forth opposite each Underwriter's name in the table below:
NUMBER NAME OF SHARES - ---- --------- Piper Jaffray Inc. ......................................... Cowen & Company............................................. NationsBanc Montgomery Securities, Inc. .................... --------- Total............................................. 2,000,000 =========
Subject to the terms and conditions of the Purchase Agreement, the Underwriters have agreed to purchase all of the Common Stock being sold pursuant to the Purchase Agreement, if any is purchased (excluding shares covered by the over-allotment option granted therein). In the event of a default by any Underwriter, the Purchase Agreement provides that in certain circumstances purchase commitments of the nondefaulting Underwriters may be increased, or the Purchase Agreement may be terminated. The Representatives have advised the Company that the Underwriters propose to offer Common Stock directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of not more than $ per share. Additionally, the Underwriters may allow, and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the public offering, the public offering price and other selling terms may be changed by the Underwriters. The Company and two of the Selling Shareholders, ATV and Noro-Moseley, have granted to the Underwriters an option, exercisable by the Representatives within 30 days after the date of the Purchase Agreement, to purchase up to an additional 300,000 shares of Common Stock at the same price per share to be paid by the Underwriters for the other shares offered hereby. Of such additional shares, up to 170,000 shares are being offered by the Company, up to 100,000 shares by ATV and up to 30,000 shares by Noro-Moseley, on a pro rata basis. If the Underwriters purchase any of such additional shares pursuant to this option, each Underwriter will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The Underwriters may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the Common Stock offered hereby. The Representatives have informed the Company that neither they, nor any other member of the National Association of Securities Dealers, Inc. (the "NASD") participating in the distribution of this Offering, will make sales of the Common Stock offered hereby to accounts over which they exercise discretionary authority without the prior specific written approval of the customer. The Offering of the shares is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the Offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. 44 46 The officers and directors of the Company and certain other shareholders designated by the Representatives, who will beneficially own in the aggregate 4,465,528 shares of Common Stock after the Offering, have agreed that they will not sell, offer to sell, issue, distribute or otherwise dispose of any shares of Common Stock owned by them prior to the date of this Prospectus for a period of 90 days after the date of this Prospectus, without the prior written consent of Piper Jaffray Inc., except for the shares of Common Stock offered by the Selling Shareholders hereby. The Company has agreed that it will not, without the Underwriters' prior written consent, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into Common Stock during the 90-day period following the date of this Prospectus, except that the Company may issue shares upon the exercise of options granted prior to the date hereof, and may grant additional options under the Stock Option Plans. The Company and the Selling Shareholders have agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. In connection with this Offering, the Underwriters have advised the Company that certain Underwriters and dealers, if any, or their respective affiliates who are qualified registered market-makers on The Nasdaq National Market, may engage in passive market-making transactions in the Common Stock on The Nasdaq National Market in accordance with Rule M under the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the two-business-day period before commencement of offers or sales of the Common Stock offered hereby. The passive market-making transactions must comply with applicable volume and price limits and be identified as such. In general, a passive market maker may display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market-maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. LEGAL MATTERS Certain legal matters with respect to the validity of the shares of Common Stock offered hereby will be passed upon for the Company and the Selling Shareholders by Epstein Becker & Green, P.C., New York, New York. Certain legal matters will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. EXPERTS The financial statements of the Company as of December 31, 1995 and 1996, and for each of the three years in the period ended December 31, 1996, and for the period from inception (May 22, 1992) through December 31, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 45 47 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) INDEX TO FINANCIAL STATEMENTS CONTENTS
PAGE ---- Financial Statements at December 31, 1995 and 1996 and for the Years Ended December 31, 1994, 1995 and 1996 and the Period from Inception (May 22, 1992) Through December 31, 1996 Report of Independent Auditors.............................. F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Shareholders' Equity (Deficit)................ F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 Unaudited Condensed Financial Statements at September 30, 1997 and for the Nine Months Ended September 30, 1996 and 1997 Balance Sheet............................................... F-15 Statements of Operations.................................... F-16 Statements of Cash Flows.................................... F-17 Notes to Unaudited Condensed Financial Statements........... F-18
F-1 48 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Novoste Corporation We have audited the accompanying balance sheets of Novoste Corporation (a Development Stage Company) (the "Company") as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1996 and for the period from inception (May 22, 1992) through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 and for the period from inception (May 22, 1992) through December 31, 1996 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Atlanta, Georgia February 1, 1997 F-2 49 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, -------------------------- 1996 1995 ------------ ----------- ASSETS Current assets: Cash and cash equivalents................................. $ 19,954,827 $ 817,587 Short-term investments.................................... 7,588,693 -- Prepaid expenses.......................................... 126,349 14,628 ------------ ----------- Total current assets........................................ 27,669,869 832,215 Property and equipment, net................................. 1,128,031 932,681 License agreements, net..................................... 153,396 166,934 Other assets................................................ 303,642 125,388 ------------ ----------- $ 29,254,938 $ 2,057,218 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Fixed rate convertible promissory notes with related parties................................................ $ -- $ 1,038,450 Accounts payable.......................................... 155,946 217,543 Accrued expenses and taxes withheld....................... 665,175 482,584 ------------ ----------- Total current liabilities................................... 821,121 1,738,577 Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized at December 31, 1996, no shares issued and outstanding; none authorized at December 31, 1995 Common stock, $.01 par value, 25,000,000 and 14,000,000 shares authorized at December 31, 1996 and 1995, respectively; 8,257,967 and 2,482,622 shares issued.... 82,580 24,826 Class B common stock, $.01 par value, none authorized and outstanding at December 31, 1996 and 6,000,000 shares authorized, 1,611,269 shares issued and outstanding at December 31,1995....................................... -- 16,113 Additional paid-in capital.................................. 41,772,791 7,760,175 Deficit accumulated during the development stage............ (13,405,714) (7,466,633) ------------ ----------- 28,449,657 334,481 Less treasury stock, 5,280 shares of common stock, at cost...................................................... (15,840) (15,840) ------------ ----------- Total stockholders' equity.................................. 28,433,817 318,641 ------------ ----------- $ 29,254,938 $ 2,057,218 ============ ===========
See accompanying notes. F-3 50 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
FROM INCEPTION (MAY 22, 1992) YEAR ENDED DECEMBER 31, THROUGH --------------------------------------- DECEMBER 31, 1996 1995 1994 1996 ----------- ----------- ----------- -------------- Revenues: Miscellaneous sales...................... $ -- $ 16,507 $ 71,777 $ 290,887 Operating expenses: Research and development................. 4,646,583 2,088,822 1,404,429 8,887,032 General and administrative............... 1,574,678 465,670 525,656 4,087,541 Marketing................................ 581,280 659,361 291,470 1,532,111 ----------- ----------- ----------- ------------ 6,802,541 3,213,853 2,221,555 14,506,684 ----------- ----------- ----------- ------------ Loss from operations....................... (6,802,541) (3,197,346) (2,149,778) (14,215,797) Interest income............................ 950,791 15,427 768 991,842 Interest expense........................... (87,331) (36,107) (46,679) (181,759) ----------- ----------- ----------- ------------ Net loss................................... $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714) =========== =========== =========== ============ Net loss per share......................... $ (0.88) $ (0.69) $ (0.54) =========== =========== =========== Weighted average shares outstanding........ 6,748,492 4,671,147 4,031,307 =========== =========== ===========
See accompanying notes. F-4 51 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (MAY 22, 1992) THROUGH DECEMBER 31, 1996
DEFICIT CLASS B ACCUMULATED COMMON STOCK COMMON STOCK ADDITIONAL DURING THE ------------------- --------------------- PAID-IN DEVELOPMENT TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE STOCK TOTAL --------- ------- ---------- -------- ----------- ------------ -------- ----------- Exchange of stock for license agreement at $.25 per share....................... 746,894 $ 7,469 -- $ -- $ 179,255 $ -- $ -- $ 186,724 Sale of stock at $1.00 per share....................... 820,000 8,200 -- -- 811,800 -- -- 820,000 Sale of stock at $3.00 per share....................... 86,667 867 -- -- 259,133 -- -- 260,000 Exercise of stock options at $.25 per share.............. 205,000 2,050 -- -- 49,200 -- -- 51,250 Issuance of stock for consulting services, 117,500 shares at $.25 per share, 88,500 shares at $1.00 per share and 37,585 shares at $3.00 per share............. 243,585 2,435 -- -- 228,195 -- -- 230,630 Issuance of stock to employees for settlement of obligation for consulting services, at $3.00 per share............. 10,000... 100 -- -- 29,900 -- -- 30,000 Net loss -- -- -- -- -- (727,688) -- (727,688) --------- ------- ---------- -------- ----------- ------------ -------- ----------- Balance at December 31, 1992........................ 2,112,146 21,121 -- -- 1,557,483 (727,688) -- 850,916 Sale of stock at $3.20 per share, net of $138,932 of offering costs.............. 331,250 3,312 -- -- 917,756 -- -- 921,068 Exercise of stock options at $.25 to $1.00 per share..... 67,875 679 -- -- 23,790 -- -- 24,469 Issuance of stock for consulting services, at $3.00 per share............. 50,862 509 -- -- 152,077 -- -- 152,586 Repurchase of stock at $3.00 per share................... (5,280) -- -- -- -- -- (15,840) (15,840) Net loss...................... -- -- -- -- -- (1,325,230) -- (1,325,230) --------- ------- ---------- -------- ----------- ------------ -------- ----------- Balance at December 31, 1993........................ 2,556,853 25,621 -- -- 2,651,106 (2,052,918) (15,840) 607,969 Sale of stock at $3.20 per share....................... 312,500 3,125 -- -- 996,875 -- -- 1,000,000 Exercise of stock options at $.25 to $1.00 per share..... 35,500 355 -- -- 12,270 -- -- 12,625 Issuance of stock for consulting services, at $3.20 per share............. 50,626 506 -- -- 161,494 -- -- 162,000 Net loss...................... -- -- -- -- -- (2,195,689) -- (2,195,689) --------- ------- ---------- -------- ----------- ------------ -------- ----------- Balance at December 31, 1994........................ 2,955,479 29,607 -- -- 3,821,745 (4,248,607) (15,840) (413,095) Sale of stock at $3.75 per share, net of $191,274 of offering costs.............. -- -- 986,269 9,863 3,497,372 -- -- 3,507,235 Exercise of stock options at $.25 per share.............. 9,300 93 -- -- 2,232 -- -- 2,325 Issuance of stock for consulting services, at $3.20 per share............. 27,813 278 -- -- 88,724 -- -- 89,002 Issuance of stock for compensation to an employee, at $3.20 per share.......... 16,000 160 -- -- 51,040 -- -- 51,200 Conversion of debt to common...................... 93,750 938 -- -- 299,062 -- -- 300,000 Exchange of common for Class B common...................... (625,000) (6,250) 625,000 6,250 -- -- -- -- Net loss...................... -- -- -- -- -- (3,218,026) -- (3,218,026) --------- ------- ---------- -------- ----------- ------------ -------- ----------- Balance at December 31, 1995........................ 2,477,342 24,826 1,611,269 16,113 7,760,175 (7,466,633) (15,840) 318,641 Issuance of stock for consulting services 2,422 shares at $6.00 per share, 33,520 shares at $6.38 per share, 678 shares at $9.50 per share, and 435 shares at $9.375 per share............ 37,066 371 -- -- 407,667 -- -- 408,038 Issuance of stock for deferred compensation to employees at $3.20 per share............. 102,945 1,029 -- -- 328,395 -- -- 329,424 Conversion of debt to common stock....................... 497,349 4,974 -- -- 1,860,109 -- -- 1,865,083 Exchange of Class B for common stock....................... 1,611,269 16,113 (1,611,269) (16,113) -- -- -- -- Exercise of stock warrants at $4.00 to $4.50 per share.... 62,104 621 -- -- 267,597 -- -- 268,218 Cashless exercise of warrants.................... 889,912 8,899 -- -- (8,899) -- -- -- Issuance of stock in initial public offering at $14.00 per share, net of issuance costs of $2,973,746......... 2,400,000 24,000 -- -- 30,602,254 -- -- 30,626,254 Exercise of stock options at $3.00 to $3.20 per share.... 174,700 1,747 -- -- 555,493 -- -- 557,240 Net loss...................... -- -- -- -- -- (5,939,081) -- (5,939,081) --------- ------- ---------- -------- ----------- ------------ -------- ----------- Balance at December 31, 1996........................ 8,252,687 $82,580 -- $ -- $41,772,791 $(13,405,714) $(15,840) $28,433,817 ========= ======= ========== ======== =========== ============ ======== ===========
See accompanying notes. F-5 52 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
FROM INCEPTION (MAY 22, 1992) YEAR ENDED DECEMBER 31, THROUGH --------------------------------------- DECEMBER 31, 1996 1995 1994 1996 ----------- ----------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss................................... $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization............ 316,082 227,373 204,373 877,875 Issuance of stock for services or compensation.......................... 408,038 140,202 162,000 947,318 Change in assets and liabilities: Prepaid expenses and other............ (111,721) 34,041 (18,866) (133,808) Accounts payable...................... (61,597) 95,386 48,249 155,946 Accrued expenses and taxes withheld... 577,098 59,230 33,677 1,059,682 ----------- ----------- ----------- ------------ Net cash used by operations...... (4,811,181) (2,661,794) (1,766,256) (10,498,701) ----------- ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES (Purchase) sale of short-term investments.............................. (7,588,693) -- 194,280 (7,588,693) Purchase of property and equipment, net.... (449,730) (484,346) (510,939) (1,752,426) Other...................................... (226,418) (113,779) -- (356,037) ----------- ----------- ----------- ------------ Net cash used by investing activities..................... (8,264,841) (598,125) (316,659) (9,697,156) ----------- ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of notes payable.... 2,561,700 1,358,450 550,000 4,770,150 Repayment of notes payable................. (1,800,150) (870,000) -- (2,970,150) Proceeds from issuance of common stock..... 31,183,494 3,509,560 1,012,625 38,082,466 Exercise of warrants....................... 268,218 -- -- 268,218 ----------- ----------- ----------- ------------ Net cash provided by financing activities..................... 32,213,262 3,998,010 1,562,625 40,150,684 ----------- ----------- ----------- ------------ Net increase (decrease) in cash and cash equivalents........... 19,137,240 738,091 (520,290) 19,954,827 Cash and cash equivalents at beginning of period................................... 817,587 79,496 599,786 -- ----------- ----------- ----------- ------------ Cash and cash equivalents at end of period................................... $19,954,827 $ 817,587 $ 79,496 $ 19,954,827 =========== =========== =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest..................... $ 101,312 $ 38,741 $ 25,084 $ 165,137 =========== =========== =========== ============ Conversion of fixed rate promissory notes to related parties and accrued interest to common stock.......................... $ 1,865,083 $ 1,865,083 =========== ============ Conversion of deferred compensation to common stock............................. $ 329,424 $ 329,424 =========== ============
See accompanying notes. F-6 53 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Novoste Corporation (the "Company") was incorporated on January 8, 1987 and remained dormant until May 22, 1992 (date of inception) at which time it was capitalized. The Company is a development stage enterprise that is engaged in developing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce restenosis subsequent to percutaneous transluminal coronary angioplasty. The majority of the Company's efforts to date have been in the organization of the Company, establishing its management team, raising capital and initiating product development. The Company's initial public offering became effective on May 23, 1996 and closed on May 29, 1996 with the issuance of 2,400,000 shares of Common Stock and net proceeds (after underwriting discounts) of $31,248,000 before related expenses of approximately $622,000. All revenues received to date have been from the sale of certain patent rights, option payments made by a potential strategic partner to the Company in exchange for the sole right for the potential partner to enter into future agreements with the Company, and contract fees. Substantially all of the Company's products are in various stages of development. To achieve profitable operations, the Company must successfully complete the development and clinical trials of its products, obtain required regulatory approvals and achieve market acceptance. There can be no assurance that these efforts will be successful. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NET LOSS PER SHARE The net loss per share is computed based on the weighted average number of common shares outstanding after giving effect to certain adjustments described below. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive, except that, in accordance with Securities and Exchange Commission requirements, common and common stock equivalent shares issued during the twelve-month period preceding the initial public offering in May 1996 have been included in the calculation through March 31, 1996 as if they were outstanding for all periods, using the treasury stock method and the actual initial public offering price of $14.00 per share. Historical net loss per share information presented in accordance with generally accepted accounting principles is as follows:
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 --------- --------- --------- Net loss per share.................................... $ (0.91) $ (0.87) $ (0.77) ========= ========= ========= Shares used in computing historical net loss per share............................................... 6,543,129 3,679,361 2,836,896 ========= ========= =========
CASH AND SHORT-TERM INVESTMENTS Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months. In addition to cash equivalents, the Company has investments in commercial paper that are classified as short-term (mature in more than 90 days but less than one year). Such investments are classified as held-to-maturity, as the Company has the ability and intent to hold them until maturity. Investments held-to-maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts F-7 54 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) without recognition of gains or losses that are deemed to be temporary. Premiums and discounts are amortized or accreted over the life of the related instruments as an adjustment to yield using the straight-line method, which approximates the effective interest method. Interest income is recognized when earned. Fair value approximates carrying value for all cash equivalents and investments. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives of the related assets ranging from 5 to 7 years. Leasehold improvements are amortized over the remaining term of the related lease using the straight-line method. Repairs and maintenance are expensed as incurred. Property and equipment is comprised of the following:
