-----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, DG+PgDp8A0stZnZWIUNYCShn+0nXYaHR+QSKsSqIJkPtCw9KbOkqbMcQJ9xDqNyL xcigmu2vTr/Grznv++u+EA== 0001047469-97-002849.txt : 19971107 0001047469-97-002849.hdr.sgml : 19971107 ACCESSION NUMBER: 0001047469-97-002849 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERCLOSE INC CENTRAL INDEX KEY: 0000934438 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 943154669 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-39621 FILM NUMBER: 97708667 BUSINESS ADDRESS: STREET 1: 199 JEFFERSON DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4154733100 S-3 1 S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- PERCLOSE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 94-3154669 (State of incorporation) (I.R.S. Employer Identification Number)
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) HENRY A. PLAIN, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER PERCLOSE, INC. 199 JEFFERSON DRIVE MENLO PARK, CALIFORNIA 94025 (650) 473-3100 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- COPIES TO: J. CASEY MCGLYNN, ESQ. MICHAEL W. HALL, ESQ. CHRISTOPHER D. MITCHELL, ESQ. ROBERT V. W. ZIPP, ESQ. ROGER E. GEORGE, ESQ. TAMARA L. THOMPSON, ESQ. Wilson Sonsini Goodrich & Rosati Venture Law Group Professional Corporation A Professional Corporation 650 Page Mill Road 2800 Sand Hill Road Palo Alto, California 94304 Menlo Park, California 94025 (650)493-9300 (650)854-4488 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement and the Underwriting Agreement is executed. ---------------- If only the securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, 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 NUMBER OF AGGREGATE PROPOSED MAXIMUM TITLE OF EACH CLASS OF SHARES TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED SHARE OFFERING PRICE(1) REGISTRATION FEE Common Stock, $.001 par value............... 1,150,000 $23.50 $27,025,000 $8,189
(1) Estimated solely for the purpose of computing the amount of the registration fee. The estimate is made pursuant to Rule 457(c) of the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 NOVEMBER 5, 1997 1,000,000 SHARES [LOGO] COMMON STOCK --------- All of the shares of common stock, $.001 par value per share (the "Common Stock") offered hereby are being sold by Perclose, Inc. ("Perclose" or the "Company"). The Company's Common Stock is traded on the Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the symbol "PERC." On November 5, 1997, the last reported sale price for the Company's Common Stock was $25.75 per share. See "Price Range of Common Stock and Dividend Policy." -------------- THE COMMON STOCK OFFERED HEREBY INVOLVED A HIGH DEGREE OF RISK. SEE "RISK FACTORS" APPEARING ON PAGES 6 TO 13. ------------- 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.
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS COMPANY(1) Per Share.................. $ $ $ Total(2)................... $ $ $
(1) Before deducting expenses of the offering estimated at $350,000 payable by the Company. (2) The Company has granted the Underwriters a 30-day option to purchase up to 150,000 additional shares of Common Stock solely to cover over-allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." -------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland on or about , 1997. -------------- BT ALEX. BROWN PIPER JAFFRAY INC. THE DATE OF THIS PROSPECTUS IS , 1997 CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR MAINTAIN THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents which have been filed with the Commission pursuant to the Securities and Exchange Act of 1934, as amended (the "Exchange Act") are hereby incorporated by reference: (1) The Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997. (2) The description of the Company's capital stock, including Preferred Share Purchase Rights, which is contained in the Registration Statement on Form 8-A filed pursuant to Section 12 of the Exchange Act on January 28, 1997. (3) The Company's Proxy Statement for its 1997 annual meeting of stockholders filed pursuant to Section 14 of the Exchange Act on June 12, 1997. (4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 filed pursuant to Section 13 of the Exchange Act on August 14, 1997. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Registration Statement of which this Prospectus forms a part and prior to the termination of the offering of the Securities offered hereby shall be deemed to be incorporated by reference into this Prospectus and be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of the Registration Statement or this Prospectus to the extent that a statement contained herein, in a Prospectus Supplement or in any other document subsequently filed with the Commission 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 the Registration Statement or this Prospectus. The Company will furnish without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, on the written or oral request of such person made to the Company's offices, a copy of any or all of the documents incorporated by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE HEREIN. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." THE COMPANY Perclose designs, develops, manufactures and markets minimally invasive medical devices that automate the delivery of needles and sutures for the surgical closure of arterial access sites in coronary catheterization procedures. The Company is also developing devices for the connection of blood vessels in conventional and minimally invasive coronary artery bypass graft ("CABG") procedures. The Company's first products, the Prostar and Techstar products, are a family of devices that surgically close arterial access sites after catheterization procedures such as angioplasty, stenting, atherectomy and angiography, termed percutaneous vascular surgery ("PVS"). The Prostar and Techstar PVS products are designed to provide routine, definitive closure that replicates results previously obtainable only through open surgery, without the associated risks and costs. Randomized clinical trials of the Prostar and Techstar products have demonstrated significant clinical and economic advantages over conventional compression methods of arterial access site closure. These advantages include achieving rapid hemostasis (the cessation of bleeding), reducing nursing time required to monitor patients, allowing earlier patient ambulation and discharge, enabling more efficient use of the catheterization laboratory, reducing overall treatment costs and improving patient comfort. In addition, for certain high risk patients, such as those who have experienced a heart attack, the Company's products allow continuation of aggressive anticoagulation, thrombolytic or anti-restenosis drug therapy without increasing the risk of bleeding complications at the arterial access site. The Company commenced international shipments of its first Prostar and Techstar products in December 1994 and July 1995, respectively. In April 1997, the Company received FDA Premarket Approval ("PMA") for commercial sale in the United States of the initial Prostar products. In November 1997, the Company received PMA supplement approval for commercial sale in the United States of its initial Techstar and Techstar XL products. In June 1997, the Company submitted to the FDA a PMA supplement seeking approval for commercial sale in the United States of certain Prostar Plus and Prostar XL products. Industry estimates in 1997 indicate that therapeutic and diagnostic coronary catheterizations represent approximately 3.5 million procedures annually worldwide, including approximately 2.1 million in the United States. Of the 3.5 million total procedures, approximately 675,000 are therapeutic procedures, of which approximately 425,000 occur in the United States. Of the remaining approximately 2.9 million diagnostic procedures, approximately 1.7 million occur in the United States. The Company is also developing the Heartflo anastomosis system to allow cardiac surgeons to automate the rapid placement of sutures in blood vessels during CABG surgery. The success of a CABG procedure is largely determined by the quality of the anastomosis (attachment), which dictates the long-term patency, or blood flow, through the vein graft to the coronary arteries. While cardiac surgeons have developed effective surgical techniques to perform hand-sewn anastomoses of coronary blood vessels in conventional CABG surgeries, the recent emergence of minimally invasive CABG procedures introduces additional challenges for performing hand-sewn anastomoses during such procedures. Since the opening to the chest cavity created by ports or mini-thoracotomies used in minimally invasive CABG procedures is small, accessing and suturing the bypass graft to the coronary artery is more difficult, may take longer to perform and may not achieve the same therapeutic results as in conventional open chest CABG surgery. The Heartflo system is being designed to replicate an ideal suture pattern in a rapid and automated fashion while still allowing the surgeon ultimate control over the tensioning and tying of the sutures to complete attachment of the bypass graft. The Heartflo system is being designed for use with conventional, open chest CABG procedures and the newer, minimally invasive, beating heart and 3 stopped heart procedures. The Heartflo system is currently undergoing preclinical testing. Industry estimates in 1997 indicate that there are approximately 540,000 CABG procedures performed annually worldwide, with 320,000 of those occurring in the United States. The Company's objectives are to become the leader in the design, development and commercialization of suture-based closure devices, to establish percutaneous vascular surgery using the Company's products as the standard of care for post-catheterization arterial access site management and to commercialize new devices based on the Company's core technology that improve clinical outcomes and reduce costs. Key elements of the Company's strategy include demonstrating the clinical and cost advantages of its products over conventional closure methods, extending the Company's technology platform and expanding the markets for its existing products. The Company also plans to develop additional versions of its products for new and emerging catheterization procedures, including procedures involving large diameter catheter devices where arterial access site closure can be particularly difficult. 4 THE OFFERING Common Stock offered hereby....... 1,000,000 shares Common Stock to be outstanding after the offering.............. 10,627,497 shares(1) Use of proceeds................... For funding of product development, capital expenditures, working capital, leasehold improvements and general corporate purposes Nasdaq National Market symbol..... PERC
SUMMARY FINANCIAL INFORMATION
SIX MONTHS ENDED YEARS ENDED MARCH 31, SEPTEMBER 30, -------------------------------- -------------------- 1995 1996 1997 1996 1997 --------- --------- ---------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA: Net revenues.......................................... $ 178 $ 2,457 $ 4,456 $ 2,535 $ 2,380 Costs and expenses: Cost of goods sold, including manufacturing start-up costs............................................. 2,149 4,772 4,703 2,223 3,249 Research and development............................ 3,066 3,059 4,745 2,395 2,525 Marketing, general and administrative............... 2,155 3,486 6,301 2,496 5,581 --------- --------- ---------- --------- --------- Loss from operations.................................. (7,192) (8,860) (11,293) (4,579) (8,975) Interest and other income, net........................ 199 776 1,636 890 613 --------- --------- ---------- --------- --------- Net loss............................................ $ (6,993) $ (8,084) $ (9,657) $ (3,689) $ (8,362) --------- --------- ---------- --------- --------- --------- --------- ---------- --------- --------- Net loss per share.................................... $ (1.34) $ (1.01) $ (0.39) $ (0.87) Shares used in computing net loss per share........... 6,025 9,517 9,498 9,598 Pro forma net loss per share.......................... $ (1.04) Shares used in computing pro forma net loss per share........................................... 6,717
SEPTEMBER 30, 1997 -------------------------- ACTUAL AS ADJUSTED(2) ---------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.................................. $ 17,983 $ 41,838 Total assets....................................................................... 24,643 48,498 Long-term debt and capital lease obligations, less current portion................. -- -- Accumulated deficit................................................................ (36,328) (36,328) Total stockholders' equity......................................................... 21,746 45,601
- --------- (1) Excludes 1,390,773 shares of Common Stock subject to outstanding options granted pursuant to the Company's stock option plans as of September 30, 1997 at a weighted average exercise price of $15.44 per share. (2) Adjusted to give effect to the estimated net proceeds of this offering based upon the assumed public offering price of $25.75 per share, and after deducting underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds." 5 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS. STATEMENTS INCLUDED IN THIS PROSPECTUS THAT ARE NOT HISTORICAL OR CURRENT FACTS ARE "FORWARD-LOOKING STATEMENTS" MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. WHEN USED IN THIS PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE RISKS DISCUSSED BELOW AND, IN PARTICULAR, THE STATEMENTS RELATING TO THE COMPANY'S DEPENDENCE ON THE PROSTAR AND TECHSTAR PRODUCTS, UNCERTAINTY OF MARKET ACCEPTANCE, HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES, FLUCTUATIONS IN OPERATING RESULTS, GOVERNMENT REGULATION, COMPETITION, LIMITED MANUFACTURING EXPERIENCE, UNCERTAINTY RELATING TO NEW PRODUCT DEVELOPMENT, LIMITED SALES AND MARKETING EXPERIENCE, RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY AND UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. DEPENDENCE UPON PROSTAR AND TECHSTAR PRODUCTS. The Prostar and Techstar products for percutaneous closure of arterial access sites following catheterization procedures are currently the Company's only product families. The Prostar 9F and 11F products and Techstar 6F and Techstar XL 6F products have received FDA PMA approval for commerical sale in the United States. The Prostar and Techstar products have also been approved for sale in certain international markets by the appropriate regulatory authorities. The Company has submitted PMA supplements to the FDA for the Prostar Plus 8F and 10F and Prostar XL 8F products; however, such products have not yet been approved as safe and effective under applicable FDA regulatory guidelines. There can be no assurance that these products will prove to be safe and effective under applicable regulatory guidelines. In addition, clinical trial data may identify significant technical or other obstacles to be overcome prior to obtaining necessary U.S. regulatory approvals for the Prostar Plus and Prostar XL products or U.S. and international reimbursement approvals. If the Company is unable to commercialize the Prostar and Techstar products successfully in the United States, the Company's business, financial condition and results of operations will be materially and adversely affected. In addition, there can be no assurance as to when or whether the Company will receive FDA clearance or approval for sale of other PVS products or any other products in the United States. There can be no assurance that the Company's development efforts will be successful or that any further PVS products or any other product developed by the Company will be safe or effective, capable of being manufactured in commercial quantities at acceptable costs, approved by appropriate regulatory and reimbursement authorities or successfully marketed. Furthermore, because the Prostar and Techstar products represent the Company's sole near-term product focus, the Company could be materially and adversely affected if these products are not successfully commercialized and if future generation products are not successfully developed, do not receive regulatory approvals and are not successfully commercialized. See "Business -- Products and Technology." UNCERTAINTY OF MARKET ACCEPTANCE. The Company's Prostar and Techstar products represent a new method of closing arterial access sites and there can be no assurance that these products will gain any significant degree of market acceptance among physicians, patients and health care payors, even if necessary international and U.S. regulatory and reimbursement approvals are obtained. The Company believes that recommendations and endorsements by physicians will be essential for market acceptance of the Prostar and Techstar products, and there can be no assurance that any such recommendations or endorsements will be obtained. Physicians will not use the Prostar and Techstar products unless they determine, based on clinical data and other factors, that these products are an attractive alternative to other means of closing arterial access sites and that the clinical benefits to the patient and cost savings achieved through use of these products outweigh the cost of the products. Such determinations will depend, in part, on the ability of the Company's products to reduce the time to ambulation and the length of hospital stays associated with coronary catheterization procedures. Acceptance among physicians will also depend upon the Company's ability to train interventional cardiologists and other 6 potential users of the Company's products in percutaneous vascular surgery closure techniques, which such physicians typically have not performed, and the willingness of such users to learn these new techniques. Failure of the Company's products to achieve significant market acceptance will have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Clinical and Regulatory Status," " -- Marketing and Distribution" and " -- Third-Party Reimbursement." HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES. The Company has a limited history of operations. Since its inception in March 1992, the Company has been primarily engaged in research and development of its percutaneous arterial access site closure products. The Company has generated limited revenues from international sales in certain markets, which sales commenced in December 1994. Since May 1997, the Company has generated limited revenues from domestic sales. The Company has experienced significant operating losses since inception and, as of September 30, 1997, had an accumulated deficit of $36.3 million. The development and commercialization of the Company's current products and other new products, if any, will require substantial research and development, clinical, regulatory, manufacturing and other expenditures. The Company's net loss for the six months ended September 30, 1997 increased to $8.4 million from $3.7 million in the six months ended September 30, 1996 primarily as a result of increased sales and marketing expenses associated with hiring sales personnel in preparation for introduction of the Prostar 9F and 11F products and the Techstar 6F and Techstar XL 6F products. The Company expects its operating losses to continue for at least the next three fiscal quarters as it continues to expend substantial resources in funding clinical trials in support of regulatory and reimbursement approvals, expansion of manufacturing, marketing and sales activities and research and development. There can be no assurance that the Company will achieve or sustain profitability. See "Business - -- Clinical and Regulatory Status," " -- Third-Party Reimbursement," " -- Competition" and " -- Government Regulation." FLUCTUATIONS IN OPERATING RESULTS. The Company anticipates that its results of operations will fluctuate significantly from quarter to quarter and will depend upon numerous factors, including actions relating to regulatory and reimbursement matters, progress and results of clinical trials, the extent to which the Company's or its competitors' products gain market acceptance, introduction of alternative means for arterial access site closure and competitive developments. Due to the elective nature of many coronary catheterization procedures, patients may defer such procedures during the summer vacation season. As a result, the Company may experience seasonal fluctuations in its results of operations, particularly in the second fiscal quarter. Results of operations will also be affected by the timing of orders received from distributors, the extent to which the Company is able to expand its manufacturing capabilities and its international and domestic distribution networks and the ability of distributors to effectively promote the Company's products. In addition, depending upon the timing of new product introductions, competitive factors and warranty claims and product returns, the Company may need to make allowances for product obsolescence, excess inventory and warranty claims and product returns. While the Company is currently and will likely continue making such allowances, there can be no assurance that such allowances will be adequate to cover all costs associated with such items. See "Business -- Clinical and Regulatory Status," " -- Third-Party Reimbursement," " -- Marketing and Distribution," " -- Competition" and " -- Government Regulation." GOVERNMENT REGULATION. Clinical testing, manufacture, promotion and sale of the Company's products are subject to extensive regulation by numerous governmental authorities in the United States, principally the FDA, and corresponding foreign regulatory agencies. The Federal Food, Drug, and Cosmetic Act ("FDC Act"), and other federal and state statutes and regulations govern or influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and devices. Noncompliance with applicable requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal to authorize the marketing of new products or to allow the Company to enter into government supply contracts, and criminal prosecution. 