As filed with the Securities and Exchange Commission on August 4, 2004.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EPIX MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3030815
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
71 ROGERS STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 250-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael D. Webb
Chief Executive Officer
EPIX Medical, Inc.
71 Rogers Street
Cambridge, Massachusetts 02142
(617) 250-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
William T. Whelan, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
(617) 542-6000
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, 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
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Note Price(1) Registration Fee
---------------------------------------------------------------------------------------------------------------
3.00% Convertible Senior
Notes due 2024............... $ 100,000,000(1) 100% $ 100,000,000 $ 12,670
---------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value per share 3,359,086(2) (3) (3) (3)
---------------------------------------------------------------------------------------------------------------
(1) Equals the aggregate principal amount of the securities being registered.
(2) Such number represents the number of shares of common stock that are
currently issuable upon conversion of the notes. Pursuant to Rule 416 under the
Securities Act, we are also registering such indeterminate number of shares of
common stock as may be issued from time to time upon conversion of the notes as
a result of the antidilution protections of the notes.
(3) Pursuant to Rule 457(i) under the Securities Act, no registration fee is
payable with respect to the shares of the Registrant's common stock issuable
upon conversion of the notes because no additional consideration will be
received by the Registrant in connection with the exercise of the conversion
privilege.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND THE SELLING HOLDERS ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, dated August 4, 2004
[EPIX LOGO]
$100,000,000 PRINCIPAL AMOUNT OF 3.00% CONVERTIBLE SENIOR NOTES DUE 2024
----------
3,359,086 SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE NOTES
----------
EPIX MEDICAL, INC.
----------
We issued $100,000,000 aggregate principal amount of our 3.00%
Convertible Senior Notes due 2024 in a private placement on June 7, 2004. The
initial purchasers resold the notes to qualified institutional buyers in
accordance with Rule 144A under the Securities Act of 1933, as amended. This
prospectus will be used by the selling security holders from time to time to
resell their notes and the common stock issuable upon the conversion of the
notes. We will not receive any proceeds from the sale of the notes or the shares
of common stock issuable upon the conversion of the notes.
The notes bear interest at the rate of 3.00% per annum, from December
15, 2004, payable semi-annually in arrears on June 15 and December 15 of each
year, beginning December 15, 2004.
The notes will mature on June 15, 2024. We may redeem some or all of
the notes at any time after June 15, 2009 at the redemption prices specified in
this prospectus plus accrued and unpaid interest and additional interest, if
any, to, but excluding, the date of redemption.
Holders of the notes have the right to require us to repurchase the
notes at a purchase price equal to 100% of the principal amount of the notes
plus accrued and unpaid interest, if any, on June 15, 2011, 2014 and 2019 or
upon a termination of trading or a change of control event, each as described in
this prospectus.
Holders of the notes may convert the notes into shares of our common
stock only in the following circumstances:
- if the price of our common stock reaches a specified threshold
over a specified period as described in this prospectus;
- if the notes are called for redemption;
- if we make specified distributions on our common stock or engage
in specified corporate transactions; and
- at any time before June 15, 2019 if the trading price of the notes
falls below certain thresholds.
The initial conversion price is $29.77 per share (equivalent to an
initial conversion rate of approximately 33.5909 shares per $1,000 principal
amount of the notes), subject to adjustment in certain circumstances. Our common
stock is traded on the Nasdaq National Market under the symbol "EPIX." The last
reported closing price of our common stock on August 3, 2004 was $17.33 per
share.
The notes are unsecured and will rank equally with all existing and
future unsecured senior indebtedness except that the notes are subordinated to
certain senior indebtedness described in this prospectus. The notes will rank
senior in right of payment to all existing and future unsecured subordinated
debt.
For a more detailed description of the notes, see the "Description of
Notes" beginning on page 20.
----------
Our address is EPIX Medical, Inc., 71 Rogers Street, Cambridge,
Massachusetts, and our telephone number is (617) 250-6000.
INVESTING IN THE NOTES OR OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The date of this prospectus is ________, 2004
================================================================================
TABLE OF CONTENTS
PAGE
Prospectus Summary................................. 1
Risk Factors....................................... 6
Ratio of Earnings to Fixed Charges................. 19
Forward-Looking Statements......................... 19
Use of Proceeds.................................... 19
Description of Notes............................... 20
Description of Capital Stock....................... 36
Certain U.S. Federal Income Tax Consequences....... 37
Selling Holders.................................... 45
Plan of Distribution............................... 47
Legal Matters...................................... 48
Experts............................................ 48
Where You Can Find More Information................ 48
Incorporation of Documents By Reference............ 48
================================================================================
You should rely only on the information provided or incorporated by reference in
this prospectus or any prospectus supplement. Neither we nor the selling holders
have authorized anyone to provide you with additional or different information.