1996 1995 ---------- ---------- Furniture and fixtures...................................... $ 303,958 $ 232,112 Office equipment............................................ 356,269 220,851 Laboratory equipment........................................ 134,735 98,001 Leasehold improvements...................................... 454,016 334,162 Production equipment........................................ 482,334 412,382 ---------- ---------- 1,731,312 1,297,508 Less: Accumulated depreciation and amortization............. (603,281) (364,827) ---------- ---------- $1,128,031 $ 932,681 ========== ==========
OTHER ASSETS License agreements are amortized on a straight-line basis over periods ranging from fifteen to twenty years. The amortization periods are based on the lives of the license agreements or the approximate remaining lives of the related patents, whichever is appropriate. Accumulated amortization on license agreements at December 31, 1996 and 1995 totaled $65,368 and $43,569, respectively. At December 31, 1996 other assets includes $90,000 paid to a German supplier for an option, exercisable through August 25, 2002, to purchase certain assets of the vendor for $5,000,000. Other assets also include $130,720 advanced to the same vendor. For additional discussion of these amounts see Note 3 "Commitments and Concentrations". RESEARCH AND DEVELOPMENT All research and development costs are charged to operations as incurred. PATENT COSTS Legal fees and other direct costs incurred in obtaining and protecting patents are expensed as incurred. STOCK BASED COMPENSATION The Company grants stock options generally for a fixed number of shares to employees, directors, consultants and independent contractors with an exercise price equal to the fair value of the shares at the date of grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, no compensation expense is recognized for stock option grants for which the terms are F-8 55 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) fixed. Compensation expense is recognized for increases in the estimated fair value of common stock for any stock options with variable terms. In October 1995 the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which changes the accounting for stock based compensation to non-employees and provides an alternative to APB 25 in accounting for stock-based compensation to employees. However, the Company elected to continue to account for stock-based compensation to employees in accordance with APB 25 and to disclose the impact of the alternative accounting (see Note 6). RECLASSIFICATION Certain prior year expense amounts have been reclassified in the Statements of Operations for 1995 and 1994 and for the period from inception through December 31, 1996 to conform with current year classifications. 2. CONSULTING AGREEMENTS The Company has agreements with the members of its Scientific Advisory Board, various consultants and others with terms ranging from one to five years. Substantially all of these agreements provide for stock grants on the agreement dates with such shares valued at the fair market value on the date of grant and include certain registration rights. During 1996, 1995 and 1994 approximately $46,000, $21,300, and $50,000, respectively, were charged to operations as amortization of the deferred compensation capitalized under these agreements ($187,751 from inception through December 31, 1996). 3. COMMITMENTS AND CONCENTRATIONS COMMITMENTS The Company is committed under operating leases for its facility and various office equipment. Rent expense was approximately $143,192, $116,400, and $62,400 for 1996, 1995 and 1994, respectively ($416,392 from inception through December 31, 1996). The total future minimum rental payments are as follows: 1997........................................................ $174,097 1998........................................................ 174,097 1999........................................................ 167,692 2000........................................................ 64,553 -------- $580,439 ========
The Company has entered into a license agreement with a physician pursuant to which he is entitled to receive a royalty on the net sales of the Beta-Cath System (excluding consideration paid for the radioactive isotope), subject to a maximum of $5,000,000, to be paid in exchange for the right granted thereunder to the Company to use his name in connection with sales and marketing of the Beta-Cath System. On January 30, 1996 the Company entered into a license agreement whereby the licensor assigned its claim to certain of the Company's technology back to the Company for royalties based on net sales (as defined in the agreement) of products derived from such technology, subject to certain minimum royalties. The royalty agreement term is consistent with the life of the related patent and applies to assignments of the patent technology to a third party. The royalty agreement provides for a reduction of the royalty fees and term of the agreement if the patent for the technology is not received within three years of execution of the agreement. F-9 56 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) On June 27, 1996 the Company signed an agreement with a medical diagnostic engineering, development, and design company to provide products and services to be used in the Company's product development. The agreement provides for aggregate payments of $1.3 million through April 30, 1997 of which $277,000 was paid in 1996. On November 15, 1996 an agreement was signed under which the Company agreed to advance a German supplier a monthly investment grant of 100,000 Deutsche Mark (approximately $65,000) for a period of 15 months from November 1996 through March 1998 to build and equip a production site for the exclusive production of radioactive materials to be supplied to the Company. At December 31, 1996 advances aggregated $131,000 under this agreement. All grant advances, and the amount paid for the option described in Note 1 are included in other assets and will be credited toward the purchase price of the assets upon exercise of the option. Absent the Company's decision to exercise the option, all amounts paid to the vendor will be amortized over the three year remaining life of the agreement once production of commercial volumes of radioactive materials commences. CONCENTRATIONS OF SUPPLIERS Significant proportions of key components and processes relating to the Company's products are purchased from single sources due to technology, availability, price, quality, and other considerations. Key components and processes currently obtained from single sources include isotopes, catheters, protective tubing for catheters, proprietary connectors, and certain plastics used in the design and manufacture of the transfer device. In the event a supply of a key single-sourced material or component were delayed or curtailed, the Company's ability to produce the related product in a timely manner could be adversely affected. The Company attempts to mitigate these risks by working closely with key suppliers regarding the Company's product needs and the maintenance of strategic inventory levels. 4. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax purposes. Significant components of the Company's deferred tax assets for federal and state income taxes are as follows:
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Deferred tax assets: Net operating loss carryforwards.......................... $ 5,095,822 $ 2,697,752 R&D tax credit carryforwards.............................. 219,840 127,069 Other..................................................... 102,272 140,504 ----------- ----------- 5,417,934 2,965,325 Valuation allowance......................................... (5,417,934) (2,965,325) ----------- ----------- $ -- $ -- =========== ===========
At December 31, 1996 and 1995 no deferred tax assets were recorded as their future benefit is not assured. No income taxes were paid for 1996, 1995 or 1994. The Company has approximately $13,375,000 of net operating losses for federal income tax purposes available to offset future taxable income. Such losses expire $470,000 in 2007, $1,335,000 in 2008, $2,140,000 in 2009, $3,120,000 in 2010, and $6,310,000 in 2011 and are subject to certain limitations in the event of a change in ownership. Approximately $574,000 of the net operating loss carryforwards will result in a credit to F-10 57 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) contributed capital when recognized. Additionally, the Company has approximately $220,000 in research and development tax credits which expire $24,000 in 2008, $47,000 in 2009, $56,000 in 2010, and $93,000 in 2011 unless utilized earlier. 5. SHORT-TERM DEBT As of December 31, 1995 the fixed rate convertible promissory notes with related parties bore interest at the rate of 8% and were payable to certain shareholders, together with accrued interest, on June 1, 1996. At any time prior to the payment of these notes, the holders had the option to convert all or any portion of the outstanding principal balance (plus accrued interest) into Class B common stock at the rate of $3.75 per share. The conversion price of $3.75 per share was subject to adjustment in the event the Company issued or sold, or was deemed to have issued or sold, any of its common stock for consideration of less than $3.75 per share. In connection with the placement of this indebtedness, the Company issued to a third party a warrant for the purchase of 9,395 shares of common stock at $3.75 per share exercisable through December 31, 2000. The carrying amounts of the promissory notes approximated their fair values at December 31, 1995. Subsequent to December 31, 1995, the Company issued to certain other shareholders $761,550 of additional fixed rate convertible promissory notes with the same terms. On May 28, 1996 fixed rate convertible promissory notes payable to related parties in the amount of $1,800,000 plus accrued interest of $65,083 were converted into 497,349 shares of Common Stock. On May 31, 1996 a portion of the proceeds from the initial public offering was used to pay in full fixed rate promissory notes to related parties totaling $1,500,150 and a note payable to a bank in the amount of $300,000. At December 31, 1996 there are no loans or debt outstanding. On June 15, 1995 the Company entered into a line-of-credit arrangement for short-term debt with a bank under which the Company could borrow up to $300,000 at the prime rate plus one percent. The line-of-credit, which expired on June 15, 1996, was subject to commitment fees of .65% of the unused line-of-credit and borrowings thereunder were guaranteed up to $100,000 each by three officer/directors of the Company. No borrowings were outstanding at December 31, 1995 under this line-of credit. 6. SHAREHOLDERS' EQUITY RECAPITALIZATION On May 28, 1996 all of the 1,611,269 outstanding shares of Class B Common Stock were converted on a one-for-one basis into shares of Common Stock and accrued salaries of $320,624 were converted into 100,195 shares of Common Stock. In addition, on May 28, 1996 the holders of warrants for 1,261,899 shares made cashless exercises thereof to purchase an aggregate of 889,912 shares of Common Stock (after giving effect to the conversion on a one-for-one basis of shares of Class B Common Stock issued upon exercise of such warrants). Holders of additional warrants exercised such warrants in full to purchase 62,104 shares of Common Stock for $268,218 on or prior to May 28, 1996. On May 28, 1996 the Company filed an amendment to its Articles of Incorporation whereby the number of authorized shares of Common Stock was increased from 14,000,000 to 25,000,000, the Class B Common Stock was eliminated and 5,000,000 shares of Preferred Stock were authorized. SHAREHOLDER RIGHTS PLAN On October 25, 1996 the Company's Board of Directors declared a dividend of one Right for each share of Common Stock held of record at the close of business on November 25, 1996. The Rights are generally not exercisable until 10 days after an announcement by the Company that a person has acquired at least 15% of the Company's Common Stock. Each Right, should it become exercisable, will entitle the owner to buy F-11 58 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1/100th of a share of new Series A participating preferred stock at an exercise price of $85. The Rights, which do not have any voting rights, may be redeemed by the Company at a price of $.01 per Right at any time prior to a person's or group's acquisition of 15% or more of the Company's common stock. In the event the rights become exercisable as a result of the acquisition of at least 15% of the Company's Common Stock, each Right will entitle the owner, other than the acquiring person, to buy at the Rights' then current exercise price a number of shares of Common Stock with a market value equal to twice the exercise price. In addition, unless the acquiring person owns more than 50% of the outstanding shares of Common Stock, the Board of Directors may elect to exchange all outstanding Rights (other than those owned by such acquiring person or affiliates thereof) at an exchange ratio of one share of Common Stock per Right. The Rights expire on November 25, 2006 unless they are earlier exercised, redeemed, or exchanged. As a result of the adoption of the Shareholders' Rights Plan, 1,000,000 shares of authorized preferred stock have been reserved and designated as Series A Participating Preferred Stock. STOCK OPTION PLAN The Company's Board of Directors adopted on May 26, 1992 the Novoste Corporation Stock Option Plan (the "Plan") under which options designated as either incentive or non-qualified stock options may be issued to employees, officers, directors, consultants and independent contractors of the Company or any parent, subsidiary or affiliate of the Company. Options granted under the Plan are at prices not less than the fair market value on the date of grant and may be exercised for a period of ten years from the date of grant. Options granted under the Plan have vesting periods ranging from immediately to four years. On August 20, 1996 the Plan was amended subject to shareholder approval to include a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the Amended and Restated Stock Option Plan. The Company has reserved 2,500,000 shares of Common Stock for issuance under the Plan. As of December 31, 1996 there are 248,350 shares available for issuance. On August 20, 1996 the Stock Option and Compensation Committee of the Board of Directors of the Company adopted a Non-Employee Director Stock Option Plan, subject to shareholder approval. Concurrently, stock options covering 52,500 shares were granted, which vest over a three year period and exercises thereof are contingent upon the individuals' continued service as directors. The Company has reserved 100,000 shares of Common Stock for issuance under the Plan. F-12 59 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Activity under the Plans are summarized as follows:
NUMBER OF PRICE PER WEIGHTED- SHARES SHARE AVERAGE PRICE --------- ------------- ------------- Outstanding at January 1, 1994................... 1,330,125 $ .25 - $3.20 Options granted.................................. 166,000 3.00 - 3.20 Options exercised................................ (35,500) .25 - 1.00 Options canceled................................. (16,000) 3.20 --------- Outstanding at December 31, 1994................. 1,444,625 .25 - 3.20 Options granted.................................. 359,750 3.20 Options exercised................................ (9,300) .25 --------- Outstanding at December 31, 1995................. 1,795,075 .25 - 3.20 Options granted.................................. 209,250 8.00 - 14.00 $10.23 Options exercised................................ (174,700) 3.00 - 3.25 3.19 Options forfeited................................ (17,850) 3.25 3.20 --------- Outstanding at December 31, 1996................. 1,811,775 .25 - 14.00 2.29 ========= Exercisable at December 31, 1996................. 1,267,937 .25 - 3.20 0.74 =========
The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------ --------------------------------- WEIGHTED WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE - --------------- ----------- ---------------- -------- ----------- -------- $ .25 - $ 3.20 1,602,525 6.3 $ 1.25 1,267,937 $.74 8.00 - 9.75 143,250 9.6 8.85 -- -- 12.25 - 14.00 66,000 9.6 13.22 -- -- --------- 1,811,775 6.8 2.29 1,267,937 .74 ========= =========
On May 20, 1996 the Company amended an option to purchase 100,000 shares of Common Stock at $3.20 per share of which options for 75,000 shares had not yet become exercisable. As amended, options to purchase such 75,000 shares become exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject to acceleration upon the achievement of three specified milestones at the rate of 25,000 shares per milestone. The Company is recording total non-cash compensation expense of $810,000 ratably over the three year period ending May 19, 1999, subject to acceleration if the specified milestones are met at earlier dates; $168,750 was expensed in 1996 relating to these options. Pro forma information regarding net loss and net loss per share is required by Statement 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method prescribed by that Statement. The fair value for options granted prior to the initial public offering was estimated at the date of grant using the Minimum Value pricing model. The fair value for options granted subsequent to the initial public offering was estimated at the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used in the appropriate models for 1996 and 1995: risk-free interest rates of 6.69% and 6.32%, respectively; no dividend yields; volatility factor of the expected market price of the Company's common stock of 0.928 in 1996 (not applicable in 1995); and a weighted-average expected life of the option of 6 years. F-13 60 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1995 ----------- ----------- Pro forma net loss.......................................... $(6,175,817) $(3,317,068) Pro forma net loss per share................................ (0.92) (0.71) Weighted-average fair value of options granted.............. 1.01 6.97
Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1999. 7. EMPLOYEE BENEFIT PLAN Effective January 1, 1997, the Company adopted a Defined Contribution 401(k) Plan in which all employees who are at least 21 years of age are eligible to participate. Contributions of up to 15% of compensation to the 401(k) Plan will be made by employees through salary withholdings. Company contributions are discretionary. F-14 61 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997 ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 15,737,474 Short-term investments.................................... 3,961,633 Prepaid expenses.......................................... 148,214 ------------ Total current assets.............................. 19,847,321 Property and equipment, net................................. 1,068,197 License agreements, net..................................... 143,168 Other assets................................................ 215,664 ------------ $ 21,274,350 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 306,537 Accrued expenses and taxes withheld....................... 1,474,516 ------------ Total current liabilities......................... 1,781,053 ------------ Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding........... -- Common stock, $.01 par value, 25,000,000 shares authorized; 8,502,930 shares issued.................... 85,029 Additional paid-in capital................................ 42,405,272 Deficit accumulated during the development stage.......... (22,973,164) ------------ 19,517,137 Less treasury stock, 5,780 shares of common stock, at cost................................................... (23,840) ------------ Total shareholders' equity........................ 19,493,297 ------------ $ 21,274,350 ============
See accompanying notes. F-15 62 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FROM INCEPTION SEPTEMBER 30, (MAY 22, 1992) -------------------------- THROUGH SEPTEMBER 30, 1997 1996 1997 ------------ ----------- --------------------- Miscellaneous revenues........................... $ 29,313 $ -- $ 320,200 Costs and expenses: Research and development....................... 8,618,578 2,799,071 17,505,610 General and administrative..................... 1,342,605 1,091,872 5,430,146 Marketing...................................... 575,390 341,168 2,107,501 ------------ ----------- ------------ 10,536,573 4,232,111 25,043,257 ------------ ----------- ------------ Loss from operations............................. (10,507,260) (4,232,111) (24,723,057) ------------ ----------- ------------ Interest income.................................. 939,810 559,642 1,931,652 Interest expense................................. -- (87,331) (181,759) ------------ ----------- ------------ Net loss......................................... $ (9,567,450) $(3,759,800) $(22,973,164) ============ =========== ============ Net loss per share............................... $ (1.14) $ (0.60) ============ =========== Weighted average shares outstanding.............. 8,375,739 6,275,378 ============ ===========