7 The Company's Prostar and Techstar PVS products are regulated as Class III medical devices for which FDA approval of a PMA application must be obtained prior to U.S. commercial sales. A PMA application must be supported by extensive information, including preclinical and clinical trial data. The PMA process is expensive, lengthy and uncertain, and a number of products for which PMA applications have been submitted have never been approved for marketing. In April 1997, the Company received PMA approval for commercial sale in the United States of its Prostar 9F and 11F products. In November 1997, the Company received PMA approval for commercial sale in the United States of its Techstar 6F and Techstar XL 6F products. In June 1997, the Company submitted to the FDA a PMA supplement for the Prostar Plus 8F and 10F and Prostar XL 8F products for sale in the United States. There can be no assurance that the Company will be able to obtain further PMA application or PMA supplement approvals to market its products, or any other products, on a timely basis, if at all, and delays in receipt or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. In August 1997, a competitor of the Company petitioned the FDA for review of the PMA approval granted to the Prostar 9F and 11F products. The petition was filed pursuant to a provision of the FDC Act permitting any interested party to request that the FDA refer an approval order and the basis for the order to an independent advisory committee of experts, who are to review the information and provide the FDA with a report and recommendation. Under this provision, the FDA is required to make public the advisory committee's report and recommendation and to issue an order either affirming, reversing or modifying the approval. To the Company's knowledge, the FDA has conducted a review pursuant to this provision twice since the enactment of the Medical Device Amendments of 1976. The Company responded to the petition by submitting comments in September 1997 arguing that the FDA should deny it. No assurance can be given that the FDA will not grant the request to convene an advisory committee to review the PMA approval granted to the Prostar 9F and 11F products, nor can assurance be given that the FDA will not, after such review, issue an order reversing or unfavorably modifying the original PMA approval. Any such action by the FDA would have a material adverse effect on the Company. Sales of medical devices outside of the United States are subject to international regulatory requirements that vary from country to country. The time required to obtain approval for sale internationally may be longer or shorter than that required for FDA approval, and the requirements may differ. The Company has obtained the certifications necessary to enable the CE mark to be affixed to the Company's Prostar and Techstar products for commercial sales in member countries of the European Union. The Company has not obtained all other such international certifications and there can be no assurance it will be able to do so in a timely manner. The Company has received regulatory approval to market the Prostar, Prostar Plus, Techstar and Techstar XL products in Japan. The Company, through its Japanese distributor, intends to commence clinical trials in Japan that will form the basis of an application for reimbursement approvals in the Japanese health care system. There can be no assurance Japanese reimbursement approvals will be obtained in a timely manner or at all. Many other countries in which the Company currently operates or intends to operate either do not currently regulate medical devices or have minimal registration requirements; however, these countries may develop more extensive regulations in the future that could affect the Company's ability to market its products. In addition, significant costs and requests for additional information may be encountered by the Company in its efforts to obtain and maintain regulatory approvals. Any such events could substantially delay or preclude the Company from marketing its products in the United States or internationally. Regulatory approvals, if granted, may include significant limitations on the indicated uses for which a product may be marketed. In addition, to obtain such approvals, the FDA and certain foreign regulatory authorities impose numerous other requirements with which medical device manufacturers must comply. FDA enforcement policy strictly prohibits the 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. The Company will be required to adhere to the FDA's Quality System Regulation ("QS Reg.") and similar regulations in other countries, 8 which include testing, control, documentation and other quality assurance procedures. Ongoing compliance with the QS Reg. and other applicable regulatory requirements will be monitored through periodic inspections by federal and state agencies, including the FDA and the California Department of Health Services ("CDHS"), 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 FDA to grant approvals or clearances, withdrawal of approvals and criminal prosecution. Changes in existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of the Company's products. Certain material changes to medical devices also are subject to FDA review and clearance or approval. See "Business -- Clinical and Regulatory Status" and " -- Government Regulation." COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE. Competition in the emerging market for arterial access site closure devices is intense and expected to increase. The Company believes its principal competition will come from conventional compression devices and collagen plug closure devices. Conventional compression products are marketed by several companies that supply C-clamp closure devices. C.R. Bard, Inc. ("C.R. Bard") markets the Femostop compression arch device. Datascope Corp. ("Datascope") and Kensey Nash Corporation ("Kensey Nash") have received PMA approval from the FDA for products that use collagen plugs to achieve hemostasis. American Home Products Corporation ("American Home Products") has exclusive worldwide distribution rights to the Kensey Nash device. Most of the Company's competitors have significantly greater name recognition, experience, financial, technical, research, marketing, sales, distribution and other resources than the Company. There can be no assurance that the Company's competitors will not succeed in developing or marketing technologies and products that are technologically superior, more effective or commercially attractive than any that are being developed by the Company, or that such competitors will not succeed in obtaining regulatory approval, introducing or commercializing any such products prior to the Company. Such developments could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the medical device market is generally characterized by rapid and significant technological change and frequent emergence of new technologies, products and procedures. Accordingly, the Company's success will also depend in part on its ability to respond quickly to medical and technological changes. See " -- Fluctuations in Operating Results" and "Business -- Competition." LIMITED MANUFACTURING EXPERIENCE AND SCALE-UP RISK. The Company has only limited experience in manufacturing the Prostar and Techstar products. The Company currently manufactures in limited quantities the Prostar and Techstar products for U.S. clinical trials, limited domestic commercial sales, international clinical trials and limited international commercial sales. The Company does not have 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, compliance with FDA regulations, and the need for further FDA approval of new manufacturing processes. Difficulties encountered by Perclose 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" and "-- Government Regulation." DEPENDENCE UPON KEY SUPPLIERS. Perclose purchases components used in its products from various suppliers and relies on single sources for several components. For certain of these components, there are relatively few alternative sources of supply. Establishing additional or replacement suppliers for any of the components used in the Company's products, if required, may not be accomplished quickly and could involve significant additional costs. Any supply interruption from vendors or failure of the Company to obtain alternative vendors, if required, for any of the components used to manufacture the 9 Company's products would limit the Company's ability to manufacture its products and could therefore have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Manufacturing." UNCERTAINTY RELATING TO NEW PRODUCT DEVELOPMENT. The Company's strategy involves the design and development of new products designed to allow cardiac surgeons to automate the rapid placement of sutures in blood vessels during CABG surgery. The product development process is time-consuming and costly, and there can be no assurance that product development will be successfully completed, that necessary regulatory clearances or approvals will be granted by the FDA on a timely basis, or at all, or that the potential products will achieve market acceptance. Failure by the Company to develop, obtain necessary regulatory clearances or approvals for, or successfully market potential new products could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Research and Development." DEPENDENCE UPON INTERNATIONAL OPERATIONS AND SALES. Prior to 1997, all of the Company's product sales were derived from export sales to international distributors, none of which are affiliated with the Company. The Company markets and sells its products outside the United States through a network of international distributors, and the Company's international sales are largely dependent on the marketing efforts of, and sales by, these distributors. Sales through distributors are subject to several risks, including the risk of financial instability of distributors, the risk of manufacturing and quality control problems with contract manufacturers and the risk that distributors will not effectively promote the Company's products. Loss or termination of distribution relationships could have a material adverse affect on the Company's international sales efforts and could result in the Company repurchasing unsold inventory from former distributors by virtue of local laws applicable to distribution relationships, provisions of distribution agreements or negotiated settlements entered into with such distributors. In addition, a number of risks are inherent in international operations and transactions. International sales and operations may be limited or disrupted by the imposition of government controls, export license requirements, political instability, trade restrictions, changes in tariffs, difficulties in staffing, coordinating communications among and managing international operations. Additionally, the Company's business, financial condition and results of operations may be adversely affected by fluctuations in international currency exchange rates as well as increases in duty rates, difficulties in obtaining export licenses, constraints on its ability to maintain or increase prices, and competition. There can be no assurance that the Company will be able to successfully commercialize the Prostar or Techstar products or any future product in any international market. See "Business -- Marketing and Distribution." LIMITED SALES AND MARKETING EXPERIENCE. The Company has only limited experience marketing and selling the Prostar and Techstar products, and does not have experience marketing and selling its products in commercial quantities. The Company currently has a limited network of distributors that cover certain European and Pacific Rim countries. In 1997, the Company established a direct sales force in the United States. Establishing marketing and sales capability sufficient to support sales in commercial quantities will require significant resources, and there can be no assurance that the Company will be able to obtain, train and retain direct sales personnel or that future sales efforts of the Company will be successful. See "Business -- Marketing and Distribution." RELIANCE ON PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY. The Company's ability to compete effectively will depend in part on its ability to develop and maintain proprietary aspects of its technology. There can be no assurance that the Company's issued patents, any patents that may be issued as a result of the Company's U.S. or international patent applications, or the patent under which the Company has license rights, will offer any degree of protection. There can be no assurance that any patents that may be issued or licensed to the Company or any of the Company's patent applications will not be challenged, invalidated or circumvented in the future. In addition, there can be no assurance that competitors, many of which have substantial resources and have made substantial investments in competing technologies, will not seek to apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. 10 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 in the future become subject to patent infringement claims and litigation or interference proceedings declared by the United States Patent and Trademark Office ("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. Although patent and intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that necessary licenses would be available to the Company on satisfactory terms if at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company from manufacturing and selling its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. In addition to patents, the Company relies on trade secrets and proprietary know-how, which it seeks to protect, in part, through appropriate confidentiality and proprietary information agreements. 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, expect in specific circumstances. The agreements generally provide that all inventions conceived by the individual in the course of rendering services to the Company shall be the exclusive property of the Company; however, certain of the Company's agreements with consultants, who typically are employed on a full-time basis by academic institutions or hospitals, do not contain assignment of invention provisions. There can be no assurance that proprietary information or confidentiality agreements with employees, consultants and others will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or independently developed by competitors. See "Business -- Patents and Proprietary Rights." UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. In the United States, health care providers, such as hospitals and physicians that purchase medical devices such as the Company's products, generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all or part of the cost of therapeutic and diagnostic catheterization procedures. Reimbursement for catheterization procedures performed using devices that have received FDA approval has generally been available in the United States. The Company anticipates that in a prospective payment system, such as the disease related group ("DRG") system utilized by Medicare, and in many managed care systems used by private health care payors, the cost of the Company's products will be incorporated into the overall cost of the procedure and that there will be no separate, additional reimbursement for the Company's products. Furthermore, the Company could be adversely affected by changes in reimbursement policies of governmental or private health care payors, particularly to the extent any such changes affect reimbursement for therapeutic or diagnostic catheterization procedures in which the Company's products are used. Failure by physicians, hospitals and other users of the Company's products to obtain sufficient reimbursement from health care payors for procedures in which the Company's products are used or adverse changes in governmental and private third-party payors' policies toward reimbursement for such procedures would have a material adverse effect on the Company's business, financial condition and results of operations. 11 In international markets, market acceptance of the Company's products may be dependent in part upon the availability of reimbursement within prevailing health care payment systems. However, in general, hospitals using the Company's products do not receive specific, cost-based, direct reimbursement for the use of Perclose PVS products. Reimbursement and health care payment systems in international markets vary significantly by country. Failure of the Company to receive international reimbursement approvals could have an adverse effect on market acceptance of the Company's products in the international markets in which such approvals are sought. See "Business -- Third-Party Reimbursement." RISK OF INADEQUATE FUNDING. The Company plans to continue to expend substantial funds for clinical trials in support of regulatory and reimbursement approvals, expansion of sales and marketing activities, research and development, and establishment of commercial-scale manufacturing capabilities. The Company may be required to expend extra funds if unforeseen difficulties arise in the course of expansion of manufacturing and marketing activities, clinical trials of products, obtaining necessary regulatory and reimbursement approvals or in other aspects of the Company's business. Although the Company believes that its current cash balances (including the net proceeds from this offering) and cash generated from the future sale of products will be sufficient to meet the Company's operating and capital requirements through fiscal 1999, there can be no assurance that the Company will not require additional financing within this time frame. The Company's future liquidity and capital requirements will depend upon numerous factors, including the progress of the Company's clinical trials, actions relating to regulatory and reimbursement matters, the costs and timing of expansion of marketing, sales, manufacturing and product development activities, the extent to which the Company's products gain market acceptance, and competitive developments. Any additional required financing may not be available on satisfactory terms, if at all. Future equity financings may result in dilution to the holders of the Company's Common Stock. See "Use of Proceeds" PRODUCT LIABILITY AND RECALL RISK; LIMITED INSURANCE COVERAGE. The manufacture and sale of medical products entail significant risk of product liability claims or product recalls. There can be no assurance that the Company's existing insurance coverage limits are adequate to protect the Company from any liabilities it might incur in connection with the clinical trials or sales of its products. In addition, the Company may require increased product liability coverage as its products are commercialized. Such insurance is expensive and in the future may not be available on acceptable terms, if at all. A successful product liability claim or series of claims brought against the Company in excess of its insurance coverage, or a recall of the Company's products, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Product Liability and Insurance." DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon a number of key management and technical personnel. The loss of the services of one or more key employees would have a material adverse effect on the Company. The Company's success will depend on its ability to attract and retain additional highly qualified management and technical personnel. The Company faces intense competition for qualified personnel, many of whom are often subject to competing employment offers, and there can be no assurance that the Company will be able to attract and retain such personnel. Furthermore, the Company relies on the services of several medical and scientific consultants, all of whom are employed on a full-time basis by hospitals or academic or research institutions. Such consultants are therefore not available to devote their full time or attention to the Company's affairs. See "Business -- Employees" and "Management." BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS. The Company expects that the proceeds of this offering will be used to fund capital expenditures relating to expanding manfacturing capacity, leasehold improvements to facilities, expansion of product development activities, working capital needs and for general corporate purposes. The Company is not currently able to estimate precisely the allocation of the proceeds among such uses, and the timing and amount of expenditures 12 will vary depending upon numerous factors. The Company's management will have broad discretion to allocate the proceeds of this offering and to determine the timing of expenditures. See "Use of Proceeds." POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has recently and from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. In addition, the market price of the shares of Common Stock is likely to be highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, FDA and international regulatory actions, actions with respect to reimbursement matters, developments with respect to patents or proprietary rights, public concern as to the safety of products developed by the Company or others, changes in health care policy in the United States and internationally, changes in stock market analyst recommendations regarding the Company, other medical device companies or the medical device industry generally and general market conditions may have a significant effect on the market price of the Common Stock. EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. Certain provisions of the Company's Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of these provisions allow the Company to issue Preferred Stock without any vote or further action by the stockholders, provide for a classified board of directors, eliminate the right of stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. These provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. SHAREHOLDER RIGHTS PLAN; ISSUANCE OF PREFERRED STOCK. The Board of Directors of the Company adopted a Shareholder Rights Plan in January 1997 (the "Rights Plan"). Pursuant to the Rights Plan, the Board declared a dividend of one Preferred Stock Purchase Right per share of Common Stock (the "Rights") and each such Right has an exercise price of $100.00 per one-thousandth of a Preferred Share (total exercise price of $100,000 per whole share). The Rights become exercisable upon the occurrence of certain events, including the announcement of a tender offer or exchange offer for the Company's Common Stock or the acquisition of a specified percentage of the Company's Common Stock by a third party. The exercise of the Rights could have the effect of delaying, deferring or preventing a change in control of the Company, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of the Company's Common Stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. The Board of Directors has the authority to issue up to 30,000 shares of Series A Participating Preferred Stock and has determined the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon such shares. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of Common Stock. The issuance of Preferred Stock under certain circumstances could have the effect of delaying, deferring or preventing a change in control of the Company. IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock in this offering will incur immediate and substantial dilution in the net tangible book value of their purchased shares of Common Stock (approximately $21.46 per share, at an assumed offering price of $25.75 per share). Investors may also experience additional dilution as a result of the exercise of outstanding stock options. NO DIVIDENDS. The Company has never paid any cash dividends on its Common Stock and does not anticipate paying such dividends for the foreseeable future. See "Price Range of Common Stock and Dividend Policy." 13 THE COMPANY Perclose was incorporated in California in March 1992 and reincorporated in Delaware in October 1995. Unless the context otherwise requires, references in this Prospectus to "Perclose" and the "Company" refer to Perclose, Inc., a Delaware corporation, and where applicable, its California predecessor. The Company's principal executive offices are located at 199 Jefferson Drive, Menlo Park, California 94025. Its telephone number is (650) 473-3100. USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,000,000 shares of Common Stock offered hereby at the public offering price of $25.75 per share are estimated to be $23,855,000 ($27,485,750 if the over-allotment option is exercised in full) after deducting the underwriting discount and the estimated expenses of the offering. The Company expects to use a majority of the net proceeds to fund capital expenditures relating to expanding manufacturing capacity, leasehold improvements to facilities, expansion of product development activities, working capital needs and general corporate purposes. The amounts actually expended for each purpose and the timing of such expenditures may vary significantly depending upon numerous factors, including the progress of the Company's clinical trials, actions relating to regulatory and reimbursement matters, the costs and timing of expansion of marketing, sales, manufacturing and product development activities, the extent to which the Company's products gain market acceptance and competition. Pending such uses, the Company intends to invest the net proceeds of this offering in short-term, interest-bearing, investment grade securities. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Since November 8, 1995, the Company's Common Stock has been quoted on the Nasdaq National Market under the symbol "PERC". The following table sets forth, for each quarterly period indicated, the high and low sales price for the Common Stock as reported by the Nasdaq National Market.