The selling holders are not making an offer of these securities in any
jurisdiction where the offer is not permitted. You should assume that the
information in this prospectus and any prospectus supplement is accurate only as
of the date on the front of the document and that information incorporated by
reference in this prospectus or any prospectus supplement is accurate only as of
the date of the document incorporated by reference. In this prospectus and any
prospectus supplement, unless otherwise indicated, "we," "us" and "our" refer to
EPIX Medical, Inc., and do not refer to the selling holders.
"EPIX," "EPIX Medical" and the "EPIX" logo are trademarks and registered
trademarks of EPIX Medical, Inc. All other trademarks appearing in this
prospectus are the property of their holders.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION ABOUT EPIX MEDICAL, INC. BECAUSE THIS
IS A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE NOTES OR THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION. YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY.
EPIX MEDICAL, INC.
We are a leading developer of targeted contrast agents, designed to improve
the diagnostic quality of images produced by magnetic resonance imaging, or MRI.
MRI has been established as the imaging technology of choice for a broad range
of applications, including the identification and diagnosis of a variety of
medical disorders. MRI is safe, relatively cost-effective and provides
three-dimensional images that enable physicians to diagnose and manage disease
in a minimally invasive manner. We are currently developing two products for use
in MRI to improve the diagnosis of multiple cardiovascular diseases affecting
the body's arteries and veins, collectively known as the vascular system. In
December 2003, we submitted a New Drug Application, or NDA, for MS-325, our
principal product under development, to the U. S. Food and Drug Administration,
or FDA. In February 2004, we were notified by the FDA that the NDA for MS-325
had been accepted for filing and is under review. The target date for the first
FDA action in the standard review cycle is ten months from the date of
submission. In June 2004, Schering AG, our sales and marketing partner,
submitted MS-325 for marketing approval in the European Union. We are working
closely with Schering AG to prepare for the MS-325 launch following any FDA or
EU approval.
OUR PRODUCT CANDIDATES
MS-325. Our principal product under development, MS-325, is designed to
provide visual imaging of the vascular system, through a type of MRI known as
magnetic resonance angiography, or MRA. We believe that MS-325-enhanced MRA has
the potential to improve the diagnosis of multiple diseases of the vascular
system, including vascular disease outside the heart, known as peripheral
vascular disease, and diseases that affect the coronary arteries and reduce
blood flow to the heart. Our initial target indication for MS-325 is for use in
MRA imaging of peripheral vascular disease. We are also developing MS-325 for
imaging the coronary arteries and the heart and initiated Phase II cardiac
studies in July 2004.
We believe that MS-325 will significantly enhance the quality of MRI and
provide physicians with a minimally-invasive and cost-effective method for
diagnosing vascular disease. We also believe that MS-325-enhanced MRA has the
potential to simplify the diagnosis of vascular disease and to replace a
significant portion of X-ray angiographic procedures, a highly invasive and
expensive catheter-based method most frequently used for the detection of
vascular disease. In 2003, approximately 8.5 million angiographic procedures
were performed in the U.S. for the diagnosis of diseases of the vascular system,
of which 4.6 million procedures were by way of X-ray angiography. We believe
that MS-325-enhanced MRA will be a less invasive method of imaging a patient's
vascular anatomy for the evaluation of disease.
CLINICAL TRIAL RESULTS AND NEW DRUG APPLICATION, OR NDA. We have submitted
an NDA for MS-325 based on a 780-patient Phase III clinical trial program
designed to test the safety and efficacy of MS-325 for the imaging of peripheral
vascular disease. We conducted four Phase III trials to determine the efficacy
of MS-325-enhanced MRA for the detection of vascular disease in the lower
abdomen and pelvic regions, in the renal arteries of the kidneys and in the
pedal arteries of the feet. All four trials in the Phase III program for MS-325
met their primary endpoints.
MRI IN THE DIAGNOSIS OF VASCULAR DISEASE. The use of MRI has grown steadily
over the past 10 years due to reduced cost and improved imaging capabilities.