See accompanying notes. F-16 63 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS FROM INCEPTION ENDED SEPTEMBER 30, (MAY 22, 1992) ------------------------- THROUGH SEPTEMBER 30, 1997 1996 1997 ----------- ----------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.......................................... $(9,567,450) $(3,759,800) $(22,973,164) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization................... 310,150 223,647 1,188,025 Issuance of stock for services or compensation................................. 202,500 248,076 1,149,818 Changes in assets and liabilities: Prepaid expenses............................. (21,865) (187,736) (155,673) Accounts payable............................. 150,591 59,632 306,537 Accrued expenses and taxes withheld.......... 809,341 152,954 1,869,023 Other........................................ 130,719 -- (225,318) ----------- ----------- ------------ Net cash used by operations....................... (7,986,014) (3,263,227) (18,840,752) ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Maturity (purchase) of short-term investments..... 3,627,060 (2,977,365) (3,961,633) Purchase of property and equipment, net........... (192,204) (305,234) (1,944,630) ----------- ----------- ------------ Net cash provided by (used by) investing activities...................................... 3,434,856 (3,282,599) (5,906,263) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of notes payable........... -- 2,561,700 4,770,150 Repayment of notes payable........................ -- (1,800,150) (2,970,150) Proceeds from issuance of common stock............ 333,805 31,023,428 38,684,489 ----------- ----------- ------------ Net cash provided by financing activities......... 333,805 31,784,978 40,484,489 ----------- ----------- ------------ Net (decrease) increase in cash and cash equivalents..................................... (4,217,353) 25,239,152 15,737,474 Cash and cash equivalents at beginning of period.......................................... 19,954,827 817,587 -- ----------- ----------- ------------ Cash and cash equivalents at end of period........ $15,737,474 $26,056,739 $ 15,737,474 =========== =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest............................ -- $ 101,312 $ 165,137 =========== =========== ============
See accompanying notes. F-17 64 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions to Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results of the interim periods presented are not necessarily indicative of the results to be achieved for the year ending December 31, 1997. The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1996 and for the cumulative period from May 22, 1992 (inception) through December 31, 1996, included elsewhere herein. Certain prior year expense amounts have been reclassified in the Statements of Operations for the nine months ended September 30, 1996 and the period from inception through September 30, 1997 to conform with current year classifications. NOTE 2. NET LOSS PER SHARE The net loss per share is computed based on the weighted average number of common shares outstanding after giving effect to certain adjustments described below. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive, except that, in accordance with SEC requirements, common and common stock equivalent shares issued during the twelve-month period prior to the initial filing of the public offering on April 11, 1996 have been included in the calculations as if they were outstanding through March 31, 1996 using the treasury stock method. See Exhibit 11. Historical net loss per share information presented in accordance with GAAP for the period affected by the above mentioned SEC requirement is as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1996 ----------------- Net loss per share.......................................... $(0.63) ========== Shares used in computing net loss per share................. 6,002,227 ==========
In February 1997 the Financial Accounting Standards Board issued a new accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS No. 128 will be effective for the Company's quarter and year ending December 31, 1997, and, upon adoption, all prior-period earnings per share data presented shall be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The adoption of SFAS No. 128 is not anticipated to have a material impact on operations. NOTE 3. CASH EQUIVALENTS AND INVESTMENTS Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months. In addition to cash equivalents, the Company has investments in commercial paper that are classified F-18 65 NOVOSTE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) as short-term (mature in more than 90 days but less than one year). Such investments are classified as held-to-maturity, as the Company has the ability and intent to hold them until maturity. Investments held-to-maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts without recognition of gains or losses that are deemed to be temporary. Premiums and discounts are amortized or accreted over the life of the related instrument as an adjustment to yield using the straight-line method, which approximates the effective interest method. Interest income is recognized when earned. Fair value approximates carrying value for all cash equivalents and investments. NOTE 4. SHAREHOLDERS' EQUITY On May 20, 1996 the Company amended an option to purchase 100,000 shares of Common Stock at $3.20 per share of which options for 75,000 shares had not yet become exercisable. As amended, options to purchase such 75,000 shares become exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject to acceleration upon the achievement of three specified milestones at the rate of 25,000 shares per milestone. The Company is recording total non-cash compensation expense of $810,000 ratably over the three year period ending May 19, 1999 subject to acceleration if the specific milestones are met at earlier dates. The Company expensed $202,500 and $248,000 relating to these options in the nine months ended September 30, 1997 and 1996, respectively. NOTE 5. MISCELLANEOUS REVENUE On May 15, 1997 the Company sold all of the technology, intellectual property and equipment relating to the "Pulse Plus" blood containment device product line for $130,000 in cash and a continuing royalty. During each 12-month period following the date of the first sale of the device (the "Royalty Period"), the Company shall receive a royalty equal to $.10 per unit on the initial 500,000 units sold and $.08 per unit on all units sold in excess of 500,000. The purchaser guaranteed minimum royalty payments of $10,000 for the first Royalty Period, $20,000 for the second Royalty Period and $30,000 in the third Royalty Period. Royalties shall cease with the expiration of the last related patent. The net book value of the equipment sold was $101,000 and the Company recorded a $29,000 gain on the sale as miscellaneous revenue in the nine months ended September 30, 1997. F-19 66 NO DEALER, SALES PERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. --------------------- TABLE OF CONTENTS
PAGE ---- Available Information................. 3 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary.................... 4 Safe Harbor Provisions of the Private Securities Litigation Reform Act.... 7 Risk Factors.......................... 7 Use of Proceeds....................... 16 Price Range of Common Stock........... 16 Dividend Policy....................... 16 Dilution.............................. 17 Capitalization........................ 17 Selected Financial Data............... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 Business.............................. 22 Management............................ 38 Principal and Selling Shareholders.... 41 Underwriting.......................... 44 Legal Matters......................... 45 Experts............................... 45 Index to Financial Statements......... F-1 Report of Independent Auditors........ F-2
2,000,000 SHARES COMMON STOCK --------------------------- PROSPECTUS --------------------------- PIPER JAFFRAY INC. COWEN & COMPANY NATIONSBANC MONTGOMERY SECURITIES, INC. , 1997 67 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses of this offering are as follows: S.E.C. Registration Fee..................................... $ 14,871 N.A.S.D. Filing Fee......................................... 4,813 Nasdaq National Market Qualification Fee.................... 17,500 Accounting Fees............................................. 60,000 Legal Fees and Expenses..................................... 120,000 Blue Sky Qualification Fees and Expenses.................... 3,000 Printing and Engraving...................................... 70,000 Transfer Agent's Fees and Expenses.......................... 3,500 Miscellaneous Expenses...................................... 56,316 ---------- Total............................................. $ 350,000 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 607.0850 of the Florida Business Corporation Act grants corporations the power to indemnify their directors, officers, employees and agents in accordance with the provisions thereof, Article VI of Registrant's Amended and Restated Articles of Incorporation and Article VIII of Registrant's By-laws provide for indemnification of Registrant's directors, officers, agents and employees to the full extent permissible under Section 607.0850 of the Florida Business Corporation Act. See also Section 6 of the Purchase Agreement. Registrant maintains directors' and officers' liability insurance coverage with an aggregate policy limit of $10,000,000 for each policy year. ITEM 16. EXHIBITS (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 -- Form of Purchase Agreement. 1.2 -- Power of Attorney and Custody Agreement. 4.1 -- Form of Specimen Common Stock Certificate of Registrant.(1) 4.2 -- Registration Rights Agreement, dated July 28, 1995, by and among Registrant, Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen, the Hillman Investors (as defined therein), Noro-Moseley Partners-III, L.P. and Advanced Technology Ventures IV, L.P.(1) 4.3 -- Registration Rights Agreement, dated April 26, 1995, between Registrant and ABS Employees' Venture Fund Limited Partnership.(1) 4.4 -- Registration Rights Agreement, dated September 20, 1995, between Registrant and Karen C. Vinjamuri.(1) 4.5 -- Stock Purchase Warrant, dated September 24, 1993, between Registrant and The Kriegsman Group.(1) 4.6 -- Stock Purchase Warrant, dated March 24, 1994, between Registrant and The Kriegsman Group.(1) 4.7 -- Stock Purchase Warrant, dated December 1, 1995, between Registrant and The Kriegsman Group.(1)
II-1 68
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.8 -- Stock Purchase Warrant, dated December 1, 1995, between Registrant and The Kriegsman Group.(1) 4.9 -- Consulting Agreement, dated July 30, 1992, between Registrant and Spencer B. King III, M.D.(1) 4.10 -- Consulting Agreement, dated February 1, 1996, between Registrant and Spencer B. King III, M.D.(1) 4.13 -- Consulting Agreement, dated July 30, 1992, between Registrant and John B. Martin.(1) 4.14 -- Consulting Agreement, dated November 4, 1992, between Registrant and Raphael Meloul.(1) 4.15 -- Consulting Agreement, dated June 30, 1992, between Registrant and David O. Williams, M.D.(1) 4.17(a) -- Form of Rights Agreement, dated as of October 25, 1996, between Registrant and American Stock Transfer & Trust Company, which includes as Exhibit B thereto the Form of Right Certificate.(2) 4.17(b) -- Summary of Rights to Purchase Preferred Shares of Registrant.(2) *5 -- Opinion by Epstein Becker & Green, P.C., as to legality. +10.13 -- Memorandum of Understanding between Registrant and Bebig Isotopentechnik und Umweltdiagnostik GmbH regarding purchases and investment grant dated April 23, 1997. 23.1 -- Consent of Ernst & Young LLP (contained on page II-6). *23.2 -- Consent of Epstein Becker & Green, P.C. (included in Exhibit 5). 24 -- Power of Attorney (contained on page II-4).
- --------------- * To be filed by amendment. + Portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. (1) Filed as same numbered Exhibit to the Registrant's Registration Statement on Form S-1 (File No. 333-4988). (2) Filed as same numbered Exhibit to the Registrant's Registration Statement on Form 8-A filed November 5, 1996. (3) Filed as same numbered Exhibit to Registrant's Form 10-K for the year ended December 31, 1996. (b) Financial Statement Schedules: Schedules have been omitted for the reason that they are not required or are not applicable or because the required information is included in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1993, as amended (the "Act") may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of its Amended and Restated Certificate of Incorporation, its By-Laws, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant for expenses incurred or paid by a director, officer or II-2 69 controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Registrant hereby further undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For purposes of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 70 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Registrant certifies that it has reasonable grounds to believe 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 Atlanta, State of Georgia, on the 23rd day of October, 1997. Novoste Corporation By: /s/ DAVID N. GILL ------------------------------------ David N. Gill Vice President, Finance POWER OF ATTORNEY TO SIGN AMENDMENTS KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint THOMAS D. WELDON and DAVID N. GILL, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement, including without limitation any registration statement for the same Offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, 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 in order to effectuate the same, as fully, for all intents and purposes, as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman of the Board and October , 1997 - --------------------------------------------------- Director Norman R. Weldon, Ph.D. /s/ THOMAS D. WELDON President, Chief Executive October 23, 1997 - --------------------------------------------------- Officer and Director Thomas D. Weldon (Principal Executive Officer) /s/ DAVID N. GILL Vice President, Finance October 23, 1997 - --------------------------------------------------- (Principal Financial and David N. Gill Accounting Officer) /s/ CHARLES E. LARSEN Director October 23, 1997 - --------------------------------------------------- Charles E. Larsen /s/ J. STEPHEN HOLMES Director October 23, 1997 - --------------------------------------------------- J. Stephen Holmes
II-4 71
SIGNATURE TITLE DATE --------- ----- ---- /s/ RICHARD M. JOHNSTON Director October 23, 1997 - --------------------------------------------------- Richard M. Johnston Director October , 1997 - --------------------------------------------------- Pieter J. Schiller /s/ JACK R. KELLY, JR. Director October 23, 1997 - --------------------------------------------------- Jack R. Kelly, Jr. /s/ WILLIAM E. WHITMER Director October 23, 1997 - --------------------------------------------------- William E. Whitmer /s/ STEPHEN I. SHAPIRO Director October 23, 1997 - --------------------------------------------------- Stephen I. Shapiro
II-5 72 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated February 1, 1997 in the Registration Statement (Form S-3) and related Prospectus of Novoste Corporation for the registration of 2,300,000 shares of its Common Stock. We also consent to the incorporation by reference therein of our report dated February 1, 1997, with respect to the financial statements of Novoste Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Atlanta, Georgia October 23, 1997 II-6 EX-1.1 2 PURCHASE AGREEMENT 1 EXHIBIT 1.1 Draft 10/1/97 2,000,000 SHARES(1) NOVOSTE CORPORATION COMMON STOCK PURCHASE AGREEMENT ------------------ ____________, 1997 PIPER JAFFRAY INC. COWEN & COMPANY NATIONSBANC MONTGOMERY SECURITIES, INC. As Representatives of the several Underwriters named in Schedule I hereto c/o Piper Jaffray Inc. Piper Jaffray Tower 222 South Ninth Street Minneapolis, Minnesota 55402 Gentlemen: Novoste Corporation, a Florida corporation (the "Company"), and certain stockholders of the Company named in Schedule I hereto, acting severally and not jointly, (collectively, the Selling Stockholders") propose to sell to the several Underwriters named in Schedule II hereto (the "Underwriters") an aggregate of 2,000,000 shares (the "Firm Shares") of Common Stock, $.01 par value per share (the "Common Stock"), of the Company. The Firm Shares consist of 1,600,000 authorized but unissued shares of Common Stock to be issued and sold by the Company and 400,000 authorized and outstanding shares of Common Stock to be sold by the Selling Stockholders (the "Selling Stockholder Shares") as set forth on Schedule I hereto. The Company and certain of the Selling Stockholders also propose to grant to the several Underwriters an option to purchase up to 300,000 additional shares of Common Stock, on the terms and for the purposes set forth in Section 3 hereof (the "Option Shares"). The Firm Shares and any Option Shares purchased pursuant to this Purchase Agreement are herein collectively called the "Securities." The Company and the Selling Stockholders hereby confirm their agreement with respect to the sale of the Securities to the several Underwriters, for whom you are acting as Representatives (the "Representatives"). - --------------------- (1) Plus an option to purchase up to 300,000 additional shares to cover over-allotments. 2 1. Registration Statement. (a) A registration statement on Form S-1 (File No. 333-______) with respect to the Securities, including a preliminary form of prospectus, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations ("Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission; one or more amendments to such registration statement, prospectuses subject to completion and such abbreviated registration statements pursuant to Rule 462(b) of the Rules and Regulations have also been so prepared and have been, or will be, so filed. Copies of such registration statement and amendments and each related preliminary prospectus, including financial statements, schedules and exhibits, and of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you. (b) If the Company has elected not to rely upon Rule 430A of the Rules and Regulations, the Company has prepared and will promptly file an amendment to the registration statement and an amended prospectus. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and file a prospectus pursuant to Rule 424(b) that discloses the information previously omitted from the prospectus in reliance upon Rule 430A. Such registration statement, including financial statements, schedules and exhibits, as amended at the time it is or was declared effective by the Commission, and, in the event of any amendment thereto after the effective date and prior to the First Closing Date (as hereinafter defined), such registration statement as so amended (but only from and after the effectiveness of such amendment), including the information deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A(b), if applicable, and, in the event of any amendment thereto or the filing of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the effective date of such registration statement, is hereafter called the "Registration Statement." The prospectus included in the Registration Statement at the time it is or was declared effective by the Commission is hereinafter called the "Prospectus," except that if any prospectus filed by the Company with the Commission pursuant to Rule 424(b) of the Rules and Regulations or any other prospectus provided to the Underwriters by the Company for use in connection with the offering of the Securities (whether or not required to be filed by the Company with the Commission pursuant to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file at the time the Registration Statement is or was declared effective by the Commission, the term "Prospectus" shall refer to such differing prospectus from and after the time such prospectus is filed with the Commission or transmitted to the Commission for filing pursuant to such Rule 424(b) or from and after the time it is first provided to the Underwriters by the Company for such use. The term "Preliminary Prospectus" as used herein means any preliminary prospectus included in the Registration Statement prior to the time it becomes or became effective under the Act and any prospectus subject to completion as described in Rule 430A of the Rules and Regulations. 