HIGH LOW -------- ------- FISCAL YEAR ENDED MARCH 31, 1996 Third Quarter (beginning November 8, 1995)................................... $19 1/8 $12 3/4 Fourth Quarter............................................................... 26 1/4 15 FISCAL YEAR ENDED MARCH 31, 1997 First Quarter................................................................ 24 3/4 20 1/2 Second Quarter............................................................... 23 1/4 13 Third Quarter................................................................ 24 1/4 16 Fourth Quarter............................................................... 28 1/2 19 FISCAL YEAR ENDING MARCH 31, 1998 First Quarter................................................................ 27 1/4 20 Second Quarter............................................................... 27 3/8 20 3/4 Third Quarter (through November 5, 1997)..................................... 26 13/16 22
The Company has not paid any cash dividends since its inception and does not anticipate paying any dividends in the foreseeable future. 14 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1997, and as adjusted to reflect the sale of the 1,000,000 shares of Common Stock offered by the Company hereby (at the assumed public offering price of $23.50 per share) and the receipt of the estimated net proceeds therefrom by the Company after deducting the estimated underwriting discounts and commissions and offering expenses.
SEPTEMBER 30, 1997 ------------------------ ACTUAL AS ADJUSTED ---------- ------------ (IN THOUSANDS) Stockholders' equity: Preferred Stock: $.001 par value, 5,000,000 shares authorized, actual and as adjusted; none issued and outstanding, actual and as adjusted...................... $ -- $ -- Common Stock: $.001 par value, 30,000,000 shares authorized, 9,627,497 shares issued and outstanding actual, 10,627,497 shares issued and outstanding, as adjusted(1)... 10 11 Additional paid-in capital........................................................... 58,798 82,652 Accumulated deficit.................................................................. (36,328) (36,328) Deferred compensation................................................................ (734) (734) ---------- ------------ Total stockholders' equity......................................................... $ 21,746 $ 45,601 ---------- ------------ ---------- ------------
- --------- (1) Excludes 1,390,773 shares of Common Stock subject to outstanding options granted pursuant to the Company's stock option plans as of September 30, 1997 at a weighted average exercise price of $15.44 per share. 15 SELECTED FINANCIAL DATA The statements of operations data presented below for the period from inception (March 24, 1992) through March 31, 1993 and for each of the four years in the period ended March 31, 1997 and with respect to the balance sheet data as of March 31, 1993, 1994, 1995, 1996 and 1997 is derived from financial statements of the Company not included herein that have been audited by Ernst & Young LLP, independent auditors. The statements of operations data for the six-month periods ended September 30, 1996 and 1997 and with respect to the balance sheet data as of September 30, 1997 is derived from unaudited financial statements not included herein and include, in the opinion of the Company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's results of operations for those periods and financial position at that date. The results for the six months ended September 30, 1997 are not necessarily indicative of the results for any future period. The Company has not paid any cash dividends on its Common Stock or Preferred Stock. The selected financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto not included in this Prospectus.
SIX MONTHS ENDED INCEPTION TO YEARS ENDED MARCH 31, SEPTEMBER 30, MARCH 31, ------------------------------------------ -------------------- 1993 1994 1995 1996 1997 1996 1997 --------------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA: Net revenues................................. $ -- $ -- $ 178 $ 2,457 $ 4,456 $ 2,535 $ 2,380 Operating expenses: Cost of goods sold, including manufacturing start-up costs........................... -- 136 2,149 4,772 4,703 2,223 3,249 Research and development................... 411 1,595 3,066 3,059 4,745 2,395 2,525 Marketing, general and administrative...... 204 945 2,155 3,486 6,301 2,496 5,581 ------ --------- --------- --------- --------- --------- --------- Total operating expenses................... 615 2,676 7,370 11,317 15,749 7,114 11,355 ------ --------- --------- --------- --------- --------- --------- Loss from operations......................... (615) (2,676) (7,192) (8,860) (11,293) (4,579) (8,975) Interest and other income.................... 18 66 258 941 1,753 954 705 Interest expense............................. (9) (14) (59) (165) (117) (64) (92) ------ --------- --------- --------- --------- --------- --------- Loss before income taxes..................... 606 (2,624) (6,993) (8,084) (9,657) (3,689) (8,362) Provision for income taxes................... 1 -- -- -- -- -- -- ------ --------- --------- --------- --------- --------- --------- Net loss................................... $ (607) $ (2,624) $ (6,993) $ (8,084) $ (9,657) $ (3,689) $ (8,362) ------ --------- --------- --------- --------- --------- --------- ------ --------- --------- --------- --------- --------- --------- Net loss per share........................... $ (1.34) $ (1.01) $ (0.39) $ (0.87) Shares used in computing net loss per share...................................... 6,025 9,517 9,498 9,598 Pro forma net loss per share................. $ (1.04) Shares used in computing pro forma net loss per share.................................. 6,717
MARCH 31, ----------------------------------------------------- SEPTEMBER 30, 1993 1994 1995 1996 1997 1997 --------- --------- --------- --------- --------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments..................................... $ 1,441 $ 5,540 $ 8,127 $ 37,857 $ 27,673 $ 17,983 Total assets...................................... 1,613 6,386 10,949 40,916 32,514 24,643 Long-term debt and capital lease obligations, less current portion................................. -- 174 593 511 128 -- Accumulated deficit............................... (608) (3,232) (10,225) (18,437) (28,044) (36,328) Total stockholders' equity........................ 1,507 5,725 9,041 38,500 29,382 21,746
16 BUSINESS THE COMPANY Perclose designs, develops, manufactures and markets minimally invasive medical devices that automate the delivery of needles and sutures for the surgical closure of arterial access sites in coronary catheterization procedures. The Company is also developing devices for the connection of blood vessels in conventional and minimally invasive coronary artery bypass graft ("CABG") procedures. The Company's first products, the Prostar and Techstar products, are a family of devices that surgically close arterial access sites after catheterization procedures such as angioplasty, stenting, atherectomy and angiography, termed percutaneous vascular surgery ("PVS"). The Prostar and Techstar PVS products are designed to provide routine, definitive closure that replicates results previously obtainable only through open surgery, without the associated risks and costs. Randomized clinical trials of the Prostar and Techstar products have demonstrated significant clinical and economic advantages over conventional compression methods of arterial access site closure. These advantages include achieving rapid hemostasis (the cessation of bleeding), reducing nursing time required to monitor patients, allowing earlier patient ambulation and discharge, enabling more efficient use of the catheterization laboratory, reducing overall treatment costs and improving patient comfort. In addition, for certain high risk patients, such as those who have experienced a heart attack, the Company's products allow continuation of aggressive anticoagulation, thrombolytic or anti-restenosis drug therapy without increasing the risk of bleeding complications at the arterial access site. The Company commenced international shipments of its first Prostar and Techstar products in December 1994 and July 1995, respectively. In April 1997, the Company received FDA Premarket Approval ("PMA") for commercial sale in the United States of the initial Prostar products. In November 1997, the Company received PMA supplement approval for commercial sale in the United States of its initial Techstar and Techstar XL products. In June 1997, the Company submitted to the FDA a PMA supplement seeking approval for commercial sale in the United States of certain Prostar Plus and Prostar XL products. Industry estimates in 1997 indicate that therapeutic and diagnostic coronary catheterizations represent approximately 3.5 million procedures annually worldwide, including approximately 2.1 million in the United States. Of the 3.5 million total procedures, approximately 675,000 are therapeutic procedures, of which approximately 425,000 occur in the United States. Of the remaining approximately 2.9 million diagnostic procedures, approximately 1.7 million occur in the United States. The Company is also developing the Heartflo anastomosis system to allow cardiac surgeons to automate the rapid placement of sutures in blood vessels during CABG surgery. The success of a CABG procedure is largely determined by the quality of the anastomosis (attachment), which dictates the long-term patency, or blood flow, through the vein graft to the coronary arteries. While cardiac surgeons have developed effective surgical techniques to perform hand-sewn anastomoses of coronary blood vessels in conventional CABG surgeries, the recent emergence of minimally invasive CABG procedures introduces additional challenges for performing hand-sewn anastomoses during such procedures. Since the opening to the chest cavity created by ports or mini-thoracotomies used in minimally invasive CABG procedures is small, accessing and suturing the bypass graft to the coronary artery is more difficult, may take longer to perform and may not achieve the same therapeutic results as in conventional open chest CABG surgery. The Heartflo system is being designed to replicate an ideal suture pattern in a rapid and automated fashion while still allowing the surgeon ultimate control over the tensioning and tying of the sutures to complete attachment of the bypass graft. The Heartflo system is being designed for use with conventional, open chest CABG procedures and the newer, minimally invasive, beating heart and stopped heart procedures. The Heartflo system is currently undergoing preclinical testing. Industry estimates in 1997 indicate that there are approximately 540,000 CABG procedures performed annually worldwide, with 320,000 of those occurring in the United States. The Company's objectives are to become the leader in the design, development and commercialization of suture-based closure devices, to establish percutaneous vascular surgery using the Company's 17 products as the standard of care for post-catheterization arterial access site management and to commercialize new devices based on the Company's core technology that improve clinical outcomes and reduce costs. Key elements of the Company's strategy include demonstrating the clinical and cost advantages of its products over conventional closure methods, extending the Company's technology platform and expanding the markets for its existing products. The Company also plans to develop additional versions of its products for new and emerging catheterization procedures, including procedures involving large diameter catheter devices where arterial access site closure can be particularly difficult. INDUSTRY OVERVIEW THERAPEUTIC INTERVENTIONAL CARDIOLOGY MARKET CORONARY ARTERY DISEASE. More than 6 million people in the United States have been diagnosed with coronary artery disease, which is a formation of atherosclerotic plaque that causes blood flow restrictions, or blockages, within the coronary arteries. These blockages can occur anywhere within the complex network of arteries that provide blood to the heart muscle. If left untreated, coronary artery disease can cause severe chest pain and lead to heart attacks. The principal means of treating coronary artery disease if diet, exercise or drug therapy fail to achieve therapeutic results include CABG, a highly invasive open surgical procedure, and percutaneous transluminal coronary angioplasty ("balloon angioplasty") as well as other percutaneous catheter-based procedures including stenting and atherectomy. Prior to the late 1970's, CABG was the only alternative for treating coronary artery disease that failed to respond to non-invasive therapy. Since its clinical introduction in 1978, balloon angioplasty, either alone or in conjunction with stents, has emerged as the principal less invasive alternative to CABG. Industry estimates in 1997 indicate that there are approximately 540,000 CABG procedures performed annually worldwide, with 320,000 of those occurring in the United States. Industry sources estimate that there are approximately 675,000 balloon angioplasty, stenting and atherectomy procedures performed annually worldwide, including approximately 425,000 such procedures in the United States. In addition, minimally invasive forms of CABG have been recently introduced and continue to be developed. These procedures attempt to reduce the invasiveness of CABG by minimizing the size of the incisions required. BALLOON ANGIOPLASTY AND STENTING PROCEDURE. At the beginning of a balloon angioplasty procedure, the physician initiates anticoagulation drug therapy to prevent formation of blood clots which can cause arterial blockages. Anticoagulation therapy is typically continued throughout the procedure. A local anesthetic is administered and a small incision is made in the groin area to gain access to the femoral artery, which is punctured to create an access site for catheterization devices. The cardiologist inserts an introducer sheath into the femoral artery and places a guiding catheter through the introducer sheath to create a path from outside the patient to the arteries of the heart. The cardiologist advances a small guidewire through the inside of the guiding catheter, into the coronary artery and across the site of the blockage. A balloon catheter is delivered over the guidewire through the inside of the guiding catheter into the artery and across the site of the blockage. The balloon is inflated to compress the blockage against the walls of the artery, thereby enlarging the diameter of the arterial lumen and increasing blood flow to the heart muscle. During this procedure, anticoagulation drug therapy is ordinarily used to prevent clot formation in the coronary arteries. At the conclusion of the procedure, the cardiologist decides if the benefits of continued anticoagulation therapy outweigh the increased risk of bleeding at the femoral artery access site. This decision influences the level of post-procedure nursing observation and the length of the hospital stay, which is typically one to three days. Other catheter-based therapeutic coronary procedures include stenting and atherectomy. Stents are implantable, metal, tube shaped devices delivered on a balloon catheter and permanently deployed at a blockage site to maintain increased lumen diameter by mechanically supporting the artery. Stenting procedures have been reported to reduce the risk of abrupt coronary artery closure, thereby creating the possibility for outpatient stenting due to a reduced need to keep patients under post-procedure nursing observation. The current potential for outpatient stenting is, however, limited by the inability to achieve predictable, sustained hemostasis of the arterial access site. Atherectomy encompasses several types of devices that are designed to remove atherosclerotic plaque that blocks blood flow in the arteries. 18 DIAGNOSTIC ANGIOGRAPHY AND OTHER PERCUTANEOUS VASCULAR PROCEDURES Patients believed to have coronary artery disease typically undergo diagnostic angiography to determine the extent and location of their arterial blockages. Angiography is a procedure in which radiopaque dye visible under x-ray is delivered through a catheter directly into the coronary arteries, allowing real-time visualization with an x-ray imaging system. Like therapeutic angioplasty, angiography is also performed using a catheter placed into the vascular system through a puncture in the femoral artery. Industry estimates in 1997 indicate that angiography is performed annually on approximately 2.9 million patients worldwide including approximately 1.7 million patients in the United States. Angiography procedures represent a significant market opportunity for arterial closure devices because under conventional treatment protocols, many of these patients are kept under nursing observation for several hours following the procedure primarily to confirm achievement of hemostasis. Many other catheterization procedures rely on percutaneous access to the vascular system through a puncture in the femoral artery. These procedures include peripheral vascular therapeutic and diagnostic procedures, of which approximately 1.0 million and 1.3 million, respectively, are performed annually worldwide. These procedures may represent a significant market opportunity for arterial closure devices because under conventional treatment protocols, many of these patients are kept under nursing observation following the procedure primarily to confirm achievement of hemostasis. Therefore, the availability of reliable arterial access site closure devices could facilitate early discharge of these patients. Percutaneous vascular surgery devices could also be used to close femoral artery access sites in interventional neuroradiology catheterization procedures, electrophysiology procedures to map and ablate cardiac arrhythmias and intra-aortic balloon pump procedures. In addition, emerging percutaneous catheterization procedures and other new interventional procedures, including catheter-based vascular grafts, cardiopulmonary support procedures and percutaneous treatment of abdominal aortic aneurysms, may also represent new market opportunities for larger versions of the Company's PVS products. ARTERIAL ACCESS SITE MANAGEMENT Following catheter-based coronary procedures such as balloon angioplasty, stenting, atherectomy or angiography, the physician or nursing staff must close the arterial access site. With procedures relying on conventional compression closure techniques, anticoagulation therapy (which is used in all interventional cases) is discontinued for up to four hours prior to closure of the access site to allow the patient's clotting function to normalize. During this period, the introducer sheath is left in place and the patient must remain immobile in bed to prevent bleeding at the access site. Once the introducer sheath is removed, intense direct pressure is applied to the puncture site for a period of time ranging from 15 minutes to over one hour to facilitate formation of a blood clot in order to seal the arterial access site. This pressure is applied either manually or with a large C-clamp or other pressure device placed around the patient's leg. A dislodged clot can result in internal or external bleeding, which may necessitate transfusions or result in other vascular complications if not immediately controlled. Because any movement may dislodge the clot, the patient is required to remain immobile under close nursing observation in a coronary care unit for an additional four to 24 hours after the procedure, depending on the amount of anticoagulation drug therapy used and the type of procedure performed. Conventional closure methods may result in substantial costs, limit operating efficiencies and constrain the scheduling and usage of the catheterization laboratory by the number of beds and nursing staff in the coronary care unit. The arterial access site can be affected by other complications associated with conventional compression methods, including a hematoma in which a coagulated blood mass forms at the access site, a pseudoaneurysm in which blood continues to flow from the artery into the coagulated blood mass at the access site, femoral nerve damage from extended compression, and a vagal response characterized by a sharp drop in blood pressure. Patients often experience significant pain and discomfort during compression of the artery and in the period in which they are required to be immobile, and may require pain medication. Many patients report that the pain associated with compression of the artery and immobilization is the most uncomfortable and difficult aspect of the catheterization procedure. 