2. Representations and Warranties of the Company and the Selling Stockholders. -2- 3 (a) The Company represents and warrants to, and agrees with, the several Underwriters as follows: (i) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission and each Preliminary Prospectus, at the time of filing thereof, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing shall not apply to statements in or omissions from any Preliminary Prospectus in reliance upon, and in conformity with, written information furnished to the Company by you, or by any Underwriter through you, specifically for use in the preparation thereof. (ii) As of the time the Registration Statement (or any post-effective amendment thereto) is or was declared effective by the Commission, upon the filing or first delivery to the Underwriters of the Prospectus (or any supplement to the Prospectus) and at the First Closing Date and Second Closing Date (as hereinafter defined), (A) the Registration Statement and Prospectus (in each case, as so amended and/or supplemented) will conform or conformed in all material respects to the requirements of the Act and the Rules and Regulations, (B) the Registration Statement (as so amended and/or supplemented) will not or did not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (C) the Prospectus (as so amended and/or supplemented) will not or did not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are or were made, not misleading; except that the foregoing shall not apply to statements in or omissions from any such document in reliance upon, and in conformity with, written information furnished to the Company by you, or by any Underwriter through you, specifically for use in the preparation thereof. If the Registration Statement has been declared effective by the Commission, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been initiated or, to the Company's knowledge, threatened by the Commission. (iii) The financial statements of the Company, together with the notes thereto, set forth in the Registration Statement and Prospectus comply in all material respects with the requirements of the Act and fairly present the financial condition of the Company as of the dates indicated and the results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated therein); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. No other financial statements or schedules are required to be included in the Registration Statement or Prospectus. Ernst & Young LLP, which has expressed its opinion with respect to the financial statements and schedules filed as a part of the Registration Statement and included in the Registration Statement and Prospectus, are independent public accountants as required by the Act and the Rules and Regulations. -3- 4 (iv) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. The Company has full corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it owns or leases real property or in which the conduct of its business makes such qualification necessary and in which the failure to so qualify would have a material adverse effect upon its business, condition (financial or otherwise) or properties. The Company does not have any subsidiaries. (v) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants), or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock, of the Company (except pursuant to the Company's Stock Option Plan), or any material adverse change in the condition (financial or otherwise), business, key personnel, property, net worth or results of operations of the Company (hereinafter, a "Material Adverse Change"). (vi) Except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding to which the Company, or its directors or officers, is a party, or against the Company's properties, assets or rights, before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any Material Adverse Change. (vii) There are no contracts or documents of the Company that is required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations that have not been so filed. (viii) This Agreement, the Power of Attorney (as hereafter defined) and the Custody Agreement (as hereafter defined) have been duly authorized, executed and delivered by the Company, and constitute a valid, legal and binding obligation of the Company, enforceable in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity. The execution, delivery and performance of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any material agreement or instrument to which the Company is a party or by which it is bound or to which any of its property is subject, the Company's charter or by-laws, or any order, rule, regulation or decree of any court or -4- 5 governmental agency or body having jurisdiction over the Company or any of its properties; no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Power of Attorney and the Custody Agreement, or for the consummation of the transactions contemplated hereby and thereby, including the issuance or sale of the Securities by the Company, except such as may be required under the Act or state securities or blue sky laws; and the Company has full power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement, and to authorize, issue and sell the Securities as contemplated by this Agreement and perform the transactions contemplated herein and therein. (ix) All of the issued and outstanding shares of capital stock of the Company, including the outstanding shares of Common Stock and Selling Stockholder Shares, are duly authorized and validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities with respect to which waivers have not been obtained, and the holders thereof are not subject to personal liability by reason of being such holders; the Securities have been duly authorized and in the case of the Securities to be sold by the Company to the Underwriters as provided therein, when issued, delivered and paid for in accordance with the terms hereof, will have been validly issued and will be fully paid and nonassessable, and the holders thereof will not be subject to personal liability by reason of being such holders; and as of the First Closing Date, the capital stock of the Company, including the Common Stock, will conform to the description thereof in the Registration Statement and Prospectus. Except as otherwise stated in the Registration Statement and Prospectus, as of the First Closing Date, there will be no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, by-laws or any agreement or other instrument to which the Company is a party or by which the Company is bound. Neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company, other than rights which have been waived by the holders thereof. Except as described in the Registration Statement and the Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company. As of the First Closing Date, the Company will have an authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus. (x) The Company holds, and is operating in compliance in all material respects with, all franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders of any governmental or self-regulatory body required for the conduct of its business as presently conducted, including without limitation, all such permits, consents, licenses or approvals required by the United States Food and Drug Administration (the "FDA"), and all such franchises, grants, authorizations, licenses, permits, easements, consents, certifications and orders are valid and in full force and effect. The Company is in compliance in all material respects with all applicable federal, state, local and foreign laws, regulations, orders and decrees, including without limitation, all regulations prescribed by the FDA. -5- 6 (xi) The Company has good and marketable title to all property described in the Registration Statement and Prospectus as being owned by it, in each case free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus; the property held under lease by the Company is held under a valid, subsisting and enforceable lease with only such exceptions as do not interfere in any material respect with the conduct of the business of the Company; the Company owns or possesses all adequate rights to use all patents, patent applications, trademarks, service marks, tradenames, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and other similar rights (collectively, the "Intellectual Property") necessary for the conduct of the business of the Company as currently carried on and as described in the Registration Statement and Prospectus. Except as stated in the Registration Statement and Prospectus, no name which the Company uses and, to the Company's knowledge, no other aspect of the business of the Company will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property of others material to the business or prospects of the Company. (xii) Except as set forth in the Prospectus, the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of the Company by others with respect to any Intellectual Property; the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any Intellectual Property other than as described in the Prospectus, which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could have a material adverse effect on the condition (financial or otherwise) or business of the Company; to the knowledge of the Company, none of the patents owned or licensed by the Company are unenforceable or invalid. The Company has duly and properly filed or caused to be filed with the United states Patent and Trademark Office (the "PTO") and applicable foreign and international patent authorities all patent applications described or referred to in the Prospectus, and believes it has complied with the PTO's duty of candor and disclosure for the Company Patent Applications (as defined below); the Company is unaware of any facts material to a determination of patentability regarding the Company Patent Applications not called to the attention of the PTO; the Company is unaware of any facts not called to the attention of the PTO which would preclude the grant of a patent for the Company Patent Applications; the Company has no knowledge of any facts which would preclude it from having clear title to its patent applications referenced in the Prospectus; and the Company has not terminated or breached and is not in violation of any agreement covering its Intellectual Property rights, which agreement, if terminated, could have a material adverse effect on the condition (financial or otherwise) or business of the Company. The Company is not aware of the granting of any patents to third parties or the filing of patent applications by third parties or any other rights of third parties to any of the Company's Intellectual Property other than as described in the Prospectus. (xiii) The Company is not in violation of its charter or by-laws or in breach of or otherwise in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note, indenture, loan agreement or any other material contract, lease or other instrument to which it is subject or by which any of them may be -6- 7 bound, or to which any of the material property or assets of the Company or any of its subsidiaries is subject. (xiv) The Company has filed all federal, state, local and foreign income and franchise tax returns required to be filed and are not in default in the payment of any taxes-which were payable pursuant to said returns or any assessments with respect thereto, other than any which the Company is contesting in good faith. (xv) The Company has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Securities other than any Preliminary Prospectus or the Prospectus or other materials permitted by the Act to be distributed by the Company. (xvi) The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on the Nasdaq National Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from The Nasdaq National Market, nor has the Compnay received any notification that the Commission or the National Association of Securities Dealers, Inc. (the "NASD") is contemplating termination of such registration or listing. (xvii) The Company owns no capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust or other entity. (xviii) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (ix) Other than as contemplated by this Agreement, the Company has not incurred any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (xx) Neither the Company nor any of its affiliates is presently doing business with the government of Cuba or with any person or affiliate located in Cuba. (xxi) Except as set forth in the Registration Statement and Prospectus, (i) the Company is in compliance in all material respects with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment (including without limitation, all laws or rules provided by the United States -7- 8 Nuclear Regulatory Commission or any similar state agency or body ("Environmental Laws") which are applicable to its business, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus, and (iii) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law. (xxii) The Company maintains insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism, product liability claims, workers' compensation claims and all other risks customarily insured against, all of which insurance is in full force and effect; the Company has not been refused any insurance coverage sought or applied for; and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a reasonable cost. (xxiii) To the best of the Company's knowledge, no labor disturbance by the employees of the Company exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subassemblers, subcontractors, manufacturers, authorized dealers or international distributors that might be expected to result in a Material Adverse Change. No collective bargaining agreement exists with any of the Company's employees and, to the best of the Company's knowledge, no such agreement is imminent. (b) Each Selling Stockholder, severally and not jointly, represents and warrants to, and agrees with, the several Underwriters as follows: (i) Such Selling Stockholder is the record and beneficial owner of, and has, and on the First Closing Date and/or the Second Closing Date, as the case may be, will have, good title to all Securities to be sold by such Selling Stockholder hereunder, free and clear of all restrictions on transfer, liens encumbrances, security interests and adverse claims whatsoever, including any liability for estate or inheritance taxes, or any liability to or claims of any creditor, devisee, legatee or beneficiary of such Selling Stockholder, with full right and authority to deliver the same hereunder, subject, in the case of each Selling Stockholder, to the rights of [the Company], as Custodian (herein called the "Custodian"). (ii) Upon delivery of and payment for such shares of Securities, good title to such shares, will pass to the Underwriters, free and clear of all restrictions on transfer, liens, encumbrances, security interests and adverse claims whatsoever. -8- 9 (iii) Such Selling Stockholder has and on the First Closing Date (and any later date on which Option Shares are purchased for the account of the Underwriters, if applicable) will have, full legal right, power and authority to enter into this Agreement and the Letter of Transmittal and Custody Agreement (the "Custody Agreement") and to sell, assign, transfer and deliver such shares, in the manner provided herein and therein, and this Agreement and the Custody Agreement have been duly authorized, executed and delivered by such Selling Stockholder and each of this Agreement and the Custody Agreement is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnity and contribution under Section 6 hereof may be limited by applicable law. (iv) The Power of Attorney signed by such Selling Stockholder appointing ____________ and _______________, as such Selling Stockholder's attorneys-in-fact to the extent set forth therein with regard to the transactions contemplated by this Agreement and by the Registration Statement and Custody Agreement, has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and is a valid and binding instrument of such Selling Stockholder, enforceable in accordance with its terms, and, pursuant to the Power of Attorney, such Selling Stockholder has authorized ____________ and _____________, to , among other things, execute and deliver on such Selling Stockholder's behalf this Agreement and any other document necessary or desirable in connection with transactions contemplated hereby, to determine the purchase price to be paid by the several Underwriters to such Selling Stockholder as provided in Section 3 hereof, to duly endorse (in blank or otherwise) the certificate or certificates representing the Selling Stockholder's Shares or a stock power or powers with respect thereto, to accept payment therefor and to deliver the shares of Securities to be sold by such Selling Stockholder pursuant to this Agreement. (v) Such Selling Stockholder has not taken, and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of the Securities. (vi) Such Selling Stockholder has not distributed and will not distribute any Prospectus or other offering material in connection with the offering and sale of the Securities. (vii) The execution, delivery and performance of this Agreement, the Power of Attorney and Custody Agreement by such Selling Stockholder, compliance by such Selling Stockholder with all the provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as such may be required by the NASD, state securities laws or Blue Sky laws) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, organizational documents of such Selling Stockholder, if not an individual, or any agreement, indenture or other instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or the shares of Securities of such Selling Stockholder are -9- 10 bound, or violate or conflict with any law, administrative regulation or ruling or court decree applicable to such Selling Stockholder or the shares of Securities of such Selling Stockholder. (viii) Such parts of the Registration Statement, comprised of the table and notes thereto under the caption "Principal and Selling Stockholders" in the form supplied to each Selling Stockholder, which specifically relate to such Selling Stockholder do not, and will not on the First Closing Date (and any later date on which Option Shares are purchased for the account of the Underwriters, if applicable), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (ix) Certificates in negotiable form for all shares of Securities to be sold by such Selling Stockholder under this Agreement have been placed in custody with the Custodian for the purpose of effecting delivery under this Agreement. (x) Such Selling Stockholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, and will advise Piper Jaffray Inc. prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, if any statement to be made on behalf of such Selling Stockholder in the certificate contemplated by Section 5(l) would be inaccurate if made as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be. (xi) Such Selling Stockholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Securities to be sold by the Company or any other Selling Stockholders to the Underwriters pursuant to this Agreement; such Selling Stockholder does not have, or has waived prior to the date hereof, any registration rights or similar right to participate in the offering made by the Prospectus, other than the rights of participation satisfied by the participation of such Selling Stockholder in the transactions to which this Agreement relates in accordance with the terms of this Agreement; and such Selling Stockholder does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus. (xii) To the best knowledge of such Selling Stockholder, the representations and warranties of the Company set forth in Section 2(a) above are true and accurate. (c) Any certificate signed by any officer of the Company and delivered to you or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby; any certificate signed by or on behalf of any Selling Stockholder as such and delivered to you or to counsel for the Underwriters -10- 11 shall be deemed a representation and warranty by such Selling Stockholder to each Underwriter as to the matters covered thereby. 3. Purchase, Sale and Delivery of Securities. (a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell 1,600,000 Firm Shares, and each Selling Stockholder agrees, severally and not jointly, to sell the number of Firm Shares set forth opposite the name of such Selling Stockholder in Schedule I hereto, to the several Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholders the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto. The purchase price for each Firm Share shall be $__ per share. In making this Agreement, each Underwriter is contracting severally and not jointly; except as provided in paragraph (c) of this Section 3 and in Section 8 hereof, the agreement of each Underwriter is to purchase only the respective number of Firm Shares specified in Schedule II. (b) The Firm Shares will be delivered by the Company [and the Custodian] to you for the accounts of the several Underwriters against payment of the purchase price therefor by certified or official bank check or other next day funds payable to the order of the Company, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable, at 9:00 a.m., Minneapolis time, on __________, 1997, in accordance with Rule 15c6-1 of the Exchange Act, such time and date of delivery being herein referred to as the "First Closing Date." The Firm Shares, in definitive form and in such denominations and registered in such names as you may request upon at least two business days' prior notice to the Company [and the Custodian], will be made available for checking and packaging at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable, at least two business days prior to the First Closing Date. (c) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, each of the Company, Advanced Technology Ventures IV, L.P. and Noro-Moseley Partners III, L.P. hereby grant to the several Underwriters an option to purchase all or any pro rata portion of the Option Shares listed opposite its name on Schedule I hereto at the same purchase price as the Firm Shares, for use solely in covering any over-allotments made by the Underwriters in the sale and distribution of the Firm Shares. The option granted hereunder may be exercised at any time (but not more than once) within 30 days after the effective date of this Agreement upon notice (confirmed in writing) by the Representatives to the Company setting forth the aggregate number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the certificates for the Option Shares are to be registered and the date and time, as determined by you, when the Option Shares are to be delivered, such time and date being herein referred to as the "Second Closing" and "Second Closing Date", respectively; provided, however, that the Second Closing Date shall not be earlier than the First Closing Date nor earlier than the second business day after the date on which the option shall have been -11- 12 exercised. The number of Option Shares to be purchased by each Underwriter shall be the same percentage of the total number of Option Shares to be purchased by the several Underwriters as the number of Firm Shares to be purchased by such Underwriter is of the total number of Firm Shares to be purchased by the several Underwriters, as adjusted by the Representatives in such manner as the Representatives deem advisable to avoid fractional shares. No Option Shares shall be sold and delivered unless the Firm Shares previously have been, or simultaneously are, sold and delivered. (d) The Option Shares will be delivered by the Company to you for the accounts of the several Underwriters against payment of the purchase price therefor by certified or official bank check or other next day funds payable to the order of the Company at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable at 9:00 a.m., Minneapolis time, on the Second Closing Date. The Option Shares in definitive form and in such denominations and registered in such names as you have set forth in your notice of option exercise, will be made available for checking and packaging at the office of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable, at least two business days prior to the Second Closing Date. (e) It is understood that you, individually and not as Representatives of the several Underwriters, may (but shall not be obligated to) make payment to the Company, on behalf of any Underwriter for the Securities to be purchased by such Underwriter. Any such payment by you shall not relieve any such Underwriter of any of its obligations hereunder. Nothing herein contained shall constitute any of the Underwriters an unincorporated association or partner with the Company. 