19 In addition to the anticoagulation therapy administered during routine coronary catheterization procedures, post-procedure anticoagulation or antiplatelet therapy is necessary in certain patients who are at an elevated risk of formation of a life-threatening blood clot in the coronary arteries. The Company believes that this group may represent up to 30% of therapeutic coronary catheterization patients and includes patients who have experienced a heart attack or undergone complicated balloon angioplasty characterized by dissection of the arterial wall during expansion of the balloon. For these patients, optimal treatment usually requires continued anticoagulation therapy to keep blood clots from forming, new drugs to reduce the risk of restenosis or thrombolytic drugs to dissolve existing clots. With conventional arterial access site closure therapies, the interventional cardiologist is faced with the choice of discontinuing anticoagulation therapy and closing the arterial access site using compression or continuing drug therapy and leaving the sheath in place overnight, which requires the patient to remain immobile and extends the hospital stay. The cardiologist must therefore manage the difficult balance of preventing clot formation in the coronary arteries while encouraging a clot formation to close the arterial access site. In high clinical need patients, conventional arterial access site management options may lead to a greater risk of heart attack, higher vascular complication rates, significant patient discomfort during clamping and immobilization, intensive nursing monitoring, extended hospitalization and increased costs of care. PERCLOSE PVS SOLUTION The Company believes that its PVS products, which achieve rapid closure of arterial access sites following percutaneous catheterization procedures, overcome the clinical disadvantages of conventional closure methods and enable catheterization laboratories to achieve increased operating efficiencies and cost savings. The Company's PVS products enable the physician to suture arterial access sites percutaneously, providing a means of closure that has previously been possible only through open vascular surgery. Since the introduction of catheterization procedures, vascular surgery has been the definitive method used to close arterial access sites that do not respond to conventional compression therapy. Open surgery requires a long incision in the patient's groin area, involves a significant recovery period and increases overall treatment costs. While surgeons can close the arterial access site with one or two sutures, the invasive nature of open surgery makes it unsuitable for routine use in catheterization patients. Perclose PVS products are designed to provide routine, definitive closure that replicates, through a minimally invasive procedure, the results previously obtainable only through open surgery without the associated risks and costs. The products are designed to be easy to use, relying on standard techniques that are familiar to physicians performing these procedures. Perclose PVS products are used in the catheterization laboratory to close the arterial access site as the final step in the catheterization procedure. By achieving rapid hemostasis, PVS products reduce the need for the patient to remain immobile under close observation in the coronary care unit. This minimizes the patient's pain and discomfort and allows the patient to ambulate shortly after the catheterization procedure. Early ambulation of patients can also improve utilization of hospital resources. For example, in conventional practice, angiography is usually performed in the morning to permit same-day discharge following observation and confirmation of hemostasis. Earlier ambulation and discharge of these patients may contribute to more efficient usage of the of catheterization laboratory by allowing scheduling of diagnostic procedures throughout the day. MINIMALLY INVASIVE CABG SURGERY PRODUCTS The Company's first application of its core technology and technical competency outside of the PVS area is the Heartflo anastomosis system for use in conventional, open chest CABG procedures and the newer minimally invasive beating heart and stopped heart procedures. The success of a CABG procedure is largely determined by the quality of the anastomosis (attachment), which dictates the long-term patency, or blood flow, through the vein graft to the coronary arteries. While effective surgical techniques enabling cardiac surgeons to perform hand-sewn anastomoses of coronary blood vessels in conventional 20 CABG surgeries exist, the recent emergence of minimally invasive CABG procedures introduces additional challenges for hand-sewn anastomoses during such procedures. Since the opening to the chest cavity created by ports or mini-thoracotomies used in minimally invasive CABG procedures is small, accessing and suturing the bypass graft to the coronary artery is more difficult, may take longer to perform and may not achieve the same therapeutic results as in conventional open chest CABG surgery. The Heartflo system is being designed to consistently replicate the ideal, hand-sewn pattern used by cardiac surgeons during a CABG procedure by automatically deploying needles and sutures in a precise pattern in both the bypass vein graft and the coronary artery while still allowing the cardiac surgeon to maintain control over the joining of the bypass grafts to the coronary artery. When using the Heartflo system, the surgeon would first deploy needles and sutures through the bypass graft vessel and then through the coronary artery. Once the sutures have been deployed by the system, the cardiac surgeon would then tie the two vessels together using standard surgical knots. The Company believes that by automating the placement of the sutures, the pattern and positioning of the sutures will be more precise, consistent and reliable, leading to more clinically efficacious attachments of vein grafts to coronary arteries (i.e. higher patency rates). In addition, the Company believes that by automating the suture placement process, the Heartflo system may reduce the time needed to perform an anastomosis, especially in minimally invasive CABG procedures. Finally, by allowing the cardiac surgeon to maintain control of the final suture tensioning and tying enables the surgeon to make clinical decisions based upon the anatomy, thickness and calcification of the vessels to be joined. Most of the recent product development announcements and introductions for minimally invasive CABG procedures have focused on improving access to the chest cavity by reducing the need to perform a medial sternotomy during the CABG procedure. One of the limitations of minimally invasive CABG is the inability to bypass all blockages of the arteries of the heart. During these less-invasive procedures, the surgeon has a difficult time rotating the heart to access to all coronary vessels and is often unable to reach the aorta in order to attach the proximal end of the graft. The Heartflo system is being designed to facilitate the attachment of bypass grafts for these more difficult attachments in the smaller working spaces used in minimally invasive CABG procedures. The Company believes that the Heartflo system will enable surgeons in the newer minimally invasive CABG procedures to obtain a quality of anastomosis similar to that obtained in conventional CABG procedures, whether surgeons perform these newer procedures through ports or mini-thoracotomies and whether on still or beating hearts. The Company believes that the availability of tools for improving the quality of the anastomosis for minimally invasive CABG procedures could encourage the adoption and enhance the long term effectiveness of these procedures. The Company plans to develop three types of anastomosis devices: a proximal device which would attach one end of the graft to the aorta, a distal end-to-side device which would attach the distal end of the graft to the coronary artery, and a distal side-to-side device that would attach the middle of the graft to a coronary artery. BUSINESS STRATEGY The Company's objective is to be a leader in the development, manufacture and marketing of minimally invasive medical devices that automate the delivery of needles and sutures in cardiovascular surgical procedures. Key elements of the Company's strategy include: EMPHASIZE CLINICAL UTILITY AND COST-EFFECTIVENESS. In five randomized trials with over 2,000 patients enrolled, the Company has established that percutaneous vascular surgical repair of the arterial access site decreases time to hemostasis, ambulation and discharge and improves patient comfort. The Company uses data collected from clinical trials to demonstrate the clinical and cost advantages of its products to physicians, administrators and health care payors. 21 APPLY FOCUSED MARKETING, SALES AND PHYSICIAN TRAINING. The Company's approved products are currently marketed to interventional cardiologists, radiologists and catheterization laboratory administrators. These products are currently marketed in the United States through a direct sales organization and internationally through distributors in Germany, France, Japan and other major countries, under regulatory approvals where required. The Company believes that the majority of interventional catheterization procedures in the United States are performed in high volume catheterization laboratories that can be served effectively by a relatively small, focused sales force. Perclose develops and maintains close working relationships with its customers to address their needs for products and services and to receive input regarding the Company's product development plans. The Company builds these relationships through focused physician training, which the Company believes will also be an important factor in encouraging cardiologists to use the Company's products. Perclose provides a standardized, in-the-field training course in the markets it enters. EXTEND THE TECHNOLOGY PLATFORM. The Company applies its core technology to other high value cardiovascular surgical areas in which remote and precise delivery of needles and sutures would improve clinical outcomes and reduce health care costs. Anastomosis of coronary blood vessels during CABG procedures represents the first application of the Company's core technology beyond arterial access site closure. The Company intends to develop new applications for its technology in other minimally invasive surgical procedures. EXPAND MARKETS FOR EXISTING PRODUCTS. The Company believes that several other minimally invasive catheterization procedures, both currently used and under development, will be candidates for application of its existing PVS products. The Company intends to expand its product marketing efforts into these new clinical applications, including electrophysiology, interventional neuroradiology and intra-aortic balloon pump procedures, where percutaneous surgical closure of arterial access sites can meet significant clinical needs and achieve cost reductions. MAINTAIN TECHNOLOGICAL LEADERSHIP. The Company continually evaluates new developments in percutaneous catheterization procedures and will seek to expand its product development efforts to address access site closure following these new procedures, including catheter-based vascular grafts, treatment of abdominal aortic aneurysms and cardiac pulmonary support procedures. Because the large diameter catheter devices required for these procedures make closure of the arterial access site difficult using conventional compression methods, open surgical procedures are ordinarily used to close the access sites. The Company believes that larger diameter versions of its current PVS products could be used to close the arterial access sites in these procedures, making it feasible to perform such procedures in a less invasive manner. The Company also focuses on improving the performance and ease of use and reducing the manufacturing costs of its PVS products. PRODUCTS AND TECHNOLOGY The Company has introduced two PVS product families, the Techstar and Prostar. Techstar products are single-suture devices for suturing 6F and 7F arterial access sites(1). Prostar products provide two sutures for closing arterial access sites ranging in diameter from 7F to 11F. Products within each product family can have the added designation of Plus or XL. The Plus and XL designations signify the second and third generations, respectively, of the Techstar and Prostar product evolution. The Plus and XL enhancements reduce procedure time, increase ease of use and reduce manufacturing costs. The XL series, or third generation design of both the Techstar and Prostar devices, has reduced procedure time to less than five minutes, compared with over 10 minutes required for the first generation Prostar devices. PROSTAR PRODUCTS. The Prostar products are single-use, hand-held medical devices which consist of a four-needle, two-suture Prostar PVS device and a Perclose Knot Pusher. In addition, the 9F and 11F sizes - ------------ (1) Interventional cardiology devices are measured in French sizes, abbreviated "F." One French size is equal to one-third of a millimeter in diameter (3F=1mm). 22 require a pre-dilator and a guidewire. Prostar products are currently marketed internationally in the 8F and 10F sizes and are marketed in the United States in the 9F and 11F sizes. Prostar products are used to close arterial access sites following balloon angioplasty, stenting and atherectomy procedures. At the end of the catheterization procedure, the introducer sheath used in the procedure is removed utilizing a standard over-the-wire exchange technique. Next, the flexible sheath of the PVS device is inserted in the artery over a guidewire (use of the first generation Prostar product requires pre-dilation prior to insertion of the sheath). The unique design of the device allows the physician to maintain hemostasis throughout the procedure. The device includes a marker port in the needle guide, proximal to the tips of the needles. Arterial blood flow into the marker port indicates that the device has been properly positioned with the needles and sutures inside the arterial lumen. Once positioned, the pull handle is drawn away from the patient, deploying the needles and sutures. As the needles advance toward the artery wall, they are guided by a ramp that precisely positions the needles around the arterial access site. The needles are captured in the barrel of the device which also positions the needles for removal. Two needles, each attached to the end of a single suture, will create one surgical stitch. The needles are removed from the device and detached from the sutures which are then tied in a standard surgical square knot. The device is removed and the knots are advanced to the arterial access site with the Perclose Knot Pusher. The knots can be further secured with additional throws, which are also advanced with the Knot Pusher. TECHSTAR PRODUCTS. Techstar products consist of a two-needle, single-suture Techstar PVS device and a Perclose Knot Pusher. Techstar products are currently marketed internationally in 6F, 7F and 6FS (short) sizes. The Techstar 6F product is suitable for closure of arterial access sites in therapeutic and diagnostic procedures having puncture sites dilated by 6F or smaller introducer sheaths while the 7F diameter product is suitable for closure of puncture sites dilated by 7F interventional and diagnostic introducer sheaths. The Techstar 6FS is shorter in length than the Techstar 6F and is suitable for use after peripheral diagnostic and interventional procedures for vascular disease of the lower legs. CLINICAL AND REGULATORY STATUS In April 1997, the Company received PMA approval for commercial sale in the United States of its Prostar 9F and 11F products. In November 1997, the Company received PMA supplement approval for commercial sale in the United States of its Techstar 6F and Techstar XL 6F products. In June 1997, the Company submitted to the FDA a PMA supplement for the Prostar Plus 8F and 10F and Prostar XL 8F products for commercial sale in the United States. Perclose PVS products are currently being marketed internationally in Germany, France, Japan and other major countries under regulatory approvals where required. The Company obtained CE mark certification in 1996 which allows it to market its products in all member countries of the European Union and to ship its products to European Union countries directly from its United States manufacturing facility. The Company has received regulatory approval to market the Prostar and Techstar products in Japan and has commenced a clinical trial in Japan that will form the basis for an application for reimbursement approvals in the Japanese health care system. Getz Brothers Company Ltd., the Company's Japanese distributor, will be responsible for management of clinical trials, obtaining reimbursement approval for the Company's products and obtaining and holding regulatory approvals in Japan. There can be no assurance that such reimbursement approvals will be obtained in a timely manner or at all. See "Risk Factors -- Government Regulation." 23 MARKETING AND DISTRIBUTION The Company markets its PVS products in the United States through a direct sales organization. The Company believes that the majority of interventional catheterization procedures in the United States are performed in high volume catheterization laboratories, and that these institutions can be effectively served by a relatively small, focused sales force. The Company develops and maintains close working relationships with its customers to address their needs for products and services and to receive input regarding the Company's product development plans. The Company builds these relationships through focused physician training, which the Company believes will also be a key factor in encouraging physicians to use the Company's products. The Company provides a standardized, in-the-field training course in the markets it enters. The Company's international sales and marketing strategy for PVS products focuses on interventional cardiologists and radiologists through established distributors in major international markets, subject to required regulatory approvals. The Company generally operates under written distribution agreements with its distributors, although the Company does not have written agreements with certain distributors, typically those in smaller markets. Distributors with which the Company has distribution agreements generally have the exclusive right to sell the Company's products within a defined territory. These distributors also typically market other medical products, although the Company generally seeks to obtain covenants from its distributors prohibiting them from marketing medical devices that compete directly with the Company's products. The Company's distributors typically purchase the Company's products at a discount from the end user list price and resell the products to hospitals and clinics. Sales to international distributors are denominated in U.S. dollars, except to the Company's German and French distributors. The distributor and end-user price varies from country to country. The Company has seven employees directly involved with physician training and assisting distributors assigned to European and Asian territories. All of the Company's revenues through March 31, 1997 were derived from export sales to international distributors, primarily in Europe, none of which are affiliated with the Company. Sales to A.D. Krauth GmbH, Medicorp S.A. and Getz Brothers Company Ltd., the Company's German, French and Japanese distributors, respectively, accounted for approximately 59%, 15% and 15%, respectively, of net sales for the fiscal year ended March 31, 1997. For the six months ended September 30, 1997, sales to A.D. Krauth GmbH were 14% of net sales. RESEARCH AND DEVELOPMENT The Company's research and development activities are performed by an internal research and development staff. The Company has a three-part strategy in research and development. First, the Company continues to enhance its existing PVS products to maintain its technological leadership in percutaneous vascular surgery. Second, the Company plans to apply its core technology to the closure of other arterial access sites including those for vascular grafts, treatment of abdominal aortic aneurysms and cardiac pulmonary support procedures. Third, the Company is applying its core technology to other high value surgical areas such as coronary anastomosis with its Heartflo system. Research and development expenses for fiscal 1995, 1996 and 1997 were $3.1 million, $3.1 million and $4.7 million respectively and were $2.5 million for the six-month period ending September 30, 1997. MANUFACTURING The Company currently manufactures its PVS products in a Class 10,000 clean room facility in Menlo Park, California. The Company purchases components from various suppliers and relies on single sources for several parts. To date, the Company has not experienced any significant adverse affects resulting from shortages of components. Delays associated with any future part shortages, particularly as the Company scales up its manufacturing activities in support of commercial sales in the United States and for international distributor orders, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not have experience in manufacturing 24 its products in large-scale commercial quantities. Manufacturers often encounter difficulties in scaling up production of new products, including problems involving production yields, quality control and assurance, component supply and lack of qualified personnel. Difficulties encountered by the Company in manufacturing scale-up could have a material adverse effect on its business, financial condition and results of operations. The Company is also required to register as a medical device manufacturer with the FDA and to list its products with the FDA. As such, the Company is subject to inspections by the FDA for compliance with the FDA's good manufacturing practices ("GMP") and other applicable regulations. In addition, in connection with international sales, the Company is required to comply with GMP requirements and ISO 9001 standards. These standards require that the Company maintain processes and documentation in a prescribed manner with respect to manufacturing, testing and quality control activities. Failure to either attain or maintain compliance with the applicable regulatory requirements or standards of various regulatory agencies would have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Limited Manufacturing Experience and Scale-Up Risk." COMPETITION Competition in the emerging market for arterial access site closure devices is intense and is expected to continue to increase. The Company believes its principal competition will come from conventional manual compression devices, mechanical compression devices and collagen plug closure devices. Conventional compression products are marketed by several companies that supply C-clamp closure devices. C.R. Bard markets the Femostop compression arch, a cuff that imposes pressure on the access site. Several new collagen-based closure devices have been developed in response to the need for improved methods of arterial access site closure following catheterization procedures. These collagen plug devices are delivered through a sheath and placed at the site of the femoral artery puncture. These collagen plugs rely on the body's clotting function, which is enhanced by the presence of collagen, and may still require external pressure to achieve closure of the arterial access site. In contrast, the Company's percutaneous vascular surgery products provide a mechanical suture closure which aids in the natural healing process and, like open surgical repair, do not rely on the body's clotting function. Datascope and Kensey Nash have received PMA approval from the FDA for products that use collagen plugs to achieve hemostasis. American Home Products has exclusive worldwide distribution rights to the Kensey Nash device. Several other companies are reported to be developing or have tried to develop arterial closure devices, some of which have an established presence in the field of interventional cardiology, including Boston Scientific Corporation, C.R. Bard, Schneider (a subsidiary of Pfizer, Inc.), United States Surgical Corporation and Guidant Corporation. In addition, several companies are developing fibrin sealants for use as arterial access site closure devices. The Company believes that the primary competitive factors in the market for arterial closure devices are clinical need, complication rates, efficacy, time to patient ambulation and discharge, ease of use and price. In addition, the length of time required for products to be developed and to receive regulatory and, in some cases, reimbursement approval are important competitive factors. Competition in the market for conventional and emerging minimally invasive CABG surgical devices is also intense and is also expected to increase. In September 1997, United States Surgical Corporation received FDA approval to market an anastomosis device. The Company believes that other companies, including major interventional cardiology device companies focused on both the conventional and minimally invasive CABG markets, are currently attempting to develop anastomosis devices. Many of the Company's competitors have substantially greater name recognition and financial resources than the Company and also have greater resources and expertise in the areas of research and development, manufacturing, marketing and regulatory affairs. There can be no assurance that the Company's competitors will not succeed in developing and marketing 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 25 the Company will be able to compete effectively against such competitors in terms of manufacturing, marketing and sales. Also, there can be no assurance that the Company's products will be able to demonstrate clinical efficacy or cost effectiveness advantages over competing products, or that clinical trials will demonstrate such advantages. In addition, the medical device market is generally characterized by rapid and significant technological change and frequent emergence of new technologies, products and procedures. There can be no assurance that any such new technologies, products or procedures will not reduce the number of coronary catheterization or CABG procedures performed. The Company's success will also depend in part on its ability to respond quickly to medical and technological changes through the development and introduction of new products. Product development involves a high degree of risk and there can be no assurance that the Company's new product development efforts will result in any commercially successful products. The Company believes it competes favorably with respect to these factors, although there is no assurance that it will be able to continue to do so. See "Risk Factors -- Competition and Risk of Technological Obsolescence." PATENTS AND PROPRIETARY RIGHTS Perclose's policy is to protect its proprietary position by, among other methods, filing United States and foreign patent applications to protect technology, inventions and improvements that are important to its business. The Company has three issued United States patents covering certain aspects of the percutaneous suturing technology used in the Company's PVS products and has exclusive licenses under two additional issued patents relating to a different method of percutaneous suturing not currently employed by the Company's products. The Company has seven United States patent applications pending in the areas of device design, percutaneous suturing for vascular puncture sites and accessory devices. The Company has also licensed, on a nonexclusive basis, certain coating technology used in its products. Under the license, the Company is obligated to pay royalties on sales of products using this coating technology. The Company has filed two United States patent applications covering its anastomosis products and intends to file additional patents in the future. The Company has also filed several international patent applications corresponding to certain of its United States patent applications. The patent positions of medical device companies, including those of the Company, are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent application either can be denied or significantly reduced before or after the patent is issued. Consequently, there can be no assurance that any patent applications will result in the issuance of patents, or that the Company's issued or any future patents will provide significant protection or commercial advantage or will not be circumvented by others. Since patent applications are secret until patents are issued in the United States or corresponding applications are published in international countries, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications or that it was the first to file patent applications for such inventions. There can be no assurance that patents held by or licensed to the Company or any patents that may be issued as a result of the Company's pending or future patent applications will be of commercial benefit, afford the Company adequate protection from competing products or technologies or will not be challenged by competitors or others or declared invalid. Also, there can be no assurance that the Company will have the financial resources to defend its patents from infringement or claims of invalidity. In the event a third party has also filed a patent application relating to an invention claimed in a Company patent application, the Company may be required to participate in an interference proceeding declared by the USPTO to determine priority of invention, which could result in substantial uncertainties and costs to the Company, even if the eventual outcome is favorable to the Company. There can be no assurance that any patents issued to the Company would be held valid by a court of competent jurisdiction. 26 The Company relies upon trade secret protection for certain unpatented aspects of other proprietary technology. There is no assurance that others will not independently develop or otherwise acquire substantially equivalent proprietary information or techniques, others will not otherwise gain access to the Company's proprietary technology or disclose such technology, or the Company can meaningfully protect its trade secrets. The Company typically requires its employees and consultants to execute appropriate confidentiality and proprietary information agreements upon the commencement of an employment or a consulting relationship with the Company. 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. The agreements generally provide that all inventions conceived by the individual in the course of rendering services to the Company shall be the exclusive property of the Company; however, certain of the Company's agreements with consultants, who typically are employed on a full-time basis by academic institutions or hospitals, do not contain assignment of invention provisions. 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. See "Risk Factors -- Reliance on Patents and Protection of Proprietary Technology." GOVERNMENT REGULATION UNITED STATES REGULATION The Company's products are regulated in the United States as "medical devices" by the FDA under the Federal Food, Drug, and Cosmetic Act ("FDC Act") and require premarket clearance or approval by the FDA prior to commercialization. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Noncompliance with applicable requirements can result in warning letters, 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, and criminal prosecution. Medical devices are classified into one of three classes, Class I, II or III, on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, premarket notification and adherence to GMPs). Class II devices are subject to general controls and to special controls (e.g., performance standards, postmarket surveillance, patient registries and FDA guidelines). Generally, Class III devices are those which must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices), and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class I and Class II devices. A PMA application must be filed if the proposed device is not substantially equivalent to a legally marketed predicate device or if it is a preamendment Class III device (i.e. one that has been in commercial distribution since before May 28, 1976) for which the FDA has called for such applications. If human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or the distributor of the device is required to file an investigational device exemption ("IDE") application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and, possibly, mechanical testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the agency. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such costs do not exceed recovery of the 27 costs of manufacture, research, development and handling. The clinical trials must be conducted under the auspices of an independent institutional review board ("IRB") established pursuant to FDA regulations. Generally, before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a 510(k) notification or approval of a PMA application. If a medical device manufacturer or distributor can establish that a device is "substantially equivalent" to a "predicate device" which is a legally marketed Class I or Class II device or to a preamendment Class III device for which the FDA has not called for PMAs, the manufacturer or distributor may seek clearance from the FDA to market the device by submitting a 510(k) notification. The 510(k) notification may need to be supported by appropriate data, including clinical data, establishing the claim of substantial equivalence to the satisfaction of the FDA. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence. Following submission of the 510(k) notification, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. No law or regulation specifies the time limit by which the FDA must respond to a 510(k) notification. At this time, the Company believes that the FDA typically responds to the submission of a 510(k) notification within 90 to 120 days, although it can take longer. An FDA order may declare that the device is substantially equivalent to another legally marketed device and allow the proposed device to be marketed in the United States. The FDA, however, may determine that the proposed device is not substantially equivalent or require further information, including clinical data, to make a determination regarding substantial equivalence. Such determination or request for additional information could delay market introduction of the products that are the subject of the 510(k) notification. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a predicate device, the manufacturer or distributor must seek premarket approval of the proposed device through submission of a PMA application. A PMA application must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. Following receipt of a PMA application, if the FDA determines that the application is sufficiently complete to permit a substantive review, the FDA will "file" the application. Under the FDC Act, the FDA has 180 days to review a PMA application, although the review of such an application more often occurs over a protracted time period, and generally takes more than one year or more from the date of filing to complete. The PMA application approval process can be expensive, uncertain and lengthy. A number of devices for which premarket approval has been sought have never been approved for marketing. The review time is often significantly extended by the FDA, which may require more information or clarification of information already provided in the submission. During the review period, an advisory committee likely will be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. In addition, the FDA will inspect the manufacturing facility to ensure compliance with the FDA's GMP requirements prior to approval of an application. If granted, the approval of the PMA application may include significant limitations on the indicated uses for which a product may be marketed. In April 1997, the Company received PMA approval for commercial sale in the United States of its Prostar 9F and 11F products. In November 1997, the Company received PMA supplement approval for commercial sale in the United States of its Techstar 6F and Techstar XL 6F products. In June 1997, the Company submitted to the FDA a PMA supplement for the Prostar Plus 8F and 10F and Prostar XL 8F products for sale in the United States. There can be no assurance that the Company will be able to obtain further PMA application or PMA supplement approvals to market its products, or any other products, on a timely basis, if at all, and delays in receipt or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. 28 In August 1997, a competitor of the Company petitioned the FDA for review of the PMA approval granted to the Prostar 9F and 11F products. The petition was filed pursuant to a provision of the FDC Act permitting any interested party to request that the FDA refer an approval order and the basis for the order to an independent advisory committee of experts, who are to review the information and provide the FDA with a report and recommendation. Under this provision, the FDA is required to make public the advisory committee's report and recommendation and to issue an order either affirming, reversing or modifying the approval. To the Company's knowledge, the FDA has conducted a review pursuant to this provision twice since the enactment of the Medical Device Amendments of 1976. The Company responded to the petition by submitting comments in September 1997 arguing that the FDA should deny it. No assurance can be given that the FDA will not grant the request to convene an advisory committee to review the PMA approval granted to the Prostar 9F and 11F products, nor can assurance be given that the FDA will not, after such review, issue an order reversing or unfavorably modifying the original PMA approval. Any such action by the FDA would have a material adverse effect on the Company. The Company is also required to register as a medical device manufacturer with the FDA and state agencies, such as the CDHS, and to list its products with the FDA. The Company has been inspected by both the FDA and the CDHS for compliance with the FDA's QS Reg. and other applicable regulations that require the Company to manufacture its products according to elaborate testing, control activities documentation and other quality assurance procedures. Further, the Company is required to comply with various FDA requirements for design, safety, advertising and labeling. In June 1995, the Company's Menlo Park, California facility was inspected by the CDHS, and the Company was subsequently granted a California medical device manufacturing license. The Company is required to provide information to the FDA on death or serious injuries alleged to have been associated with the use of its medical devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. In addition, the FDA prohibits an approved device from being marketed for unapproved applications. If the FDA believes that a company is not in compliance with the law, it can institute proceedings to detain or seize products, issue a recall, enjoin future violations and assess civil and criminal penalties against the company, its officers and its employees. Failure to comply with the regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. The advertising of most FDA-regulated products is subject to both FDA and Federal Trade Commission jurisdiction. The Company also is subject to regulation by the Occupational Safety and Health Administration and by other governmental entities. Regulations regarding the manufacture and sale of the Company's products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business, financial condition or results of operations. See "Risk Factors -- Government Regulation." INTERNATIONAL REGULATION International sales of the Company's products are subject to the regulatory agency product registration requirements of each country. The regulatory review process varies from country to country. The Company's distributors have obtained regulatory approval in several international markets. At this time, the Prostar 8F and 10F and the Techstar 6F, 7F and 6FS products are being marketed in Germany, France, Japan and other major countries under regulatory approvals where required. Commercial sales of medical devices, including the Company's PVS products, in member countries of the European Union require the manufacturer to obtain the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In July 1996, the Company received CE mark certification for its Techstar and Prostar PVS products. In connection with CE mark certification, the Company received ISO 9001 qualification of its manufacturing and quality assurance processes. Certification under the ISO 9000 series of standards is one of the CE mark certification requirements. 