4. Covenants. (a) The Company covenants and agrees with the several Underwriters as follows: (i) If the Registration Statement has not already been declared effective by the Commission, the Company will use its best efforts to cause the Registration Statement and any post-effective amendments thereto to become effective as promptly as possible; the Company will use its best efforts to cause any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations as may be required subsequent to the date the Registration Statement is declared effective to become effective as promptly as possible; the Company will notify you promptly of the time when the Registration Statement or any post-effective amendment to the Registration Statement or any abbreviated Registration Statement pursuant to Rule 462(b) of the Rules and Regulations has become effective or any supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or additional information; if the Company has elected to rely on Rule 430A of the Rules and Regulations, the Company will file a Prospectus containing the information omitted therefrom pursuant to such Rule 430A with the Commission within the time period required by, and otherwise in accordance with the provisions -12- 13 of, Rules 424(b) and 430A of the Rules and Regulations; the Company will prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or Prospectus that, in your opinion, may be necessary or advisable in connection with the distribution of the Securities by the Underwriters; in case any Underwriter is required to deliver a prospectus nine (9) month or more after the effective date of the Registration Statement in connection with the sale of the Securities, the Company will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and Prospectus as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act; and the Company will not file any amendment or supplement to the Registration Statement or Prospectus to which you shall reasonably object by notice to the Company after having been furnished a copy a reasonable time prior to the filing. (ii) The Company will advise you, promptly after it shall receive notice or obtain knowledge thereof, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and the Company will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued. (iii) Within the time during which a prospectus relating to the Securities is required to be delivered under the Act, the Company will comply as far as it is able with all requirements imposed upon it by the Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof and the Prospectus. If during such period any event occurs as a result of which the Prospectus would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act, the Company will promptly notify you and will amend the Registration Statement or supplement the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (iv) The Company will use its best efforts to qualify the Securities for sale under the securities laws of such jurisdictions as you reasonably designate and to continue such qualifications in effect so long as required for the distribution of the Securities, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process in any state. (v) The Company will furnish to the Underwriters copies of the Registration Statement (three of which will be signed and will include all exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and supplements to such documents, in each case as soon as available and in such quantities as you may from time to time reasonably request. -13- 14 (vi) During a period of five years commencing with the date hereof, the Company will furnish to the Representatives, and to each Underwriter who may so request in writing, copies of all periodic and special reports furnished to the stockholders of the Company and all information, documents and reports filed with the Commission, the National Association of Securities Dealers, Inc., The Nasdaq Stock Market or any securities exchange. (vii) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company's current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period beginning after the effective date of the Registration Statement that shall satisfy the provisions of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. (viii) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective under the provisions of Section 9(a) hereof or is terminated, will pay or cause to be paid (A) all expenses (including transfer taxes allocated to the respective transferees) incurred in connection with the delivery to the Underwriters of the Securities, (B) all expenses and fees (including, without limitation, fees and expenses of the Company's accountants and counsel but, except as otherwise provided below, not including fees of the Underwriters' counsel) in connection with the preparation, printing, filing, delivery, and shipping of the Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto), the Securities, each Preliminary Prospectus, the Prospectus, and any amendment thereof or supplement thereto, and the printing, delivery, and shipping of this Agreement and other underwriting documents, including Blue Sky Memoranda, (C) all filing fees and fees and disbursements of the Underwriters' counsel incurred in connection with the qualification of the Securities for offering and sale by the Underwriters or by dealers under the securities or blue sky laws of the states and other jurisdictions which you shall designate in accordance with Section 4(d) hereof, (D) the fees and expenses of any transfer agent or registration, (E) the filing fees incident to any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Securities, (F) listing fees, if any, and (G) all other costs and expenses incident to the performance of its obligations hereunder that are not otherwise specifically provided for herein. If the sale of the Securities provided for herein is not consummated by reason of action by the Company pursuant to Section 9(a) hereof which prevents this Agreement from becoming effective, or by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its or their part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled by the Company is not fulfilled, the Company will reimburse the several Underwriters for all out-of-pocket disbursements (including fees and disbursements of counsel) incurred by the Underwriters in connection with their investigation, preparing to market and marketing the Securities or in contemplation of performing their obligations hereunder. The Company shall not in any event be liable to any of the Underwriters for loss of anticipated profits from the transactions covered by this Agreement. (ix) The Company will apply the net proceeds from the sale of the Securities to be sold by it hereunder for the purposes set forth in the Prospectus and will file such reports with the Commission with respect to the sale of the Securities and the application of the -14- 15 proceeds therefrom as may be required in accordance with Rule 463 of the Rules and Regulations. (x) The Company will not, without your prior written consent, offer for sale, sell, sell short, contract to sell, grant any option for the sale of or otherwise issue or dispose of any Common Stock or any securities convertible into or exchangeable for, or any options or rights to purchase or acquire, Common Stock, except to the Underwriters pursuant to this Agreement or pursuant to the Company's stock plans for a period of 90 days after the commencement of the public offering of the Securities by the Underwriters. The Company shall not file with the Commission any registration statements (including without limitation any registration statements on Form S-8 or any successor form) with respect to any stock option stock purchase, restricted stock or similar plan until at least 90 days following the date of this Agreement. (xi) The Company either has caused to be delivered to you or will cause to be delivered to you prior to the effective date of the Registration Statement a letter from each of the Company's directors, officers and all stockholders affiliated with a director or officer, stating that such person agrees that he or she will not, without your prior written consent, directly or indirectly offer for sale, sell, sell short, contract to sell or otherwise dispose of any shares of Common Stock or rights to purchase Common Stock, except to the Underwriters pursuant to this Agreement, for a period commencing September ___, 1997 and ending 90 days after commencement of the public offering of the Securities by the Underwriters; provided, that [______, _____ and ______] will each be permitted to sell no more than ____ shares of Common Stock during the period beginning [twenty-one] days after the effective date of the Registration Statement and ending 90 days after commencement of the public offering of the Securities by the Underwriter. (xii) The Company has not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities, and has not effected any sales of Common Stock which are required to be disclosed in response to Item 701 of Regulation S-K under the Act which have not been so disclosed in the Registration Statement. (xiii) The Company will not incur any liability for any finder's or broker's fee or agents commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (xiv) The Company will inform the Florida Department of Banking and Finance at any time prior to the consummation of the distribution of the Securities by the Underwriters if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba. Such information will be provided within 90 days after the commencement thereof or after a change occurs with respect to previously reported information. -15- 16 (b) Each Selling Stockholder covenants and agrees with the several Underwriters as follows: (i) Except as otherwise agreed to by the Company and the Selling Stockholder, such Selling Stockholder will pay all taxes, if any, on the transfer and sale, respectively, of the Securities being sold by such Selling Stockholder, the fees of such Selling Stockholder's counsel and such Selling Stockholder's proportionate share (based upon the number of Securities being offered by such Selling Stockholder pursuant to the Registration Statement) of all costs and expenses (except for legal and accounting expenses and fees of the registrar and transfer agent) incurred by the Company pursuant to the provisions of Section 4(a)(viii) of this Agreement; provided, however, that each Selling Stockholder severally agrees to reimburse the Company for any reimbursement made by the Company to the Underwriters pursuant to Section 4(a)(viii) hereof to the extent such reimbursement resulted from the failure or refusal on the part of such Selling Stockholder to comply under the terms or fulfill any of the conditions of this Agreement. (ii) If this Agreement shall be terminated by the Underwriters because of any failure, refusal or inability on the part of such Selling Stockholder to perform any agreement on such Selling Stockholder's part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled by such Selling Stockholder is not fulfilled, such Selling Stockholder agrees to reimburse the several Underwriters for all out-of-pocket disbursements (including fees and disbursements of counsel for the Underwriters) incurred by the Underwriters in connection with their investigation, preparing to market and marketing the Securities or in contemplation of performing their obligations hereunder. The Selling Stockholder shall not in any event be liable to any of the Underwriters for loss of anticipated profits from the transactions covered by this Agreement. (iii) The Selling Stockholders Shares to be sold by such Selling Stockholder, represented by the certificates on deposit with the Custodian pursuant to the Custody Agreement of such Selling Stockholder, are subject to the interest of the several Underwriters and the other Selling Stockholders; the arrangements made for such custody are, except as specifically provided in the Custody Agreement, irrevocable; and the obligations of such Selling Stockholder hereunder shall not be terminated, except as provided in this Agreement or in the Custody Agreement, by any act of such Selling Stockholder, by operation of law, whether by the liquidation, dissolution or merger of such Selling Stockholder, by the death of such Selling Stockholder, or by the occurrence of any other event. If any Selling Stockholder should liquidate, dissolve or be a party to a merger or if any other such event should occur before the delivery of the Securities hereunder, certificates for the Securities deposited with the Custodian shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such liquidation, dissolution, merger or other event had not occurred, whether or not the Custodian shall have received notice thereof. (iv) Such Selling Stockholder will not, without your prior written consent, offer for sale, sell, contract to sell, grant any option for the sale of or otherwise dispose of any Common Stock or any securities convertible into or exchangeable for, or any options or -16- 17 rights to purchase or acquire, Common Stock, except to the Underwriters pursuant to this Agreement, for a period of 90 days after the commencement of the public offering of the Securities by the Underwriters. (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities, and has not effected any sales of Common Stock which, if effected by the Company, would be required to be disclosed in response to Item 701 of Regulation S-K. (vi) Such Selling Stockholder shall immediately notify you if any event occurs, or of any change in information relating to such Selling Stockholder or the Company or any new in formation relating to the Company or relating to any matter stated in the Prospectus or any supplement thereto, which results in the Prospectus (as supplemented) including an untrue statement of a material fact or omitting to state any material fact necessary to make the statements therein, in fight of the circumstances under which they were, made, not misleading. 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy, as of the date hereof and at each of the First Closing Date and the Second Closing Date (as if made at such Closing Date), of and compliance with all representations, warranties and agreements of the Company contained herein, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., Minneapolis time, on the date of this Agreement, or such later time and date as you, as Representatives of the several Underwriters, shall approve and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been timely made; no stop order suspending the effectiveness of the Registration Statement or any amendment thereof shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened; and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to your satisfaction. (b) No Underwriter shall have advised the Company that the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto, contains an untrue statement of fact which, in your opinion, is material, or omits to state a fact which, in your opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading. (c) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, neither the Company shall not have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any -17- 18 distribution of any kind with respect to its capital stock; and there shall not have been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants), or any material change in the short-term long-term debt of the Company, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of the Company (except pursuant to the Company's Stock Option Plan), or any Material Adverse Change that, in your judgment, makes it impractical or inadvisable to offer or deliver the Securities on the terms and in the manner contemplated in the Prospectus. (d) On each Closing Date, there shall have been furnished to you, as Representatives of the several Underwriters, the opinion of Epstein, Becker and Green, P.C., counsel for the Company, dated such Closing Date and addressed to you, to the effect that: (i) The capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." The Securities to be issued and sold by the Company hereunder have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable, and the holders thereof will not be subject to personal liability by reason of being such holders. (ii) The Registration Statement has become effective under the Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of such counsel, threatened by the Commission. (iii) The Company has full corporate power and authority to enter into this Agreement, the Power of Attorney and Custody Agreement and this Agreement, the Power of Attorney and Custody Agreement have been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement, the Power of Attorney and Custody Agreement and the consummation of the actions herein and therein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule or regulation, any material agreement or instrument known to such counsel to which the Company is a party or by which it is bound or to which any of its material property is subject, the Company's charter or by-laws, or any order or decree involving the Company known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its respective properties; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Power of Attorney and Custody Agreement or for the consummation of the transactions contemplated hereby and thereby, including the issuance or sale of the Securities by the Company, except such as may be required under the Act or state securities laws. (iv) To the best of such counsel's knowledge, the Company holds all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders required by the FDA and the NRC and other similar state organizations required for -18- 19 the conduct of its business as presently conducted, and all such franchises, grants, authorizations, licenses, permits, easements, consents, certifications and orders are valid and in full force and effect. (v) The Registration Statement and the Prospectus, and any amendment thereof or supplement thereto, comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; and on the basis of our participation in the preparation of the Registration Statement and Prospectus, which included conferences with officers of the Company at which the contents of the Registration Statement and Prospectus and related matters were discussed and our examination of documents referred to in the Registration Statement and Prospectus, no facts have come to the attention of such counsel that causes such counsel to believe that the Registration Statement thereof, at the time it became effective and as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (as of its date and as of such Closing Date), as amended or supplemented, contained any untrue statement of material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; it being understood that such counsel need express no opinion as to the financial statements or other financial data included in any of the documents mentioned in this clause. (vi) Based insofar as factual matters are concerned solely upon certificates of the Selling Stockholders and representations and agreements of the Selling Stockholders contained in the Custody Agreement and Power of Attorney referred to below, the accuracy of which we have no reason to question, (A) the Agreement has been duly executed and delivered by or on behalf of each of the Selling Stockholders; (B) the Custody Agreement between the Selling Stockholders and the Company, as Custodian, and the Power of Attorney referred to in such Custody Agreement, have been duly executed and delivered by such Selling Stockholder; (C) the Custody Agreement entered into by, and the Power of Attorney given by, such Selling Stockholder is valid and binding on such Selling Stockholder; and (D) each Selling Stockholder has full legal right and authority to enter into this Agreement and to sell, transfer and deliver in the manner provided in this Agreement the shares of Securities sold by such Selling Stockholder hereunder. (vii) Upon delivery of the Selling Stockholder Shares to be sold by the Selling Stockholders and payment therefor in accordance with this Agreement, the Underwriters will acquire the Securities free and clear of any "adverse claim" (within the meaning of Section 8-302(2) of the Uniform Commercial Code), assuming for purpose of such opinion that the Underwriters are without notice of any defect in the title of the Selling Stockholder Shares being purchased from the Selling Stockholders. (viii) No consent, approval, authorization or order of any court or governmental agency or body on the part of the Selling Stockholders is required for the consummation of the transactions contemplated in this Agreement, except such as have been obtained under the Act and such as may be required under state securities or blue sky laws in -19- 20 connection with the purchase and distribution of the Securities by the Underwriters (as to which state securities laws such counsel expresses no opinion). In rendering such opinion such counsel may rely (i) as to matters of law other than the laws of the state of New York and federal law, upon the opinion or opinions of local counsel provided that the extent of such reliance is specified in such opinion and that such counsel shall state that such opinion or opinions of local counsel are satisfactory to them and that they believe they and you are justified in relying thereon and (ii) as to matters of fact, to the extent such counsel deems reasonable upon certificates of officers of the Company and its subsidiaries provided that the extent of such reliance is specified in such opinion. On each Closing Date, there shall have been furnished to you, as Representatives of the several Underwriters, the opinion of Mirkin & Woolf, Florida counsel for the Company, dated such Closing Date and addressed to you, to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. The Company has full corporate power and authority to own its properties and conduct its business as currently being conducted and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in the State of Georgia. (ii) All of the issued and outstanding shares of the capital stock of the Company have been duly authorized, validly issued and are fully paid and nonassessable, and the holders thereof are not subject to personal liability for any reason of being such holders. Except as otherwise stated in the Registration Statement and Prospectus, to the best of such counsel's knowledge, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, by-laws or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company is bound. To the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company which have not been duly waived. (iii) To the best of such counsel's knowledge, except as described in the Registration Statement and Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company. (vii) To the best of such counsel's knowledge, the Company is not in violation of its charter or by-laws. To the best of such counsel's knowledge, the Company is not in breach of or otherwise in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note, indenture, loan agreement or any other material contract, lease or other instrument to which it is subject or by which any of them may be bound, or to which any of the material property or assets of the Company is subject. -20- 21 (f) On each Closing Date, there shall have been furnished to you, as Representatives of the Several Underwriters, the opinion of Cooper & Dunham LLP, patent counsel to the Company, to the effect that they serve as patent counsel to the Company with respect to specified aspects of the Company's Intellectual Property, including the applications listed in Schedule A hereto (the "Company Patent Applications"), and that: (i) The statements in the Registration Statement and Prospectus (x) under the caption "Risk Factors -- Uncertainty Regarding Patents and Protection of Proprietary Technology" and (y) under the caption "Business -- Patents and Proprietary Technology," insofar as such statements constitute summaries of matters of law are accurate and complete statements or summaries of the matters set forth therein. (ii) To such counsel's knowledge, there are no legal or governmental proceedings pending (other than patent applications pending) relating to patents or Intellectual Property owned or used by the Company, and to such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or others, except as set forth in the Prospectus [and except for a letter received by the Company from E-Z-FM, Inc.] (iii) Such counsel has no knowledge of any facts which would preclude the Company from having valid license rights or clear title to the Company Patent Applications. Based on representations by the Company that no interests have been conveyed to third parties which have not been recorded in the United States Patent and Trademark Office, the Company or its licensors have clear record title to the Company Patents Applications. To the best of such counsel's knowledge, the Company has complied with the PTO duty of candor and disclosure for each of the Company Patent Applications. Such counsel has no knowledge that the Company lacks or will be unable to obtain any rights or licenses to use all Intellectual Property necessary to the conduct of its business as now or proposed to be conducted by the Company as described in the Prospectus, except as described in the Prospectus or as described in Schedule A. Such counsel has no knowledge of any facts material to a determination of patentability regarding the Company Patent Applications not called to the attention of the PTO. Such counsel is unaware of any facts not called to the attention of the PTO which would preclude the grant of a patent for the Company Patent Applications. To the best of such counsel's knowledge[, except for a letter received by the Company from E-Z-FM, Inc.], the Company has not received any notice of infringement or of conflict with rights or claims of others with respect to any Intellectual Property owned or used by it which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in any material adverse effect upon the Company, except as described in the Prospectus. Such counsel has no knowledge of any patent rights of others which are or would be infringed by specific products or processes referred to in the Prospectus in such a manner as to materially and adversely affect the Company, except as described in the Prospectus. In addition, such counsel shall state that although they have not verified the accuracy or completeness of the statements contained in the Prospectus, nothing has come to the attention of such counsel that caused them to believe that, at the time the Registration Statement became -21- 22 effective, or at the Closing Date or at any later date on which Option Shares are purchased, as the case may be, the Prospectus (i) under the caption "Risk Factors -- Uncertainty Regarding Patents and Protection of Proprietary Technology; and (ii) under the caption "Business -- Patents and Proprietary Technology" contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) On each Closing Date, there shall have been furnished to you, as Representatives of the several Underwriters, such opinion or opinions from, Testa, Hurwitz & Thibeault LLP, counsel for the several Underwriters, dated such Closing Date and addressed to you, with respect to the formation of the Company, the validity of the Securities, the Registration Statement, the Prospectus and other related matters as you reasonably may request, and such counsel shall have received such papers and information as they request to enable them to pass upon such matters. (h) On each Closing Date you, as Representatives of the several Underwriters, shall have received a letter of Ernst & Young LLP, dated such Closing Date and addressed to you, confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualifications of accountants under Rule 2-01 of Regulation S-X of the Commission, and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of such letter), the conclusions and findings of said firm with respect to the financial information and other matters covered by its letter delivered to you concurrently with the execution of this Agreement, and the effect of the letter so to be delivered on such Closing Date shall be to confirm the conclusions and findings set forth in such prior letter. (i) On each Closing Date, there shall have been furnished to you, as Representatives of the Underwriters, a certificate, dated such Closing Date and addressed to you, signed by the chief executive officer and by the chief financial officer of the Company, to the effect that: (i) The representations and warranties of the Company in this Agreement are true and correct, in all material respects, as if made at and as of such Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; (ii) No stop order or other order suspending the effectiveness of the Registration Statement or any amendment thereof or the qualification of the Securities for offering or sale has been issued, and no proceeding for that purpose has been instituted or, to the best of their knowledge, is contemplated by the Commission or any state or regulatory body; and (iii) The signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments thereof or supplements thereto, and (A) such documents contain all statements and information required to be included therein, -22- 23 the Registration Statement, or any amendment thereof, does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented, does not include any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (B) since the effective date of the Registration Statement there has occurred no event required to be set forth in an amended or supplemented prospectus which has not been so set forth, (C) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock, and except as disclosed in the Prospectus, there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants), or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock, of the Company, or any of its subsidiaries, or any Material Adverse Change, and (D) except as stated in the Registration Statement and the Prospectus, there is not pending, or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding to which the Company is a party before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any Material Adverse Change. (j) The Company shall have furnished to you and counsel for the Underwriters such additional documents, certificates and evidence as you or they may have reasonably requested. (k) On each Closing Date, there shall have been furnished to the several Underwriters, a certificate or certificates, dated such Closing Date and addressed to you, signed by each of the Selling Stockholders or an Attorney-in-Fact of such Selling Stockholder to the effect that the representations and warranties of such Selling Stockholder contained in this Agreement are true and correct as if made at and as of such Closing Date, and that such Selling Stockholder has complied with all the agreements and satisfied all the conditions on such Selling Stockholder's part to be performed or satisfied at or prior to such Closing Date. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and counsel for the Underwriters. The Company will furnish you with such conformed copies of such opinions, certificates, letters and other documents as you shall reasonably request. 6. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise (including in settlement of any litigation if such -23- 24 settlement is effected with the written consent of the Company, insofar as such losses, claims, damages or liabilities (or actions in respect thereto arise out of or are based upon (i) any breach of any representation, warranty, agreement or covenant of the Company contained herein, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness pursuant to Rule 430A, if applicable, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action (a) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you, or by any Underwriter through you, specifically for use in the preparation thereof, or (b) results from the fact that a copy of the Prospectus was not sent or given to such person at or prior the written confirmation of the sale of such shares to such person as required by the Securities Act and if the untrue statement or omission concerned has been corrected in the Prospectus. In addition to its other obligations under this Section 6(a), the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 6(a), they will reimburse each Underwriter on a monthly basis for all reasonable legal fees or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Underwriter that received such payment shall promptly return it to the party or parties that made such payment, together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by US TRUST (the "Prime Rate"). Any such interim reimbursement payments which are not made to an Underwriter within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) Each Selling Stockholder, severally and not jointly, agree to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Selling Stockholder, insofar as such losses, claims, damages or liabilities (or actions in respect thereto arise out of or are based upon (i) any breach of any representation, warranty, agreement or -24- 25 covenant of the Selling Stockholder contained herein, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness pursuant to Rule 430A, if applicable, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or such Underwriter by such Selling Stockholder, specifically for use in the preparation thereof, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action (a) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you, or by any Underwriter through you, specifically for use in the preparation thereof, or (b) results from the fact that a copy of the Prospectus was not sent or given to such person at or prior the written confirmation of the sale of such shares to such person as required by the Securities Act and if the untrue statement or omission concerned has been corrected in the Prospectus. The liability of each Selling Stockholder under the representations, warranties, agreements or covenants contained herein and under the indemnity agreements contained in this Section 6 shall be limited to an amount no greater than the public offering price of the Selling Stockholder Shares sold by such Selling Stockholder to the Underwriters minus the amount of the underwriting discount paid thereon to the Underwriters by such Selling Stockholder. The Company and such Selling Stockholder may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible. In addition to its other obligations under this Section 6(b), each Selling Stockholder, severally and not jointly, agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 6(b), they will reimburse each Underwriter on a monthly basis for all reasonable legal fees or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Selling Stockholder's obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Underwriter that received such payment shall promptly return it to the party or parties that made such payment, together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by US TRUST (the "Prime Rate"). Any such interim reimbursement payments which are not made to -25- 26 an Underwriter within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities which each Selling Stockholder may otherwise have. (c) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you, or by such Underwriter through you, specifically for use in the preparation thereof, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending against any such loss, claim, damage, liability or action. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party's election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if, in the reasonable judgment of the Representatives, it is advisable for the Underwriters to be represented as a group by separate counsel, the Representatives shall have the right to employ a single counsel to represent the Representatives and all Underwriters who may be subject to liability arising from any claim in respect of which indemnity may be sought by the Underwriters under subsection (a) or (b) of this Section 6, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and reimbursed to the Underwriters as incurred (in accordance with the provisions of the second paragraphs in subsection (a) or (b) above). An indemnifying party shall not be obligated under any settlement agreement relating to any action under this Section 6 to which it has not agreed in writing. -26- 27 (e) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a), (b) or (c) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and Selling Stockholders on the one hand and the Underwriters on the other in connection with any breach of representation, warranty, agreement or covenant contained herein or the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company or Selling Stockholder bears to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, a Selling Stockholder or the Underwriters and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this subsection (e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject of this subsection (e). Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) The obligations of the Company and Selling Stockholders under this Section 6 shall be in addition to any liability which the Company or Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 6 shall be in addition to any liability that the respective Underwriters may -27- 28 otherwise have and shall extend, upon the same terms and conditions, to each director of the Company (including any person who, with his consent, is named in the Registration Statement as about to become a director of the Company), to each officer of the Company, who has signed the Registration Statement and to each person, if any, who controls the Company within the meaning of the Act (g) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding this Agreement, including, without limitation, the provisions of this Section 6, and are fully informed regarding this Agreement and such provisions. They further acknowledge and agree that the provisions of this Section 6 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Act and Rules and Regulations. 7. Representations and Agreements to Survive Delivery. All representations, warranties, and agreements of the Company herein or in certificates delivered pursuant hereto, and the agreements of the several Underwriters and the Company contained in Section 6 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof, or the Company or any of its officers, directors, or controlling persons, and shall survive delivery of, and payment for, the Securities to and by the Underwriters hereunder. 8. Substitution of Underwriters. (a) If any Underwriter or Underwriters shall fail to take up and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters to be purchased hereunder, upon tender of such Firm Shares in accordance with the terms hereof, and the amount of Firm Shares not purchased does not aggregate more than 10% of the total amount of Firm Shares set forth in Schedule II hereto, the remaining Underwriters shall be obligated to take up and pay for (in proportion to their respective underwriting obligations hereunder as set forth in Schedule I hereto except as may otherwise be determined by you) the Firm Shares that the withdrawing or defaulting Underwriters agreed but failed to purchase. (b) If any Underwriter or Underwriters shall fail to take up and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters to be purchased hereunder, upon tender of such Firm Shares in accordance with the terms hereof, and the amount of Firm Shares not purchased aggregates more than 10% of the total amount of Firm Shares set forth in Schedule I hereto, and arrangements satisfactory to you for the purchase of such Firm Shares by other persons are not made within 36 hours thereafter, this Agreement shall terminate. In the event of any such termination the Company shall not be under any liability to any Underwriter (except to the extent provided in Section 4(h) and Section 6 hereof) nor shall any Underwriter (other than an Underwriter who shall have failed, otherwise than for some reason permitted under this Agreement, to purchase the amount of Firm Shares agreed by such Underwriter to be -28- 29 purchased hereunder) be under any liability to the Company (except to the extent provided in Section 6 hereof). (c) If Firm Shares to which a default relates are to be purchased by the non-defaulting Underwriters or by any other party or parties, the Representatives or the Company shall have the right to postpone the First Closing Date for not more than seven business days in order that the necessary changes in the Registration Statement, Prospectus and another documents, as well as any other arrangements, may be effected. As used herein, the term "Underwriter" includes any person substituted Underwriter under this Section 8. 