29 The Company, through its Japanese distributor, has received regulatory approval for commercial sale of its products in Japan and has commenced clinical trials in Japan that will form the basis of an application for reimbursement approvals in the Japanese health care system. The Company's distributor will be responsible for management of clinical trials and obtaining reimbursement approval for the Prostar and Techstar products in Japan. There can be no assurance such approvals will be obtained in a timely manner or at all. See "Risk Factors -- Government Regulation." THIRD-PARTY REIMBURSEMENT In the United States, health care providers, such as hospitals and physicians that purchase medical devices such as the Company's products, generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all or part of the cost of therapeutic and diagnostic catheterization procedures. Reimbursement for catheterization procedures performed using devices that have received FDA approval has generally been available in the United States. The Company anticipates that in a prospective payment system, such as the DRG system utilized by Medicare, and in many managed care systems used by private health care payors, the cost of the Company's products will be incorporated into the overall cost of the procedure and that there will be no separate, additional reimbursement for the Company's products. The Company anticipates that hospital administrators and physicians will justify the additional cost of an arterial access site closure device by the attendant cost savings and clinical benefits derived from the use of the Company's products. Separate reimbursement for the Company's products is not expected to be available in the United States and there can be no assurance that reimbursement for the Company's products will be available in international markets under either governmental or private reimbursement systems. Furthermore, the Company could be adversely affected by changes in reimbursement policies of governmental or private health care payors, particularly to the extent any such changes affect reimbursement for therapeutic or diagnostic catheterization procedures in which the Company's products are used. Failure by physicians, hospitals and other users of the Company's products to obtain sufficient reimbursement from health care payors for procedures in which the Company's products are used or adverse changes in governmental and private third-party payors' policies toward reimbursement for such procedures could have a material adverse effect on the Company's business, financial condition and results of operations. In international markets, market acceptance of the Company's products may be dependent in part upon the availability of reimbursement within prevailing health care payment systems. However, in general, hospitals using the Company's products do not receive specific, cost-based, direct reimbursement for the use of Perclose PVS products. Reimbursement and health care payment systems in international markets vary significantly by country. The main types of health care payment systems in international markets are government sponsored health care and private insurance. Countries with government sponsored health care, such as the United Kingdom, have a centralized, nationalized health care system. New devices are brought into the system through negotiations between departments at individual hospitals at the time of budgeting. In most foreign countries, there are also private insurance systems that may offer payments for alternative therapies. Although not as prevalent as in the United States, health maintenance organizations are emerging in certain European countries. Currently, users of the Company's products in Germany have obtained reimbursement from certain private payors. The Company's products have also been purchased by hospitals in nationalized systems in the United Kingdom and Canada. The Company received governmental reimbursement approvals for private hospitals in France that were subsequently withdrawn in October 1996. The Company is attempting to restore its reimbursement approvals with the French health care regulatory authorities. In Japan, the Company is currently undertaking a clinical study to support governmental reimbursement approvals. The Company may not receive reimbursement approvals in Japan in a timely manner, or at all. The Company may seek additional international reimbursement approvals, although there can be no assurance that any such approvals will be obtained in a timely manner, or at all, and failure to receive additional international 30 reimbursement approvals could have an adverse effect on market acceptance of the Company's products in the international markets in which such approvals are sought. See "Risk Factors -- Uncertainty of Third-Party Reimbursement." PRODUCT LIABILITY AND INSURANCE The Company's business involves the risk of product liability claims. The Company has not experienced any product liability claims to date. Although the Company maintains product liability insurance, there can be no assurance that product liability claims will not exceed such insurance coverage limits, which could have a material adverse effect on the Company, or that such insurance will be available on commercially reasonable terms or at all. EMPLOYEES As of September 30, 1997, the Company had 136 full-time employees. Approximately 14 persons were engaged in research and development activities, 57 persons were engaged in manufacturing and manufacturing engineering, 14 persons were engaged in quality assurance and regulatory affairs, 39 persons were engaged in sales and marketing and 12 persons were engaged in general and administrative functions. No employees are covered by collective bargaining agreements, and the Company believes it maintains good relations with its employees. The Company is dependent upon a number of key management and technical personnel, and the loss of services of one or more key employees could have a material adverse effect on the Company. FACILITIES The Company leases an approximately 31,000 square foot facility in Menlo Park, California. This facility includes an environmentally controlled, Class 10,000 clean room for device assembly together with warehouse, laboratory and office space. The facility is leased under three separate leases which expire at various times between September 1998 and March 1999. The Company is currently negotiating an extension of its existing leases and is evaluating relocating to a larger facility in 1999. The Company believes it will be able to satisfy its facilities requirements on commercially reasonable terms. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings. 31 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of September 30, 1997 are as follows:
NAME AGE POSITION - -------------------------------------------- --- -------------------------------------------------------------- John B. Simpson, Ph.D., M.D.(1)(5).......... 53 Chairman of the Board Henry A. Plain, Jr.(5)...................... 39 President, Chief Executive Officer and Director Randolph E. Campbell........................ 40 Vice President of Operations Ronald W. Songer............................ 40 Vice President of Research and Development Kenneth E. Ludlum........................... 44 Vice President of Finance and Administration and Chief Financial Officer Coy F. Blevins.............................. 49 Vice President of United States Sales John G. McCutcheon.......................... 37 Vice President of Marketing and International Sales Vaughn D. Bryson(1)(5)...................... 59 Director Michael L. Eagle(2)(3)...................... 50 Director Serge Lashutka(3)........................... 50 Director James W. Vetter, M.D.(4).................... 40 Director Mark A. Wan(1)(2)(4)........................ 32 Director
- --------- (1) Member of the Compensation Committee (2) Member of the Audit Committee (3) Class I director (defined below) (4) Class II director (defined below) (5) Class III director (defined below) DR. SIMPSON co-founded Perclose in March 1992 and has served as Chairman of the Board since the Company's inception. He has served as a Staff Cardiologist at Sequoia Hospital in Redwood City, California since 1981. Dr. Simpson is a professor of clinical medicine at Stanford University. Dr. Simpson founded Advanced Cardiovascular Systems, Inc. ("ACS") in 1978 and Devices for Vascular Intervention, Inc. ("DVI") in 1984, each of which are currently divisions of Guidant Corporation. Dr. Simpson is a director of several privately held companies. Dr. Simpson holds a B.S. in Agriculture from Ohio State University, a Ph.D. in Biomedical Sciences from the University of Texas at Houston and an M.D. from Duke University. MR. PLAIN joined Perclose in February 1993 as President and Chief Executive Officer and a member of the Company's board of directors. From 1981 until joining the Company, Mr. Plain held various management positions in the pharmaceutical, agricultural and medical device units of Eli Lilly and Company ("Lilly"), a diversified pharmaceutical and medical products company, including Director of Marketing at DVI, then a subsidiary of Lilly, from 1991 to 1992. Mr. Plain holds a B.S. in Finance from the University of Missouri. MR. BLEVINS joined Perclose as Director of U.S. Sales in January 1994 and was promoted to Vice President, U.S. Sales in July 1996. From 1990 through 1993, Mr. Blevins was a Regional Sales Manager with DVI. Prior to 1990, Mr. Blevins held various sales and sales management positions at Baxter Healthcare, Inc. Mr. Blevins holds a B.S. in Accounting from Baylor University. MR. CAMPBELL joined Perclose in January 1994 as Vice President of Operations. From 1986 until joining the Company, Mr. Campbell held various management positions at DVI, serving most recently as Director of Manufacturing Engineering from 1992 to 1994 and previously as Director of Product Development from 1990 to 1992. Mr. Campbell holds a B.S. in Chemical Engineering from the University of California at Berkeley. 32 MR. LUDLUM joined Perclose as Vice President of Finance and Administration and Chief Financial Officer in May 1996. From November 1995 until joining Perclose, Mr. Ludlum was an independent business and financial consultant to health care and high growth companies. From November 1993 to November 1995, Mr. Ludlum was Vice President, Finance & Administration and Chief Financial Officer of RiboGene, Inc., a biopharmaceutical company. From December 1991 to November 1993, Mr. Ludlum was Vice President, Finance and Administration, Treasurer, Chief Financial Officer and Secretary of Alteon Inc., a publicly traded biopharmaceutical company developing therapies for diabetes. From 1986 to 1991, Mr. Ludlum held various positions with Montgomery Securities in the health care finance group. Mr. Ludlum holds a B.S. in business from Lehigh University and an M.B.A. from Columbia Business School. MR. MCCUTCHEON joined Perclose in January 1994 as Director of Marketing. In July 1996, Mr. McCutcheon was promoted to Vice President, Marketing and in July 1997 was promoted to Vice President of Marketing and International Sales. From 1992 until joining the Company, Mr. McCutcheon was a Marketing Manager at DVI. From 1985 to 1992, Mr. McCutcheon held positions in sales and marketing with the Bentley Laboratories Division of Baxter Healthcare Corporation. Mr. McCutcheon holds a B.A. in Economics and in Psychology and an M.B.A., both from the University of California, Los Angeles. MR. SONGER joined Perclose in April 1993 as Vice President of Research and Development. From 1990 until joining Perclose, Mr. Songer was Director of Catheter Systems Research and Development for the Spectranetics Corporation, a manufacturer of laser atherectomy systems. Prior to joining Spectranetics, Mr. Songer was Manager of Research and Development for the movable wire systems unit of ACS. Mr. Songer holds a B.S. in Nuclear Engineering from the University of California at Santa Barbara and an M.S. in Mechanical Engineering from the University of California at Berkeley. MR. BRYSON has served as a Director of Perclose since January 1995. Mr. Bryson is President of Life Science Advisors, a consulting firm focused on assisting biopharmaceutical and medical device firms in building shareholder value. From April 1994 to December 1996, Mr. Bryson served as Vice Chairman of Vector Securities International, an investment bank. For 32 years, Mr. Bryson was an employee of Lilly, where he served as Executive Vice President from 1986 until October 1991 and President and Chief Executive Officer from November 1991 to June 1993. He was a director of Lilly from 1984 until his retirement in 1993. Mr. Bryson is a director of Ariad Pharmaceuticals, Chiron Corporation, Endo Vascular Technologies, Fusion Medical Technologies, NaPro Bio Therapeutics and Quintiles Transnational Corporation. MR. EAGLE has served as a Director of Perclose since September 1996. He has held various management positions in Lilly's pharmaceutical and medical device units since 1983 and currently serves as Vice President, Manufacturing. From June 1993 until January 1994, he served as Vice President of pharmaceutical manufacturing for Lilly and from January 1991 until June 1993 he served as Vice President of the vascular intervention component of the Medical Devices and Diagnostics Division of Lilly. From 1988 to 1991, Mr. Eagle was President and Chief Executive Officer of IVAC Corporation, a Lilly subsidiary. From 1983 to 1988, he held various positions with ACS, a former Lilly subsidiary, serving most recently as Senior Vice President of Manufacturing from 1985 to 1988. Mr. Eagle holds a B.S. in Mechanical Engineering from GMI Engineering and Management Institute and an M.S. in Industrial Administration from Purdue University. MR. LASHUTKA has served as a Director of Perclose since September 1996. He is currently a Manager of Organizational Development of Unocal Corporation, a major oil, gas and chemical company. From 1993 to 1996, Mr. Lashutka was Director, Organization Development, and Senior Consultant of Pacific Health Systems, Inc., a managed health care organization. From 1979 to 1993, he was Manager of the Organization Effectiveness Department at the Kaiser Permanente Medical Care Program, a major managed health care organization operating in California. Mr. Lashutka holds a B.A. from Ohio State University, an M.A. in Psychology from the United States International University and an M.B.A. from the University of California at Berkeley. 33 DR. VETTER is a co-founder of the Company and has served as a Director of the Company and a consultant and medical advisor to the Company since its inception. Since 1989, Dr. Vetter has served as a Staff Cardiologist at Sequoia Hospital in Redwood City, California. Dr. Vetter holds a B.A. in Biology and Chemistry from Augustana College and an M.D. from the University of Wisconsin. MR. WAN has served as a Director of Perclose since September 1992. He has been a General Partner of Three Arch Partners, a venture capital firm specializing in health care investments, since October 1993. From 1987 to 1993, Mr. Wan held various positions at Brentwood Associates, a venture capital firm, most recently as a General Partner. Mr. Wan has been involved in the formation of several privately held, venture capital-backed health care companies and serves as a director of several privately held companies. Mr. Wan holds a B.S. in Electrical Engineering and a B.A. in Economics from Yale University and an M.B.A. from Stanford University. Currently all directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. The Company's board of directors has been divided into three classes. The terms of office of the Company's Class I, Class II and Class III directors expire on the annual meetings of stockholders in 1999, 2000, and 1998 respectively. The board of directors has a compensation committee, which establishes compensation policies and is responsible for determinations regarding cash and equity compensation for executive officers, and an audit committee, which is responsible for reviewing the scope of and work performed by the Company's independent auditors. Officers are elected by and serve at the discretion of the board of directors. There are no family relationships among the directors or officers of the Company. 34 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their Representatives, BT Alex. Brown Incorporated and Piper Jaffray Inc., have severally agreed to purchase from the Company the following respective number of shares of Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES - --------------------------------------------------------------------------------- ----------- BT Alex. Brown Incorporated...................................................... Piper Jaffray Inc................................................................ ----------- Total............................................................................ 1,000,000 ----------- -----------
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering, the offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 150,000 additional shares of Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to 1,000,000 and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 1,000,000 shares are being offered. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. The Company, its executive officers and directors have agreed not to offer, sell, pledge, contract to sell, or otherwise dispose of any Common Stock for a period of 90 days after the date of this Prospectus without the prior consent of BT Alex. Brown Incorporated. The Underwriters have advised the Company that, as permitted by Regulation M under the Exchange Act, certain persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of the Common Stock at a level above that which might otherwise prevail 35 in the open market. A "stabilizing bid" is a bid for or the purchase of Common Stock on behalf of the Underwriters for the purpose of fixing or maintaining the price of the Common Stock. A "syndicate covering transaction" is the bid for or the purchase of the Common Stock on behalf of the Underwriters to reduce a short position incurred by the Underwriters in connection with the offering. A "penalty bid" is an arrangement permitting the Underwriters to reclaim the selling concession otherwise accruing to an Underwriter or dealer in connection with the offering if the Common Stock originally sold by such Underwriter or dealer is purchased by the Underwriters in a syndicate covering transaction and has therefore not been effectively placed by such Underwriter or dealer. The Underwriters have advised the Company that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. As permitted by Rule 103 of Regulation M under the Exchange Act, Underwriters or prospective Underwriters that are market makers ("passive market makers") in the Common Stock may make bids for or purchases of Common Stock on the Nasdaq National Market until such time, if any, when a stabilizing bid for such securities has been made. Rule 103 generally provides that: (i) a passive market maker's net daily purchases of the Common Stock may not exceed 30% of its average daily trading volume in such securities for the two full consecutive calendar months (or any 60 consecutive days ending within the 10 days) immediately preceding the filing date of the Registration Statement of which this Prospectus forms a part, or 200 shares, whichever is greater; (ii) a passive market maker may not effect transactions or display bids for the Common Stock at a price that exceeds the highest independent bid for the Common Stock by persons who are not passive market makers; and (iii) bids made by passive market makers must be identified as such. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters will be passed upon for the Underwriters by Venture Law Group, A Professional Corporation, Menlo Park, California. As of the date of this Prospectus, members of Wilson Sonsini Goodrich & Rosati, Professional Corporation who have represented the Company in connection with this offering, beneficially own 3,005 shares of the Company's Common Stock. J. Casey McGlynn is Secretary of the Company and a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation. EXPERTS The financial statements of Perclose, Inc. incorporated by reference in the Company's Annual Report (Form 10-K) for the year ended March 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the information 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 can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the World Wide Web site is http://www.sec.gov. 36 The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and the financial statements, notes and schedules filed as a part thereof or incorporated by reference therein, which may be inspected at the public reference facilities of the Commission at the addresses set forth above or through the Commission's World Wide Web site. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance are qualified in all respects by reference to the copy of such contract or document filed as an exhibit to the Registration Statement. 37 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. -------------- TABLE OF CONTENTS
PAGE ----- Incorporation of Certain Documents by Reference.................................... 2 Prospectus Summary............................. 3 Risk Factors................................... 6 The Company.................................... 14 Use of Proceeds................................ 14 Price Range of Common Stock and Dividend Policy....................................... 14 Capitalization................................. 15 Selected Financial Data........................ 16 Business....................................... 17 Management..................................... 32 Underwriting................................... 35 Legal Matters.................................. 36 Experts........................................ 36 Available Information.......................... 36
1,000,000 SHARES [LOGO] COMMON STOCK ------------ PROSPECTUS ------------ BT ALEX. BROWN PIPER JAFFRAY INC. , 1997 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee.