9. Effective Date of this Agreement and Termination. (a) This Agreement shall become effective at 10:00 a.m., Minneapolis time, on the first full business day following the effective date of the Registration Statement, or at such earlier time after the effective time of the Registration Statement as you in your discretion shall first release the Securities for sale to the public; provided, that if the Registration Statement is effective at the time this Agreement is executed, this Agreement shall become effective at such time as you in your discretion shall first release the Securities for sale to the public. For the purpose of this Section, the Securities shall be deemed to have been released for sale to the public upon release by you of the publication of a newspaper advertisement relating thereto or upon release by you of telexes offering the Securities for sale to securities dealers, whichever shall first occur. By giving notice as hereinafter specified before the time this Agreement becomes effective, you, as Representatives of the several Underwriters, or the Company may prevent this Agreement from becoming effective without liability of any party to any other party, except that the provisions of Section 4(h) and Section 6 hereof shall at all times be effective. (b) You, as Representatives of the several Underwriters, shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time at or prior to the First Closing Date, and the option referred to in Section 3(b), if exercised, may be canceled at any time prior to the Second Closing Date, if (i) the Company shall have failed, refused or been unable, at or prior to such Closing Date, to perform any agreement on its part to be performed hereunder, (ii) any other condition of the Underwriters' obligations hereunder is not fulfilled, (iii) trading on the New York Stock Exchange or the American Stock Exchange shall have been wholly suspended, (iv) minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the New York Stock Exchange or the American Stock Exchange, by such Exchange or by order of the Commission or any other governmental authority having jurisdiction, (v) a banking moratorium shall have been declared by Federal, New York or Georgia or Minneapolis authorities, or (vi) there has occurred any material adverse change in the financial markets in the United States or an outbreak of major hostilities (or an escalation thereof) in which the United States is involved, a declaration of war by Congress, any other substantial national or international calamity or any other event or occurrence of a similar character shall have occurred since the execution of this Agreement that, in your judgment, makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Securities. Any such termination shall be without liability of any party to -29- 30 any other party except that the provisions of Section 4(h) and Section 6 hereof shall at all times be effective. (c) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section, the Company shall be notified promptly by you by telephone or telegram, confirmed by letter. If the Company elects to prevent this Agreement from becoming effective, you shall be notified by the Company by-telephone or telegram, confirmed by letter. 10. Default by the Company or One or More of the Selling Stockholders. (a) If the Company shall fail at the First Closing Date to sell and deliver the number of Securities which it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party . (b) No action taken pursuant to this Section shall relieve the Company so defaulting from liability, if any, in respect of such default. (c) If one or more of the Selling Stockholders shall fail at the First Closing Date to sell and deliver the number of Securities which such Selling Stockholder or Selling Stockholders are obligated to sell hereunder, and the remaining Selling Stockholders do not exercise the right hereby granted to increase, pro rata or otherwise, the number of Securities to be sold by them hereunder to the total number of Securities to be sold by all Selling Stockholders as set forth in Schedule I, then the Underwriters may at your option, by notice from you to the Company and the non-defaulting Selling Stockholders, either (a) terminate this Agreement without any liability an the part of any non-defaulting party or (b) elect to purchase the Securities which the Company and the non-defaulting Selling Stockholders have agreed to sell hereunder. In the event of a default by any Selling Stockholder as referred to in this Section, either you or the Company shall have the right to postpone the First Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 11. Information Furnished by Underwriters. The statements set forth in the last paragraph of the cover page and under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus constitute the written information furnished by or on behalf of the Underwriters referred to in Section 2 and Section 6 hereof. 12. Notices. Except as otherwise provided herein, all communications hereunder shall be in writing or by telegraph and, if to the Underwriters, shall be mailed, telegraphed or delivered to the Representatives c/o Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402, except notices given to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter at the address stated in the Underwriters' Questionnaire furnished by such Underwriter in connection with this offering; if to the Company, shall be mailed, telegraphed or delivered to it at 4350 International Boulevard, Suite C, -30- 31 Norcrosse, Georgia 30093 Attention: Mr. Thomas Weldon; if to a Selling Stockholder, shall be mailed, telegraphed or delivered to either _____________ or __________, as Attorney-in-Fact for the Selling Stockholders, at _______________. Any notices given by telegram shall be promptly confirmed by letter. Any party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose. 13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns and the controlling persons, officers and directors referred to in Section 6. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision herein contained. The term "successors and assigns" as herein used shall not include any purchaser, as such purchaser, of any of the Securities from any of the several Underwriters. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. [Remainder of Page Intentionally Left Blank] -31- 32 Please sign and return to the Company the enclosed duplicates of this letter whereupon this letter will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, NOVOSTE CORPORATION By: ------------------------- Name: Title: SELLING STOCKHOLDERS By: ------------------------- Attorney-in-Fact PIPER JAFFRAY INC. COWEN & COMPANY NATIONSBANC MONTGOMERY SECURITIES, INC. Confirmed as of the date first above mentioned, on behalf of themselves and the other several Underwriters named in Schedule I hereto. By: PIPER JAFFRAY INC. By: --------------------------------- Managing Director -32- 33 SCHEDULE I
Number of Firm Number of Option Name Shares to be Sold Shares to be Sold ---- ----------------- ----------------- The Company 1,600,000 170,000 Advanced Technology Ventures IV, L.P. 100,000 100,000 Charles E. Larsen 100,000 0 Noro-Moseley Partners III, L.P. 100,000 30,000 Thomas D. Weldon 100,000 0 --------- ------- TOTAL 2,000,000 300,000
34 SCHEDULE II
Number of Underwriter Firm shares (1) ----------- --------------- Piper Jaffray Inc. Cowen & Company NationsBanc Montgomery Securities, Inc. Total. . . . . . . . . . . . . . . . . . . . . . 2,000,000 =========
- --------------------- (1) The Underwriters may purchase additional Option Shares, to the extent the option described in Section 3 of the Agreement is exercised, in the proportions and in the manner described in the Agreement. -34- 35 SCHEDULE A Company Patent Applications NOVOSTE CORPORATION INTELLECTUAL PROPERTY PORTFOLIO __________, 1997 [To be provided by the Company] -35- EX-1.2 3 POWER OF ATTORNEY AND CUSTODY AGREEMENT 1 EXHIBIT 1.2 NOVOSTE CORPORATION SELLING STOCKHOLDER'S POWER OF ATTORNEY AND CUSTODY AGREEMENT Novoste Corporation 4350-C International Boulevard Norcross, GA 30093 Novoste Corporation 4350-C International Boulevard Norcross, GA 30093 Ladies and Gentlemen: The undersigned understands that Novoste Corporation (the "Company") will file a Registration Statement on Form S-3 (the "Registration Statement") pursuant to the Securities Act of 1933, as amended (the "Securities Act"), in connection with the proposed sale by the undersigned, the Company and certain other stockholders of the Company (such holders, including the undersigned, hereinafter referred to as the "Selling Stockholders") of shares of Common Stock of the Company ("Common Stock") to certain underwriters (the "Underwriters") represented by Piper Jaffray, Inc., Cowen & Company and Montgomery Securities (the "Representatives"), who propose to offer such Common Stock to the public (the "Offering"). The Company, Selling Stockholders and the Underwriters propose to enter into a Purchase Agreement in connection with the Offering, substantially in the form to be filed as an exhibit to the Registration Statement (the "Purchase Agreement"). The shares of Common Stock the undersigned desires to sell (the "Underwritten Shares") are set forth in Schedule I hereto ("Schedule I") and either are: (i) - issued and outstanding shares of Common Stock held of record by, and in the name of the undersigned; (ii) - shares of Common Stock issuable upon exercise of outstanding options or warrants; or (iii) - a combination thereof. Concurrently with the execution and delivery of this Power of Attorney and Custody Agreement, the undersigned is delivering to Novoste Corporation, as custodian (the "Custodian") fully endorsed certificates and/or original stock option and/or warrant agreement(s) with notice(s) of exercise for at least the number of Underwritten Shares specified in Schedule I (except where such certificates, and/or agreements and notice(s) previously have been delivered), pursuant to the terms hereof. 2 -2- I. APPOINTMENT AND POWERS OF ATTORNEYS-IN-FACT. 1. In connection with the foregoing, the undersigned hereby makes, constitutes and appoints ________________ and ________________, and each of them or their successors or substitutes, the true and lawful attorneys-in-fact of the undersigned (such persons, or either of them or their successors, hereinafter referred to individually as an "Attorney-in-Fact" and collectively as the "Attorneys-in-Fact") with respect to all matters arising in connection with the sale of Securities by the Selling Stockholders to the Underwriters, including, but not limited to, the full power and authority, in the name and on behalf of the undersigned to take any and all of the following actions: a. To sell, assign, transfer and deliver to the Underwriters up to the number of Underwritten Shares set forth on Schedule I and represented by certificate(s) (in negotiable and deliverable form with signatures guaranteed by a bank or trust company or by a member firm of the New York, Boston, Midwest, Pacific, Philadelphia or American Stock Exchange or accompanied by a duly executed stock power or powers, in blank, bearing the signature of the Selling Stockholder so guaranteed) and/or original stock option and/or warrant agreements and notices of exercise deposited with the Custodian at such purchase price per share to be paid by the Underwriters that the Attorneys-in-Fact in the sole discretion of either of them shall determine and agree to with the Underwriters pursuant to the Purchase Agreement, which purchase price shall be the same purchase price per share to be paid by the Underwriters to the other Selling Stockholders and to the Company; b. For the purpose of effecting such sale, (i) to execute and deliver a Purchase Agreement (which agreement will contain, among other things, provision for representations, warranties and covenants by the Selling Stockholders) by and among the Company, the Selling Stockholders and the Underwriters, substantially in the form attached hereto as Exhibit A, with such additions thereto and changes therein as the Attorneys-in-Fact in the sole discretion of either of them shall determine not to be materially adverse to the Selling Stockholder and approve (the "Purchase Agreement"), such approval to be conclusively evidenced by the execution and delivery thereof by any of the Attorneys-in-Fact and (ii) to carry out and comply with all of the terms and conditions of the Purchase Agreement, including the making of all representations and agreements provided for in the Purchase Agreement to be made by and to exercise all authority vested in the Selling Stockholder; c. To endorse, transfer and deliver and/or authorize the delivery of certificates for the Underwritten Shares to or on the order of the Underwriters or to their nominee or nominees pursuant to the Purchase Agreement, and to give such orders and instructions to the Custodian as the Attorneys-in-Fact may in the sole discretion of either of them determine with respect to: (i) the transfer on the books of the Company of the Underwritten Shares to be sold by the undersigned in order to effect such sale (including the names and denominations in which new certificates for such shares are to be issued); (ii) the delivery to or for the account of the Underwriters of the certificates for such Underwritten Shares against receipt by the Custodian of the purchase price to be paid therefore; (iii) the remittance to the undersigned of the proceeds, less any discounts, commissions, fees and expenses, all as hereinafter described, from any sale of Underwritten Shares by the undersigned to the Underwriters; (iv) the return to the undersigned of certificates representing the number of shares, if any, of Common Stock received by the Custodian but not sold by the undersigned 3 -3- to the Underwriters; (v) the return to the undersigned of original stock option and/or warrant agreements and exercise notices with respect to shares not sold by the undersigned to the Underwriters; (vi) the receipt of any cash payable in lieu of any fractional shares; and (vii) such other matters as shall be necessary or desirable to effect the intent and purpose of the foregoing; d. To retain Epstein, Becker & Green, P.C. as legal counsel in connection with any and all matters referred to herein (it being understood and agreed that Epstein, Becker & Green, P.C. also is acting as counsel to the Company); e. To instruct the Custodian as to the number of Underwritten Shares to be sold by each Selling Stockholder (it being understood and agreed to by the undersigned that the Custodian shall be entitled to rely on the instructions from the Attorneys-in-Fact as to the purchase price per share and the number of Underwritten Shares to be sold by each Selling Stockholder; provided, that, the purchase price per share shall be the same price paid by the Underwriters to the other Selling Stockholders and the Company); f. To make, execute, acknowledge and deliver all such other contracts, powers of attorney, orders, receipts, notices, requests, instructions, certificates, letters and other writings, including without limitation, a request that the Registration Statement be made effective, amendments to the Purchase Agreement, actions to facilitate the qualification of the Underwritten Shares under the blue sky or securities laws of the jurisdictions in which the Underwriters propose to offer the Underwritten Shares, and generally to do all things and to take all actions that the Attorneys-in-Fact in the sole discretion of either of them may consider necessary or proper in connection with or to carry out the sale of the Underwritten Shares to the Underwriters, as fully as could the undersigned if personally present and acting; g. To approve on behalf of the undersigned any amendments to the Registration Statement or the Prospectus (as hereinafter defined) and, if applicable, to advise the Securities and Exchange Commission (the "Commission") on behalf of the undersigned that such person is aware: (i) that the Commission's staff has made summary, cursory or no review of the Registration Statement, as applicable; and (ii) that such review or lack thereof may not be relied upon in any degree to indicate that the Registration Statement is true, complete or accurate; h. To make, acknowledge, verify and file on behalf of the undersigned applications, consents to service of process and such other undertakings or reports as may be required by law with state commissioners or officers administering state blue sky or securities laws; and i. If necessary, to endorse (in blank or otherwise) the certificate or certificates representing the Underwritten Shares to be sold by the undersigned, or a stock power or powers attached to such certificate or certificates. 2. This Power of Attorney and all authority conferred hereby is granted and conferred subject to and in consideration of the interests of the Company, the Underwriters and the other Selling Stockholders who may become parties to the Purchase Agreement, and, for the purposes of 4 -4- completing the transactions contemplated by the Purchase Agreement and this Power of Attorney, this Power of Attorney and all authority conferred hereby shall be irrevocable and shall not be terminated by any act of the undersigned or by operation of law, whether by the death or incapacity of the undersigned (or either or any of them) or by the occurrence of any other event or events (including, without limiting the foregoing, the death or incapacity of any executor or trustee or the termination of any trust or estate for which the undersigned is acting as a fiduciary or fiduciaries or, in the case of a partnership, limited liability company or corporation, by the dissolution of such partnership, limited liability company or corporation), and if after the execution hereof the undersigned (or either or any of them) shall die or become incapacitated, or if any such trust or estate is terminated, or if any such partnership, limited liability company or corporation dissolved, or if any other such event or events occur before the completion of the transactions contemplated by the Purchase Agreement and this Power of Attorney, the Attorneys-in-Fact nevertheless shall be authorized and directed to complete all such transactions as if such death, incapacity or other event or events had not occurred and regardless of notice thereof. Notwithstanding the foregoing, if the Purchase Agreement shall not be entered into prior to November 30, 1997 or otherwise terminated pursuant to the provisions thereof, then from and after such date the undersigned shall have the power to revoke all authority hereby conferred by giving written notice to the Attorneys-in-Fact and the Custodian that this Power of Attorney has been terminated. Any such termination shall be subject to all lawful action done or performed by the Attorneys-in-Fact pursuant to this Power of Attorney prior to actual receipt of such notice. 3. Each of the Attorneys-in-Fact shall have full power to make and substitute any Attorney-in-Fact in his place and stead, and the undersigned hereby ratifies and confirms all that the Attorneys-in-Fact or substitute or substitutes shall do by virtue of these presents. All actions hereunder may be taken by any one of the persons named herein as Attorneys-in-Fact or his substitute. In the event of the death or incapacity of any Attorneys-in-Fact, the remaining Attorneys-in-Fact may appoint a substitute therefor. The term "Attorneys-in-Fact" as used herein shall include their respective substitutes. II. CUSTODY AGREEMENT 1. The Selling Stockholder hereby transmits to the Custodian a certificate or certificates (the "Certificates") representing Common Stock, and/or original stock option and/or warrant agreements for the purchase of Common Stock and notices of exercise therefor of the Company, together with (i) stock powers from the owners of each of the Certificates with signatures guaranteed by a bank or trust company or by a member firm of the New York, Boston, Midwest, Pacific, Philadelphia or American Stock Exchange, representing not less than the number of shares of Common Stock set forth on Schedule I hereto, and (ii) additional documentation required to effectuate or confirm compliance with any of the provisions hereof or of the Purchase Agreement. The Certificates (x) are to be held by you as Custodian for the account of the Selling Stockholders, and (y) are to be disposed of by you in accordance with this Custody Agreement. 2. The Custodian is hereby authorized and directed to hold the Certificates in its custody and (i) on or immediately prior to the date on which the Underwritten Shares are purchased pursuant to the Purchase Agreement (the "Closing Date"), to cause the number of Underwritten Shares to be transferred on the books of the Company into such names as the Attorneys-in-Fact shall 5 -5- have instructed the Custodian prior to the Closing Date, and to cause to be issued, against surrender of the Certificates representing such shares, new certificates for such shares registered in such names and in such denominations as Attorneys-in-Fact shall have instructed the Custodian prior to the Closing Date, and upon the instructions of either Attorney-in-Fact, to deliver such new certificates to the Representative for the accounts of the several Underwriters pursuant to the Purchase Agreement, against payment for such shares in such amount as either Attorney-in-Fact shall certify to the Custodian, and to give receipt for such payment and to deposit the same to the Custodian's account as Custodian, and (ii) when instructed by either Attorney-in-Fact to do so, the Custodian is to remit to each of the Selling Stockholders the amount received by it as payment for such shares, less any discounts and commissions, applicable fees and expenses (the "Net Proceeds") which discounts and commissions, fees and expenses the Custodian is hereby authorized to pay for the account of the Selling Stockholders. 3. As instructed by either Attorney-in-Fact promptly after the Closing Date, the Custodian shall return to each of the Selling Stockholders the Net Proceeds and certificates and/or stock option and/or warrant agreements and notices of exercise representing the number of Underwritten Shares of such Selling Stockholder's Common Stock (if any) held by the Custodian that are in excess of the number of Underwritten Shares sold by such Selling Stockholder pursuant to the Purchase Agreement. 4. If the Purchase Agreement shall not be entered into on behalf of the Selling Stockholders prior to November 30, 1997 or shall be terminated pursuant to the provisions thereof, then, unless the Custodian shall receive instructions to the contrary from the Attorney-in-Fact, on or after that date the Custodian is to return to the undersigned the Certificates deposited with the Custodian, together with the stock powers delivered therewith. 5. The authority granted to and conferred on the Custodian hereunder is subject to and in consideration of the interest of the Company, the Underwriters and the other Selling Stockholders who may become parties to the Purchase Agreement. Accordingly, the authority granted hereunder and thereunder is an agency coupled with an interest and is irrevocable and not subject to termination by operation of law, whether by death or incapacity, by the dissolution or liquidation of any corporation, limited liability company or partnership, or by the occurrence of any other event or events (including, without limiting the foregoing, the termination of any trust or estate for which one or more of the Selling Stockholders is or are acting as a fiduciary or fiduciaries). The Certificates deposited with the Custodian and this Power of Attorney and Custody Agreement and the Custodian's authority hereunder, are subject to such interest, and this Power of Attorney and Custody Agreement and the Custodian's authority hereunder are similarly irrevocable by the undersigned or any Selling Stockholder and shall not be subject to termination in any such event. Notwithstanding the death or incapacity of any Selling Stockholder, the dissolution or liquidation of any Selling Stockholder or any such other event or events, the Custodian is nevertheless authorized and directed to deal with the Certificates deposited hereunder in accordance with the terms and conditions hereof, as if such death, incapacity, dissolution, liquidation or other event or events had not occurred, regardless of whether or not the Custodian shall have received notice of such death, incapacity, dissolution, liquidation or other event or events. 6. Until the purchase price for the shares of Common Stock sold by each of the Selling Stockholders pursuant to the Purchase Agreement has been paid to the Custodian by or for the 6 -6- account of the Underwriters, such Selling Stockholder shall remain the owner of such shares as are outstanding and shall have the right to vote such shares and all other outstanding shares (if any) represented by the Certificates deposited with the Custodian and to receive all dividends and distributions thereon. III. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLING STOCKHOLDER. The undersigned Selling Stockholder hereby represents, warrants to and agrees with the Attorneys-in-Fact, the Company and the Underwriters that: 1. The undersigned now has and on the Closing Date (as defined in the Purchase Agreement), and on any later date on which Option Shares (as defined in the Purchase Agreement) are purchased, will have valid, marketable title to the Underwritten Shares free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than pursuant to the Purchase Agreement; the undersigned has full right, power and authority to sell, assign, transfer and deliver the Underwritten Shares pursuant to the Purchase Agreement; and upon delivery of such Underwritten Shares and payment of the purchase price as therein contemplated, each of the Underwriters will obtain valid, marketable title to the Underwritten Shares purchased by it free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind, including any liability for estate or inheritance taxes, or any liability to or claims of any creditor, devisee, legatee or beneficiary of the undersigned; 2. The undersigned has duly authorized (if applicable), executed and delivered, in the form heretofore furnished to the Representatives, a Power of Attorney and Custody Agreement appointing ________________ and ________________ as Attorneys-in-Fact and the Company as the Custodian; the Power of Attorney and Custody Agreement constitutes a valid and binding agreement of the undersigned, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and each of the undersigned's Attorneys-in-Fact, acting alone, is authorized to execute and deliver the Purchase Agreement and certificate referred to thereunder on behalf of the undersigned, to determine, subject to Article I, Section 1(e) hereof, the purchase price to be paid by the several Underwriters to the undersigned as provided in Section 3 of the Purchase Agreement, to authorize the delivery of the Underwritten Shares under the Purchase Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Underwritten Shares or a stock power or powers with respect thereto, to accept payment therefor, and otherwise to act on behalf of the undersigned in connection with the Purchase Agreement. Certificates in negotiable form for all Underwritten Shares, together with a stock power or powers duly endorsed in blank by the undersigned, have been placed in custody with the Custodian for the purpose of effecting delivery pursuant to the Purchase Agreement; 3. All authorizations, approvals, consents and orders necessary for the execution and delivery by the undersigned of the Power of Attorney and Custody Agreement, the execution and delivery by or on behalf of the undersigned of the Purchase Agreement and the sale and delivery of the Underwritten Shares under the Purchase Agreement (other than, at the time of the execution hereof if the Registration Statement has not yet been declared effective by the Commission, the issuance of the order of the Commission declaring the Registration Statement effective and such 7 -7- authorizations, approvals or consents as may be necessary under state or other securities or Blue Sky laws) have been obtained and are in full force and effect; the undersigned, if other than a natural person, has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be; and the undersigned has full right, power and authority to enter into and perform its obligations under the Purchase Agreement and the Power of Attorney and Custody Agreement, and to sell, assign, transfer and deliver the Underwritten Shares pursuant to the Purchase Agreement; 4. The Purchase Agreement when executed by either Attorney-in-Fact on behalf of the undersigned will be duly authorized by the undersigned if the undersigned is not a natural person and will have been duly executed and delivered by or on behalf of the undersigned and is a valid and binding agreement of the undersigned, enforceable in accordance with its terms, except as the indemnification and contribution provisions thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and the performance of the Purchase Agreement and the consummation of the transactions therein contemplated will not result in a breach of or default under any material bond, debenture, note or other evidence of indebtedness, or any material contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the undersigned is a party or by which the undersigned or any Underwritten Shares may be bound or, to the best of the undersigned's knowledge, result in any violation of any law, order, rule, regulation, writ, injunction or decree of any court or governmental agency or body or, if the undersigned is other than a natural person, result in any violation of any provisions of the charter, by-laws or other organizational documents of the undersigned; 5. The undersigned has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Underwritten Shares; 6. Such Selling Stockholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Underwritten Shares, other than a preliminary prospectus or a final prospectus; 7. All information furnished by the undersigned relating to the undersigned and the Underwritten Shares that is contained in the representations and warranties of the undersigned in this Power of Attorney and Custody Agreement or set forth in the Registration Statement and the Prospectus (as defined in the Purchase Agreement) is and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date, and on any later date on which Option Shares are to be purchased, was or will be, true, correct and complete, and does not, and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date and on any later date on which Option Shares are to be purchased, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information not misleading; 8 -8- 8. The undersigned will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to the Purchase Agreement on or prior to the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, and will advise one of its Attorneys-in-Fact and Piper Jaffray Inc. prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, if any statement to be made on behalf of such Selling Stockholder in any certificate contemplated by the Purchase Agreement would be inaccurate if made as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be; 9. The undersigned is not aware (without having conducted any investigation or inquiry) that any of the representations and warranties of the Company set forth in Section 2(a) of the Purchase Agreement is untrue or inaccurate in any material respect; 10. The undersigned does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the shares of Common Stock that are to be sold by the Company or any of the other Selling Stockholders to the Underwriters pursuant to the Purchase Agreement; and the undersigned does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus; 11. The undersigned will pay or cause to be paid, in addition to the underwriting commission or discount (i) all costs and expenses incident to the performance of the undersigned's obligations pursuant to the Purchase Agreement that are not otherwise specifically provided for in this section, including: (x) any fees and expenses of counsel for the undersigned who is not also counsel to the Company; and (y) all expenses and taxes incident to the sale and delivery of the shares by the undersigned to the Underwriters pursuant to the Purchase Agreement; and (ii) any fees, disbursements, and expenses described in Section 4 of the Purchase Agreement that result from the inclusion of the shares held by the Selling Stockholder in the shares being registered and sold to the Underwriters pursuant to the Purchase Agreement, which fees, disbursements and expenses are determined by resolution of the Board of Directors of the Company to be attributable solely to that Selling Stockholder alone and not to constitute a normal cost or expense of the registration and sale of all shares. The undersigned authorizes the Custodian to withhold and pay from the proceeds from the sale of Underwritten Shares for the account of the undersigned, upon instruction from the Attorneys-in-Fact, all of the foregoing expenses, disbursements and fees; 12. The undersigned has carefully reviewed the Purchase Agreement including the proposed form of representations, warranties, statements and agreements to be made by the undersigned as a Selling Stockholder pursuant thereto, and including, without limitation, those contained in Section 2(b) of the Purchase Agreement and the indemnity and contribution agreements contained in Sections 6 of the Purchase Agreement, and does hereby represent, warrant and agree that: (i) such representations, warranties, statements and agreements insofar as they relate to the undersigned are true and correct as of the date hereof and will be true and correct at all times through the Closing Date and any later date on which Option Shares are to be purchased under the Purchase Agreement; and (ii) such agreements, insofar as they relate to the undersigned, have been complied with as of the date hereof and will be complied with on and after the Closing Date and any later date on which Option Shares are to be purchased; 9 -9- 13. Upon request of the Attorneys-in-Fact, Epstein, Becker & Green, P.C. or the Representatives or their counsel, the undersigned, if a partnership, corporation, limited liability company, custodian, trustee and/or guardian, will supply the Attorneys-in-Fact with all documentation demonstrating authority of the undersigned to enter into and be bound by this Power of Attorney and Custody Agreement (e.g., appropriate corporate resolutions, by-laws and charter documents; partnership agreements; articles of organization; operating agreements; trust agreements; etc.); 14. Upon request of the Attorneys-in-Fact, Epstein, Becker & Green, P.C., or the Representatives or their counsel, the undersigned will supply the Underwriters with an opinion of counsel for the undersigned to the effect set forth in Section 5(d) of the Purchase Agreement; and 15. The information regarding the Selling Stockholder set forth in Schedule I to this Power of Attorney and Custody Agreement is true and correct as of the date hereof and shall be true and correct at all times through the Closing Date (taking into account any sale of shares to the Underwriters pursuant to the Purchase Agreement prior to such Closing Date) and through any later date on which Option Shares are to be purchased; 16. The representations, warranties and agreements of the undersigned in this Power of Attorney and Custody Agreement and those of the undersigned contained in the Purchase Agreement, are made for the benefit of, and may be relied upon by, the other Selling Stockholders, the Attorneys-in-Fact, the Company and its counsel, the Underwriters and their Representatives, agents and counsel and the Custodian. 17. The Undersigned will furnish to the Representatives a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by the Treasury Department regulations in lieu thereof), in order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983, prior to the Closing Date. IV. GENERAL 1. The Attorneys-in-Fact and the Custodian shall be entitled to act and rely upon any statement, request, notice or instruction respecting this Power of Attorney and Custody Agreement, not only as to the authorization, validity and effectiveness thereof, but also as to the truth and acceptability of any information therein contained; provided, however, that any statement or notice to the Attorneys-in-Fact and the Custodian with respect to the Closing Date under the Purchase Agreement or with respect to the noneffectiveness or termination of the Purchase Agreement, or advice that the Purchase Agreement has not been executed and delivered, shall have been confirmed in writing to the Attorneys-in-Fact and the Custodian by the Representatives. 2. It is understood that the Attorneys-in-Fact and the Custodian assume no responsibility or liability to any person other than to deal with the Certificates deposited with the Custodian and the proceeds from the sale of securities represented thereby in accordance with the provisions hereof. The Attorneys-in-Fact and the Custodian, in their capacities as the Attorneys-in- 10 -10- Fact and Custodian make no representations with respect to and shall have no responsibility for the Registration Statement or the Prospectus nor, except as herein expressly provided, for any aspect of the offering of Common Stock, and the Attorneys-in-Fact and the Custodian shall not be liable for any error of judgment or for any act done or omitted or for any mistake of fact or law except for his or its own gross negligence or bad faith. Each of the Selling Stockholders agrees to indemnify the Attorneys-in-Fact and the Custodian for and to hold the Attorneys-in-Fact and the Custodian harmless against any loss, liability or expense incurred on his or its part arising out of or in connection with his or its acting as Attorneys-in-Fact or Custodian under this Power of Attorney and Custody Agreement, as well as the cost and expenses of defending against any claim of liability in the premises, and not due to the gross negligence or bad faith of such Attorneys-in-Fact and Custodian, as the case may be. The undersigned agrees that the Attorneys-in-Fact and Custodian may consult with counsel of his or its choice (who may be counsel for the Company) and the Attorneys-in-Fact and Custodian shall have full and complete authorization and protection for any action taken or suffered by him or it hereunder in good faith and in accordance with the opinion of such counsel. It is understood that the Attorneys-in-Fact may, without breaching any express or implied obligation to the undersigned hereunder, release, amend or modify any other Power of Attorney and Custody Agreement granted by any other Selling Stockholder; provided that such release, amendment or modification would not have an adverse effect on the undersigned. 3. In case any provision of this Power of Attorney and Custody Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 4. This Power of Attorney and Custody Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to each of the other parties hereto. This Power of Attorney and Custody Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. 5. Notices, if any, under this Power of Attorney and Custody Agreement shall be addressed to the Selling Stockholder at its address set forth in the share records of the Company, unless the Selling Stockholder shall in writing request a different address. Notices to the Custodian or the Attorneys-in-Fact may be addressed to the first address written above. 6. This Power of Attorney and Custody Agreement shall be binding upon the Selling Stockholder and his, her or its personal representative, successors and assigns, as the case may be. 7. It is understood that the Attorneys-in-Fact and Custodian shall serve entirely without compensation. 8. This Power of Attorney and Custody Agreement shall be governed by the laws of the State of Delaware. [Signature page follows immediately] 11 -11- The undersigned hereby executes the foregoing Power of Attorney and Custody Agreement. Dated:_____________________, 1997 Very truly yours, ___________________________________________* ___________________________________________* Signature(s) of Selling Stockholder(s) ___________________________________________* ___________________________________________* Signature(s) guaranteed:** Name(s) and titles(s) if applicable of Selling Stockholders ______________________________ (Please print) ______________________________ ___________________________________________* Number of Shares you propose to sell * To be signed in exactly the same manner as the certificate(s) are registered. ** The signature(s) must be guaranteed by an eligible guarantor under a medallion signature guarantee program (including a national bank or trust company or a member firm of the New York, American, Boston, Midwest, Pacific or Philadelphia stock exchange). 12 -12- ACCEPTANCE BY CUSTODIAN Novoste Corporation, named as Custodian in the foregoing Power of Attorney and Custody Agreement, hereby acknowledges receipt of the stock certificates and/or stock option and/or warrant agreements in the form hereinabove described and agrees to act in accordance with this Power of Attorney and Custody Agreement. NOVOSTE CORPORATION By:_________________________________________ Name: Title: Dated:______________, 1997 13 EXHIBIT A Purchase Agreement 14 SCHEDULE I
NAME NUMBER OF FIRM SHARES NUMBER OF OPTION TO BE SOLD SHARES TO BE SOLD Thomas D. Weldon 100,000 -- 0 -- Charles E. Larson 100,000 -- 0 -- Advanced Technology Ventures IV, L.P. 100,000 100,000 Noro-Mosely Partners III, L.P. 100,000 30,000
EX-10.13 4 MEMORANDUM OF UNDERSTANDING 1 EXHIBIT 10.13 MEMORANDUM OF UNDERSTANDING Today's discussion between Charlie, David, Jurgen, and Andreas lead to the following conclusions: 1. Free-Standing-Facility Issue ---------------------------- The issue is resolved. BEBIG will continue to create and Novoste will continue to fund a capacity for the production of at least * trains per year. Novoste understands that this capacity can not be created in a stand-alone-facility, but in a separate part of a room in the BEBIG production facility. 2. Payments and Deliveries for the 1997 * train order -------------------------------------------------- a) Delivery Schedule: * trains until end of week 22 * trains until end of week 32 * trains until end of week 47 BEBIG understands that Novoste strongly prefers: (1) a more detailed delivery schedule, (2) a continuous delivery stream, and (3) a quicker delivery of the * trains already ordered BEBIG will try to address these issues once it had a chance to evaluate it's experience from the production of the first batches. b) Payment Schedule: To resolve the dispute about the payment dates and the container cost for the * train order, both parties agreed to cancel the outstanding BEBIG invoices #970044 and #870066 and to apply from now on a different price and payment formula of a flat ex-work rate of * US$ per train including redistribution packaging (inner and outer container), billable and to be paid upon shipment of the trains. 3. Development Cost ---------------- Upon delivery of the first * trains Novoste will test the specification of the trains within one week and then pay to BEBIG 647,000 DM for outstanding net development cost. Once BEBIG has given proof of it's capacity to manufacture * trains/year (by, for example, shipping * trains by March 31st, 1998), Novoste will pay the remaining net development cost of 737,000 DM. The payment is due after the testing of the trains, which will be completed one week after delivery. Details of the form of payment are to be worked out between David and Andreas. *Denotes confidential portions of this agreement that have been omitted and filed separately with the Securities and Exchange Commission. 2 4. Purchase Order for * additional trains -------------------------------------- Within the next days, Novoste will give a purchase order to BEBIG for the production of an additional * trains at an ex-work price of * US$ per train (packaging will be charged extra). The purchase order may be made contingent upon the timely delivery of * trains in 1997 per the schedule at 2a above and their meeting specification. 5. Distribution ------------ In June of 1997 BEBIG will revisit Novoste for a discussion about a role in the distribution of the radioisotopes outside the United States and a possible, politically advantageous participation of local cardiological centers in European clinical trials. 6. Disposal of Trains ------------------ Novoste currently anticipates that a train can be used in a hospital for not more than 12 months. Novoste will return used trains to BEBIG for disposal or recycling and will not give used trains to any other party. 7. Miscellaneous ------------- The original contracts remain in full force, except for the changes made in this memorandum. Berlin, 1 April 1997 Norcoss, GA 23 April 1997 /s/ A. Eckert /s/ David N. Gill * Denotes confidential portions of this agreement that have been omitted and filed separately with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----