SEC registration fee................................................................................. $ 8,189 NASD filing fee...................................................................................... 3,203 Nasdaq National Market listing fee................................................................... 17,500 Printing and engraving costs......................................................................... 100,000 Legal fees and expenses.............................................................................. 150,000 Accounting fees and expenses......................................................................... 50,000 Blue Sky fees and expenses........................................................................... 10,000 Transfer Agent and Registrar fees.................................................................... 3,500 Miscellaneous expenses............................................................................... 7,608 ----------- Total............................................................................................ $ 350,000 ----------- -----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Article VIII of the Registrant's Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law. Article VI of the Registrant's Bylaws provides for the indemnification of officers, directors and third parties acting on behalf of the corporation if such person acted in good faith and in a manner reasonably believed to be in and not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his conduct was unlawful. The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS 1.1 Underwriting Agreement. 3.3(1) Restated Certificate of Incorporation of the Company. 3.5(1) Bylaws of the Registrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Counsel (Included in Exhibit 5.1). 24.1 Power of Attorney (see page II-3). 27.1 Financial Data Schedule
- --------- (1) Exhibit incorporated by reference to like numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration Number 33-97128). ITEM 16. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus was sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (3) For purposes of determining any liability under the Securities 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 the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (4) For the purpose of determining any liability under the Securities 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-2 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Menlo Park, State of California, on the 5th day of November, 1997. PERCLOSE, INC. By: /s/ HENRY A. PLAIN, JR. ----------------------------------------- Henry A. Plain, Jr., PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Henry A. Plain, Jr. and Kenneth E. Ludlum and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto in all 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, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- President, Chief Executive /s/ HENRY A. PLAIN, JR. Officer and Director - ------------------------------ (Principal Executive November 5, 1997 Henry A. Plain, Jr. Officer) Vice President and Chief /s/ KENNETH E. LUDLUM Financial Officer - ------------------------------ (Principal Financial and November 5, 1997 Kenneth E. Ludlum Accounting Officer) /s/ VAUGHN D. BRYSON - ------------------------------ Director November 5, 1997 Vaughn D. Bryson /s/ MICHAEL L. EAGLE - ------------------------------ Director November 5, 1997 Michael L. Eagle
II-3
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ SERGE LASHUTKA - ------------------------------ Director November 5, 1997 Serge Lashutka /s/ JOHN B. SIMPSON, PH.D., M.D. - ------------------------------ Director November 5, 1997 John B. Simpson, Ph.D., M.D. /s/ JAMES W. VETTER, M.D. - ------------------------------ Director November 5, 1997 James W. Vetter, M.D. /s/ MARK A. WAN - ------------------------------ Director November 5, 1997 Mark A. Wan
II-4 EXHIBIT INDEX
EXHIBITS - ----------- 1.1 Underwriting Agreement. 3.3(1) Restated Certificate of Incorporation of the Company 3.5(1) Bylaws of the Registrant 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Counsel included in Exhibit 5.1. 24.1 Power of Attorney (See page II-3). 27.1 Financial Data Schedule
- --------- (1) Exhibit incorporated by reference to like numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration Number 33-97128). EX-1.1 2 EX 1.1 -- UNDERWRITING AGREEMENT 1,000,000 SHARES PERCLOSE, INC. COMMON STOCK ($0.001 PAR VALUE) UNDERWRITING AGREEMENT November , 1997 BT ALEX. BROWN INCORPORATED PIPER JAFFRAY INC. As Representatives of the Several Underwriters c/o BT Alex. Brown Incorporated One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: Perclose, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of 1,000,000 shares of the Company's Common Stock, $0.001 par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to 150,000 additional shares of the Company's Common Stock (the "Option Shares") as set forth below. If the firms listed in Schedule I hereto include only the Representatives, then the terms, "Underwriters" and "Representatives," as used herein, shall each be deemed to refer to such firms. As Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. (a) The Company represents and warrants as follows: (i) A registration statement on Form S-3 (File No. 333- ) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission under the Act. The Incorporated Documents (as defined) heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act (as defined) and the rules and regulations of the Commission thereunder. The Company has complied with the conditions for the use of Form S-3. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of Rule 430A of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised through the date hereof, have heretofore been delivered by the Company to you. The term "Registration Statement" as used in this Agreement shall mean the registration statement and the prospectus, including all financial statements, schedules and exhibits, included or incorporated by reference therein (the "Incorporated Documents") that the Company has filed with the Securities Exchange Act of 1934 ("Exchange Act") the form in which it became or becomes, as the case may be, effective (including, if the Company omitted information from the registration statement pursuant to Rule 430A of the Rules and Regulations, the information deemed to be a part of the registration statement at the time it became effective pursuant to Rule 430A of the Rules and Regulations) and, in any a term sheet used pursuant to Rule 434, and in the event of any amendment thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment) such registration statement as so amended. If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall also be deemed to include such Rule 462 Registration Statement. The Registration Statement has been declared effective by the Commission under the Act, and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. The form of prospectus filed by the Company with the Commission pursuant to its Rule 424(b) and Rule 430A is herein referred to as the "Prospectus." Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Registration Statement; and is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification and in which the failure so to qualify would materially adversely affect the business, condition (financial or otherwise) results of operations or prospects for the future of the Company. The Company has no subsidiaries. (iii) The Company has authorized and outstanding capital stock as set forth under the heading "Capitalization" in the Prospectus and such capital stock conforms in all material respects to the statements relating thereto contained in the Registration Statement and the Prospectus and any Incorporated Document (and such statements correctly state the substance of the instruments defining the capitalization of the Company; the outstanding shares of Common Stock of the Company, have been duly authorized and validly issued, are fully paid and non-assessable and have been issued in compliance with all applicable federal and state securities laws; the shares of Common Stock to be sold by the Company have been duly authorized and, when issued hereunder, will be validly issued, fully paid and non-assessable and will have been issued in compliance with all federal and state securities laws; no shareholder of the Company has any right pursuant to any agreement which has not been waived to require the Company to register the sale of any shares owned by such shareholder under the Act in the public offering contemplated hereby; all necessary and proper corporate proceedings have been taken in order validly to authorize and issue such authorized Common Stock and no further approval or authority of the shareholders or the Board of Directors of the Company is required for the sale of the Shares to be sold by the Company as contemplated hereby. (iv) The Shares conform with the statements concerning them in the Registration Statement in all material respects. Except as specifically disclosed in the Registration Statement and the financial statements of the Company and the related notes thereto, the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contacts or commitments to issue or sell shares of its capital stock or any such options, rights, convertible securities or obligations. The descriptions of the Company's stock option, stock purchase and other stock- 2 based plans, and of the options or other rights granted and exercised thereunder, set forth in the Prospectus or incorporated therein, are accurate summaries and fairly present the information required to be shown with respect to such plans and rights in all material respects. (v) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or instituted proceedings for that purpose, and each such Preliminary Prospectus has conformed in all material respects to the requirements of the Act and the Rules and Regulations and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; 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 (hereinafter defined) and on any later date on which Option Shares are to be purchased, (A) the Registration Statement and the Prospectus, and any amendments or supplements thereto, contained and will contain all material information required to be included therein by the Act and the Rules and Regulations and will in all material respects conform to the requirements of the Act and the Rules and Regulations, (B) the Registration Statement, and any amendments or supplements thereto, did not and will not include any 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, and any amendments or supplements thereto, did not and will not include any 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 under which they were made, not misleading; PROVIDED, HOWEVER, that none of the representations and warranties contained in this subparagraph (v) shall apply to information contained in or omitted from the Registration Statement or Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to any Underwriter furnished to the Company by such Underwriter specifically for use in the preparation thereof. No Incorporated Document when it was filed (or, if an amendment), amendment with respect to any such document was filed, when such amendment was filed), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further amendment will contain any 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. (vi) The financial statements of the Company, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and results of operations of the Company, at the indicated dates and for the indicated periods. Such financial statements, schedules and related notes have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data and schedules included in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the financial statements presented therein. No other financial statements or schedules are required to be included in the Registration Statement. (vii) There is no material action, suit or proceeding pending or, to the knowledge of the Company, after due inquiry, threatened against the Company before any court or regulatory, governmental or administrative agency or body which might result in any material adverse change in the business or condition (financial or otherwise) or results of operation or prospects for the future of the Company except as set forth in the Registration Statement. The Company is not a party or subject to the provisions of any injunction, judgment, order, decree or of any court, or any regulatory, administrative or governmental body or agency. (viii) The Company has good and marketable title to all of the properties and assets owned by the Company reflected in either the financial statements or as described in the Registration 3 Statement and is subject to no lien, mortgage, security interest, pledge or encumbrance of any kind, except those reflected in such financial statements or as described in the Registration Statement and except for such encumbrances that, individually or in the aggregate, would not have a material adverse effect on the Company. The Company occupies its leased properties under valid and binding leases conforming to the description thereof set forth in the Registration Statement. (ix) The Company has filed all foreign, federal, state and local income tax returns which have been required to be filed and has paid all taxes indicated by said returns and all assessments received by it. There is no tax deficiency which has been or might reasonably be expected to be asserted or threatened against the Company which could materially adversely affect the business, operations or property of the Company. The Company has paid all sales, user and transfer taxes applicable to it and its business and operations which were or are due. The Company has not received any notice or deficiency or claim for payment from any governmental or regulatory body with respect to such sales, user or transfer taxes. (x) Since the respective dates as of which information is given in the Registration Statement and Prospectus, as it may be amended or supplemented, (A) there has not been any material adverse change or development involving a prospective material adverse change in or affecting the business management, condition (financial or otherwise), results of operations or prospects for the future of the Company whether or not occurring in the ordinary course of business, (B) there has not been any transaction entered into by the Company, other than transactions in the ordinary course or transactions specifically described in the Registration Statement, as it may be amended or supplemented, (C) the Company has not sustained any material loss or interference with its businesses or properties from fire, flood, windstorm, accident or other calamity, not covered by insurance, (D) the Company has not paid or declared any dividends or other distribution with respect to its capital stock, except as described in the Registration Statement, and the Company is not in default in the payment of principal of or interest on any outstanding debt obligations and (E) there has not been any change in the capital stock (other than the sale of the Shares, the conversion of the Preferred Stock into Common Stock or the exercise of outstanding stock options pursuant to the Company's stock option plan described in the Registration Statement) or material increase in indebtedness of the Company. The Company does not have any material contingent obligation which is not disclosed in the Registration Statement (or contained in the financial statements or related notes thereto), as such may be amended or supplemented. (xi) The Company is not in violation or default under any provision of its Certificate of Incorporation or bylaws, or any of its agreements, leases, licenses, contracts, franchises, mortgages, permits, deeds of trust, indentures or other instruments or obligations to which the Company is a party or by which it or any of its properties is or may be bound or affected, except where such violation or default would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Company. (xii) The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of, or violation of, any of the terms or provisions of, or constitute, either by itself or the giving of notice or the passage of time or both, a default under, any indenture, license, mortgage, lease, franchise, permit, deed of trust or other agreement or instrument to which the Company is a party or by which the Company or any of its property is or may be bound or affected, except where such breach, violation or default would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Company, or violate any of the provisions of the Certificate of Incorporation or bylaws of the Company or violate any injunction, judgment, order, decree, statute, rule or regulation applicable to the Company of any court or of any regulatory, administrative or governmental body or agency having jurisdiction over the Company or any of its property. 4 (xiii) The Company has the legal right, corporate power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company. (xiv) Each approval, registration, qualification, license, permit, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body or agency necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and each is in full force and effect. (xv) Except as otherwise expressly described in the Registration Statement, the Company owns or possesses adequate and sufficient rights to use all patents, patent rights, trade secrets, licenses or royalty arrangements, trademarks and trademark rights, service marks, trade names, copyrights, know how or proprietary techniques or rights thereto of others, and governmental, regulatory or administrative authorizations, order, permits certificates and consents necessary for the conduct of the business of the Company, except where the failure to possess such would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Company; the Company is not aware of any material pending or threatened action, suit, proceeding or claim by others, either domestically or internationally, that the Company is violating any patents, patent rights, copyrights, trademarks or trademark rights, inventions, service marks, tradenames, licenses or royalty arrangements, trade secrets, know how or proprietary techniques or rights thereto of others, or governmental, regulatory or administrative authorizations, orders, permits, certificates and consents; except as otherwise expressly described in the Registration Statement, the Company is not aware of any rights of third parties to, or any infringement of, any of the Company's trademarks or trademark rights, copyrights, licenses or royalty arrangements, trade secrets, know how or proprietary techniques, including processes and substances, or rights thereto of others, which could materially adversely affect the use thereof by the Company; the Company is not aware of any pending or threatened material action, suit, proceeding or claim by others challenging the validity or scope of any of such trademarks or trademark rights, copyrights, licenses or royalty arrangements, trade secrets, know how, or proprietary techniques or rights thereto of others. (xvi) There are no contracts or other documents required to be described in the Registration Statement or to be filed as exhibits to or incorporated by reference the Registration Statement by the Act or by the Rules and Regulations or the Exchange Act which have not been described or filed as required. (xvii) The Company is conducting business in compliance with all applicable laws, rules and regulations, of the jurisdictions in which it is conducting business including, without limitation, all applicable local, state, federal and foreign medical devise and environmental laws and regulations, except where the failure to so comply would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Company. (xviii) The Company has not, directly or indirectly, at any time during the past five years (A) made any unlawful contribution to any candidate for public office, or failed to disclose fully any contribution in violation of laws, or (B) made any payment to any federal, state or local governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States of any jurisdiction thereof. (xix) The Company maintains insurance of the types and in the amounts which it deems adequate for its business, including, but not limited to, general liability insurance and insurance 5 governing all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risk customarily insured against, all of which insurance is in full force and effect. (xx) Ernst & Young, LLP, who have certified the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations. (xxi) No offering, sales or other disposition of any Common Stock of the Company will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by the Company, otherwise than hereunder or with the prior written consent of the Representatives or pursuant to the grant by the Company of stock options or stock purchase rights or the exercise of outstanding stock options or stock purchase rights under the Company's Incentive Stock Plans described in the Registration Statement. (xxii) 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 Company received any notification that the Commission or the National Association of Securities Dealers, Inc. ("NASD") is contemplating terminating such registration or listing. (xxiii) The Company has been advised concerning the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and has in the past conducted, and intends in the future to conduct, its affairs in such a manner as to ensure that it will not become an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act and such rules and regulations. (xxiv) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date, or any date on which Option Shares are to be purchased, as the case may be, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act. (xv) The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. 2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase, at a price of $ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. Payment for the Firm Shares to be sold hereunder is to be made in same day federal funds against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202 at 10:00 a.m. Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than three business days thereafter as you and the Company shall agree upon in writing, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and are not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the third business day prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. 6 In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part but only once and at any time upon written notice given within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to 1,000,000, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in same day federal funds against delivery of certificates therefor at the offices of BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202. 3. OFFERING BY THE UNDERWRITERS. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. COVENANTS OF THE COMPANY. (a) The Company covenants and agrees with the several Underwriters that: (i) The Company will use its best efforts to cause the Registration Statement and any amendment thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, 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 after it shall receive notice thereof, of the time when the Registration Statement, any subsequent amendment to the Registration Statement or any abbreviated registration statement has become effective or any supplement to the Prospectus has been filed; if the Company omitted information from the Registration Statement at the time it was originally declared effective in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus contains such information and has been filed, within the time period prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part of a post-effective amendment to such Registration Statement as originally declared effective which is declared effective by the Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus and term sheet 7 meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been filed, within the time period prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of the final form of Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory to you that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; it will notify you promptly of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; promptly upon your request, it will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel for the several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in connection with the distribution of the Shares by the Underwriters; it will promptly prepare and file with the Commission, and promptly notify you of the filing of, any amendments or supplements to the Registration Statement or Prospectus which may be necessary to correct any statements or omissions, if, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the Shares as then in effect would include any 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 under which they were made, not misleading; in case any Underwriter is required to deliver a prospectus nine (9) months or more after the effective date of the Registration Statement in connection with the sale of the Shares, it will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act; and it will file no amendment or supplement to the Registration Statement or Prospectus or the Incorporated Documents, or, prior to the end of the period of time in which a prospectus relating to the Shares is required to be delivered under the Act, file any document which upon filing becomes an Incorporated Document, which shall not previously have been submitted to you a reasonable time prior to the proposed filing thereof or to which you shall reasonably object in writing, subject, however, to compliance with the Act and the Rules and Regulations , the Exchange Act and the rules and regulations of the Commission thereunder and the provisions of this Agreement. (ii) The Company will advise the Representatives promptly of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose, and the Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (iii) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (iv) The Company will furnish to you, as soon as available, and, in the case of the Prospectus and any term sheet or abbreviated term sheet under Rule 434, in no event later than the first (1st) full business day following the first day that Shares are traded, copies of the Registration Statement (three of which will be signed and which will include all exhibits), each Preliminary 8 Prospectus, the Prospectus and any amendments or supplements to such documents, including any prospectus prepared to permit compliance with Section 10(a)(3) of the Act, and the Incorporated Documents (three of which will include all exhibits,) all in such quantities as you may from time to time reasonably request. Notwithstanding the foregoing, BT Alex. Brown Incorporated, on behalf of the several Underwriters, shall agree to the utilization of Rule 434 of the Rules and Regulations, the Company shall provide to you copies of a Preliminary Prospectus updated in all respects through the date specified by you in such quantities as you may from time to time reasonably request. (v) If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (vi) [The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available.] (vii) No offering, sale or other disposition of any Common Stock of the Company will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of the Representatives except that the Company may, without such consent, issue shares (A) upon the exercise of options outstanding on the date of this Agreement issued pursuant to the Company's 1992 Stock Plan or 1995 Director Option Plan or pursuant to the Company's 1995 Employee Stock Purchase Plan, and (B) in any transaction in which the shares issued are not eligible for sale in the public market during such 90 day period. 5. COSTS AND EXPENSES. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Master Agreement Among Underwriters, the Underwriters' Selling Memorandum, the Underwriters' Questionnaire, the Invitation Letter, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses incident to securing any required review by the NASD of the terms of the sale of the Shares; the listing fee of the Nasdaq National Market; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under state securities or blue sky laws. Any transfer taxes imposed on the sale of the shares to the several Underwriters will be paid by the Company. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under state securities or blue sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 7 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 6 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on the Company's part to be performed, unless such failure to satisfy said 9 condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: (a) No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters 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 the State of Delaware, with full corporate power and authority to own its properties and conduct its business as described in the Prospectus, and the Company is duly qualified to transact business in all jurisdictions in which the ownership and leasing of property or the conduct of their business requires such qualification, except where the failure so to qualify would not have a material adverse effect upon the business, condition (financial or other) of the Company. The Company has full corporate power and authority to own its properties and conduct its business as described in the Prospectus. (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus as of the dates stated therein, and such counsel shall specify the number of shares of Common Stock issued and outstanding as of the date of such opinion; the authorized shares of its Capital Stock have been duly authorized; all of the outstanding shares of its Common Stock and Preferred Stock have been duly authorized and validly issued and are fully paid and non-assessable; the Shares (including the Firm Shares and Option Shares, if any) to be sold by the Company pursuant to this Agreement have been duly authorized and, when issued and paid for as contemplated by this Agreement, will be validly issued, fully paid and non-assessable; no preemptive rights of shareholders set forth in the Company's Certificate of Incorporation or, to the knowledge of such counsel, similar contractual rights to purchase, exist with respect to any of the Shares or the issue and sale thereof; and, to the knowledge of such counsel, no registration rights exist with respect to the capital stock of the Company which have not been satisfied or waived in connection with the offering of the Shares; the public offering contemplated hereby will cause a conversion of the outstanding shares of Preferred Stock into Common Stock pursuant to the Company's Certificate of Incorporation; all necessary and proper corporate proceedings have been taken in order to validly authorize the Common Stock issuable upon the conversion of such Preferred Stock into Common Stock, and no further approval or authority of the stockholders or the Board of Directors of the Company is required for the sale of the Shares to be sold by the Company as contemplated hereby. (iii) All of the Shares conform in all material respects to the description thereof contained in the Prospectus, and the certificates evidencing the Shares are in due and proper form under the Delaware General Corporation Law. 10 (iv) Except as specifically disclosed in the Registration Statement and the financial statements of the Company, and the related notes thereto, to such counsel's knowledge, the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell shares of its capital stock or any such options, rights, convertible securities or obligations. The descriptions of the Company's stock option and other stock-based plans set forth in the Prospectus are accurate summaries and fairly present in all material respects the information required to be shown with respect to such plans and rights. (v) The Registration Statement has become effective under the Act and, to the knowledge of such counsel, any required filing of the Prospectus and any supplement thereto pursuant to the Rules and Regulations has been made in the manner and within the time period required by such Rule 424(b). (vi) The Registration Statement, the Prospectus, the Incorporated Documents and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the applicable Rules and Regulations thereunder (except that such counsel need express no opinion as to (A) the financial statements, notes thereto and related schedules and other financial information and statistical data included therein or (B) any information furnished in writing by or through the Representatives specifically for use in the preparation thereof). (vii) The statements incorporated by reference into the Registration Statement and the Prospectus insofar as such statements constitute a summary of documents referred to therein or matters of law, are in all material respects, accurate summaries and fairly and correctly present the information called for with respect to such documents and matters of law. (viii) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus or incorporated by reference which are not so filed, or described as required, and such contracts and documents as are described in the Registration Statement, the Prospectus or the Incorporated Documents are accurately described in all material respects. (ix) To such counsel's knowledge, there is no legal action, suit or proceeding pending or threatened against the Company of a character required to be disclosed in the Registration Statement, the Prospectus or the Incorporated Documents pursuant to the Act and the Rules and Regulations or the Exchange Act, as applicable; to such counsel's knowledge, the Company is not a party or subject to provisions of any injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body or agency the effect of which could be material and adverse to the business, condition (financial or otherwise) or results of operations of the Company. (x) To such counsel's knowledge, the execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated do not and will not: (a) violate any of the provisions of the Certificate of Incorporation or bylaws of the Company; (b) to such counsel's knowledge, violate any material statute, injunction, judgment, order, decree, rule or regulation of any court or any governmental, regulatory or administrative body or agency having jurisdiction over the Company or any of its property (other than as may be required by the NASD with respect to compensation of underwriters or as required by state securities or Blue Sky laws as to which such counsel need express no opinion); and (c) conflict with or result in the breach of, or violation of, any of the terms or provisions of, or constitute, either by itself or with the giving of notice or the passage of time or both, a default under, any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument known to such counsel to which the Company is a party or by which the Company or any 11 of its property known to such counsel is or may be bound or affected, except where such breach, violation or default would not have material adverse effect on the business, financial condition or results of operations of the Company. (xi) The Company has the corporate power and authority to enter into this agreement and to perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company. (xii) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD with respect to compensation of the Underwriters and compliance with Regulation M of the Exchange Act or as required by state securities and blue sky laws as to which such counsel need express no opinion) except such as have been obtained or made and are in full force and effect, specifying the same. In rendering such opinion, such counsel may rely as to matters governed by laws other than the General Corporation Law of the State of Delaware, the laws of the State of California and the federal laws of the United States, on local counsel in such jurisdictions, PROVIDED that in each case such counsel shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which causes them to believe that the Registration Statement, or any amendment thereto, at the time the Registration Statement or amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any amendment or supplement thereto, at the time it was filed pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to financial statements, notes thereto and related schedules and the other financial information and statistical data included therein or information supplied by the Underwriters for use therein). With respect to such statement, such counsel may state that their belief is based upon the procedures set forth in their opinion, but is without independent check and verification. (c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Hogan &. Hartson, LLP, special regulatory counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that the statements in the Prospectus under the captions "Risk Factors--Government Regulation," "Risk Factors--Uncertainty Relating to Third Party Reimbursement," "Business-- Government Regulation--United States," and "Business--Third Party Reimbursement," insofar as such statements purport to summarize applicable provisions of the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated thereunder, and Title XVIII of the Social Security Act, as amended, and the regulations promulgated thereunder, have been reviewed by such counsel and are accurate summaries in all material respects of the provisions purported to be summarized under such captions in the Prospectus. In rendering such opinion, such counsel may state that they have not independently verified nor do they take any responsibility for nor are they addressing in any way any advents of fact, any statements concerning state or foreign law or any legal conclusions or statements of belief attributable to the Company. (d) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Medical Technology Consultants Europe Ltd., special international regulatory counsel for the Company dated the Closing Date or the Option Closing Date, as the case may be, addressed the Underwriters, to the effect that the statements in the Registration Statement 12 and the Prospectus under the captions "Risk Factors--Government Regulation" and "Business-- Government Regulation--International," insofar as such statements purport to summarize applicable provisions of international regulatory requirements have been reviewed by such counsel and are accurate summaries in all material respects of the provisions purported to be summarized under such captions in the Registration Statement and the Prospectus. In rendering such opinion, such counsel may state that they have not independently verified nor do they take any responsibility for nor are they addressing in any way any advents of fact, any statements concerning state or foreign law or any legal conclusions or statements of belief attributable to the Company. (e) The Representatives shall have received on the Closing Date or the Option Closing Dated, as the case may be, the opinion of Townsend and Townsend and Crew, special patent counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that: (i) The statements in the Registration Statement under the captions "Risk Factors-- Reliance on Patents and Protection of Proprietary Technology" and Business--Patents and Proprietary Rights" and other statements in the Registration Statement and Prospectus that discuss patents, patent rights and other proprietary rights, to the extent that they constitute matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, are accurate and complete statements or summaries of the matters therein set forth. (ii) Such counsel is not aware of any patent, patent right or other proprietary right of others which would prevent the conduct of the business of the Company now being or currently proposed to be conducted by the Company as described in the Prospectus; and such counsel is not aware of any rights of third parties to, or any infringement by third parties of, any of the Company's patents, patent rights or other proprietary rights. (iii) To such counsel's knowledge, there is no pending or threatened action, suit, proceeding or claim by others, either domestically or internationally, that the Company is violating any patents, patent rights, rights thereto or other proprietary rights of others; or otherwise challenging the validity or scope of any such patents, patent rights, rights, patent rights and other proprietary rights thereto of others or other proprietary rights. In addition, such counsel shall state that, although they have not verified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel that caused them to believe that, at the time the Registration Statement became effective the description of the Company's patents, patent rights and other proprietary rights matters and the statements made under the captions "Risk Factors--Reliance on Patents and Protection of Proprietary Rights" and "Business--Patents and Proprietary Rights" in the Registration Statements and Prospectus contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or the Option Closing Date, as the case may be, the description of the patent, patent rights and other proprietary rights, situation of the Company and the statements made under the captions "Risk Factors--Reliance on Patents and Protection of Proprietary Rights" and Business--Patents and Proprietary Rights" in the Registration Statement and Prospectus contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (f) The Representatives shall have received from Venture Law Group, A Professional Corporation, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect that: (i) the Company is a validly organized and existing corporation under the laws of the State of Delaware, with corporate power and corporate authority to own its property and conduct its business as described in the Prospectus; (ii) the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the 13 Company's Common Stock, have been duly authorized and will be validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the shares of Common Stock including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and nonassessable when issued and paid for as contemplated by this Agreement; (iii) the Registration Statement has become effective under the Act, and to such counsel's knowledge, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act; (iv) the Registration Statement, all Preliminary Prospectuses, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable Rules and Regulations thereunder (except that such counsel need express no opinion as to the financial statements, notes thereto and related schedules and the other financial information and statistical data included therein); and (v) this Agreement has been duly authorized, executed and delivered by the Company. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which causes them to believe that the Registration Statement, the Prospectus or any amendment thereto contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any amendment or supplement thereto, at the time it was filed pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to the financial statements, notes thereto and related schedules and the other financial information and statistical data included therein). With respect to such statement, such counsel may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (g) The Representatives shall have received at or prior to the Closing Date from Venture Law Group, A Professional Corporation, a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the state securities or blue sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (h) The Representatives shall have received on the effective date of the Registration Statement, the Closing Date or the Option Closing Date, as the case may be, a signed letter from Ernst & Young LLP, dated the effective date of the Registration Statement, the Closing Date or the Option Closing Date, as the case may be, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter signed by such firm and dated and delivered to the Representatives on the date hereof, that nothing has come to their attention during the period from the date five days prior to the date hereof, to a date not more than five days prior to the Closing Date or the Option Closing Date, as the case may be, which would require any change in their letter dated the date hereof if it were required to be dated and delivered on the Closing Date or the Option Closing Date, as the case may be. All such letters shall be in form and substance satisfactory to the Representatives. (i) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them as an officer of the Company severally represents as follows: (A) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and, to his knowledge, no proceedings for such purpose have been taken or are contemplated by the Commission. (B) He does not know of any litigation instituted or threatened against the Company of a character required to be disclosed in the Registration Statement which is not so disclosed; he 14 does not know of any material contract required to be filed as an exhibit to the Registration Statement or the Incorporated Documents, which is not so filed; and the representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be. (C) When the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto and the Incorporated Documents, when such Incorporated Documents became effective or were filed with the Commission, contained all material information required to be included therein by the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, the Registration Statement, and any amendment or supplement thereto, did not and does not include any 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, the Prospectus, and any amendment or supplement thereto, did not and does not include any 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 under which they were made, not misleading, and, 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; and (D) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (a) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (b) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (f) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (j) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties contained herein and related matters as the Representatives may reasonably have requested. (k) The Firm Shares and the Option Shares, if any, have been approved for quotation on the Nasdaq National Market. (l) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, a letter from Ernst & Young LLP addressed to the Company and the Underwriters, dated the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, confirming that they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable published Rules and Regulations and based upon the procedures described in such letter delivered to you concurrently with the execution of this Agreement (herein called the "Original Letter"), but carried out to a date not more than five (5) business days prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, (i) confirming, to the extent true, that the statements 15 and conclusions set forth in the Original Letter are accurate as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter which are necessary to reflect any changes in the facts described in the Original Letter since the date of such letter, or to reflect the availability of more recent financial statements, data or information. The letter shall not disclose any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. The Original Letter from Ernst & Young LLP shall be addressed to or for the use of the Underwriters in form and substance satisfactory to the Underwriters and shall (i) represent, to the extent true, that they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable published Rules and Regulations, (ii) set forth their opinion with respect to their examination of the balance sheets of the Company for the periods from inception to March 31, 1993 and for the periods for years ended March 31, 1994 to March 31, 1997 and related statements of operations, shareholders' equity, and cash flows for the periods from inception to 1993 and for the twelve (12) months each of the periods ended March 31, 1994 to March 31, 1997, (iii) state that Ernst & Young LLP has performed the procedure set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim financial information and providing the report of Ernst & Young LLP as described in SAS 71 on the financial statements for each of the quarters ended September 30, 1996 and 1997, and (iv) address other matters agreed upon by Ernst & Young LLP and you. In addition, you shall have received from Ernst & Young LLP a letter addressed to the Company and made available to you for the use of the Underwriters stating that their review of the Company's system of internal accounting controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's financial statements as of March 31, , did not disclose any weaknesses in internal controls that they considered to be material weaknesses. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Venture Law Group, A Professional Corporation, counsel for the Underwriters. If any of the conditions herein above provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in or incorporated by reference into the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or 16 necessary to make the statements therein not misleading, and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; PROVIDED, HOWEVER, that (i) the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in or incorporated by reference into 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 or through the Representatives specifically for use in the preparation thereof (which the parties hereto agree is limited solely to that information contained on the cover page of the Preliminary Prospectus or Prospectus or in the section thereof entitled "Underwriting"); and (ii) that the Company shall not be liable to any Underwriter with respect to any Preliminary Prospectus to the extent that any loss, claim, damage or liability of such Underwriter results from the fact that such Underwriter sold Shares to a person to whom there was not given or sent, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act if the Company has previously furnished copies thereof to such Underwriter and the loss, claim, damage or liability of such Underwriter results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was corrected in the Prospectus (or the Prospectus as amended or supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in or incorporated by reference into 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 the 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 any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; PROVIDED, HOWEVER, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in or incorporated by reference into the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof (which the parties hereto agree is limited solely to that information contained on the cover page of the Preliminary Prospectus or Prospectus or in the section thereof entitled "Underwriting"). This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the 17 indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (in the reasonable judgment of such indemnified party) and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them (based on advise of counsel to the indemnified party). It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Sections 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8(c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company 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 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 on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were 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 above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting 18 discounts and commissions applicable to the Shares purchased by such Underwriter, and (ii) 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 Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, including any document incorporated by reference therein, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. 9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), you, as Representatives of the Underwriters, shall use your best efforts to procure within 24 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 24 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 24-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the nondefaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered or telegraphed and confirmed as follows: if to the Underwriters to BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Syndicate; and if to the Company, to Perclose, Inc., 199 Jefferson Drive, Menlo Park, California, Attention: Henry A. Plain, Jr. 11. TERMINATION. This Agreement may be terminated by you by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 A.M., Baltimore time, on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in 19 or affecting the condition, financial or otherwise, of the Company or the earnings, business affairs, or management of the Company, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency after the date hereof or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make the offering or delivery of the Shares impracticable, (iii) suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or number of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or will materially or adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by either federal or New York State authorities, or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. This Agreement may also be terminated by you, by notice to the Company, as to any obligation of the Underwriters to purchase the Option Shares, upon the occurrence at any time prior to the Option Closing Date of any of the events described in subparagraph (b) above or as provided in Sections 6 and 9 of this Agreement. 12. SUCCESSORS. This Agreement has been and is made solely for the benefit of the Underwriters, and the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares merely because of such purchase. 13. MISCELLANEOUS. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. 20 If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, PERCLOSE, INC. By: ----------------------------------- Henry A. Plain, Jr. President and Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED PIPER JAFFRAY INC. As Representatives of the several Underwriters listed on Schedule I By: BT ALEX. BROWN INCORPORATED By -------------------------------- Authorized Officer 21 SCHEDULE I SCHEDULEOF UNDERWRITERS
NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED - ------------------------------------------------------------------------------------------------ ---------------- BT Alex. Brown Incorporated..................................................................... Piper Jaffray Inc............................................................................... ---------------- Total......................................................................................... 1,000,000 ---------------- ----------------
EX-5.1 3 EX 5.1 -- OPINION OF WILSON, SONSINI EXHIBIT 5.1 November 5, 1997 Perclose, Inc. 199 Jefferson Drive Menlo Park, CA 94025 RE: REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 filed by you with the Securities and Exchange Commission (the "Commission") on or about November 5, 1997 (as such may be further amended or supplemented, the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of up to 1,150,000 shares of your Common Stock (the "Shares"). The Shares, which include up to 150,000 shares of Common Stock issuable pursuant to an over-allotment option granted to the underwriters (the "Underwriters"), are to be sold to the Underwriters as described in such Registration Statement for sale to the public. As your counsel in connection with this transaction, we have examined the proceedings proposed to be taken by you in connection with the issuance and sale of the Shares. Based on the foregoing, it is our opinion that, upon conclusion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares and upon completion of the proceedings taken in order to permit such transactions to be carried out in accordance with the securities laws of various states where required, the Shares, when issued and sold in the manner described in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, which has been approved by us, as such may be further amended or supplemented, or incorporated by reference in any Registration Statement relating to the prospectus file pursuant to Rule 462(b) of the Act. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-23.1 4 EX 23.1 -- CONSENT OF ERNST & YOUNG EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" in the Registration Statement (Form S-3) and related Prospectus of Perclose, Inc. for the registration of 1,150,000 shares of its common stock and to the incorporation by reference therein of our reports dated April 25, 1997, with respect to the financial statements of Perclose, Inc. incorporated by reference in its Annual Report (Form 10-K) for the year ended March 31, 1997 and the related financial statement schedule included therein, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP San Jose, California November 3, 1997 EX-27.1 5 EX 27.1
5 6-MOS MAR-31-1998 APR-01-1997 SEP-30-1997 2,627,556 15,355,441 1,331,838 0 1,134,389 21,721,666 4,119,418 2,003,035 24,643,333 2,897,094 0 0 0 9,626 21,736,613 24,643,333 2,379,795 2,379,795 3,249,358 11,355,245 8,105,887 0 92,380 (8,362,867) 0 (8,362,867) 0 0 0 (8,362,867) (.87) (.87)
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