MRI provides an effective method for diagnosing a broad range of diseases. MRI
manufacturers have improved both the hardware and software used in their
systems, reducing the procedure time and significantly enhancing image
resolution. While MRI is currently used extensively to image many organs and
tissues in the body, its use in imaging the vascular system has been limited.
Currently available MRI contrast agents for MRA are not optimal for the
diagnosis of vascular disease in many vascular beds due to the rapid leakage of
the injectable contrast agent from the vascular system into the surrounding
tissue, usually within 30 to 60 seconds. As a result of this leakage, the time
available to image blood vessels with these contrast agents is too short to
obtain the high resolution images necessary for broad clinical application. In
addition, performance of MRA using currently approved contrast agents generally
requires specialized equipment and specially trained staff. None of the
currently available MRI contrast agents
1
is approved by the FDA for use in MRA. In 2003, approximately 2.7 million MRAs
were performed in the U.S., an increase of 22% over 2002.
MS-325-ENHANCED MRA. MS-325 is specifically designed to enhance the quality
of magnetic resonance images of the arteries and veins and to provide physicians
with a superior method for diagnosing vascular disease. MS-325 is a small
molecule, which produces an MRI signal because of the presence of gadolinium, a
magnetically active element favored by clinicians for enhancing magnetic
resonance images. MS-325 is designed with our proprietary technology to bind
reversibly to albumin, the most common protein in the blood. Using standard MRI
techniques, MS-325-enhanced MRA produces a strong magnetic signal, resulting in
bright images of the blood against the dark background of surrounding tissue.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam, providing the extended, approximately
60-minute image time and signal strength required to obtain a high resolution
image of multiple regions of the vascular system. Like most currently available
general use MRI contrast agents, MS-325 is designed to be safely eliminated from
the body through the kidneys over time. In addition, in clinical studies of
renally-compromised patients, MS-325 appeared safe and well tolerated, a
potentially important feature given the renal risks of X-ray angiography.
EP-2104R. We are developing a second targeted contrast agent, EP-2104R,
which is designed to illuminate and identify blood clots using MRI. Finding
blood clots is of critical medical significance in the evaluation and diagnosis
of patients with stroke, chest pain, heart attack, irregular heartbeat and clots
in the lungs and legs. We designed EP-2104R to bind reversibly to fibrin, the
dominant protein found in clots. In pre-clinical studies, EP-2104R has been
shown to enhance the ability of MRI to image clots. We plan to commence human
trials of EP-2104R in the second half of 2004.
OUR STRATEGIC COLLABORATIONS
We have established collaborations with large pharmaceutical companies to
enhance our internal development capabilities and to offset a substantial
portion of the financial risk of developing our product candidates. At the same
time, we maintain substantial rights to product candidates covered by these
collaborations, which provide us the opportunity to participate in a significant
portion of the potential economic benefit from their successful development and
commercialization. Our most significant collaborations involve Schering AG for
the development and commercialization of MS-325, EP2104R and for the discovery
of other MRI contrast agents. We have also formed collaborations with the three
leading MRI scanner manufacturers, GE Medical Systems (now GE Healthcare),
Philips Medical Systems and Siemens Medical Systems, to develop advanced imaging
techniques and tools designed to facilitate the use of MS-325-enhanced MRA.
OUR STRATEGY
Our objective is to become a worldwide leader in MRI contrast agents by
developing and commercializing products using our proprietary technology
platform. We intend to pursue this strategy through internal product development
efforts, collaborations with strategic partners and by acquiring the rights to
complementary technologies. We also intend to expand the potential applications
for our current product candidates. We believe we can build on our leadership in
developing targeted contrast agents for MRI through further research and
development programs in cardiovascular imaging and therapeutics. In addition, we
intend to consider other opportunities to expand beyond MRI.
CORPORATE INFORMATION
We incorporated in Delaware in 1988 and commenced operations in 1992. Our
principal executive offices are located at 71 Rogers Street, Cambridge,
Massachusetts 02142-1118 and our telephone number is (617) 250-6000. Our website
is located at http://www.epixmed.com. Our Corporate Code of Conduct and Ethics
as well as our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K and all amendments to these reports, which have been
filed with the SEC, are available to you free of charge through the Investor
Relations section on our website as soon as reasonably practicable after such
materials have been electronically filed with, or furnished to, the SEC. We do
not intend for the other information contained in our website to be considered a
part of this prospectus.
2
THE OFFERING
Issuer......................... EPIX Medical, Inc.
Notes Offered.................. $100,000,000 aggregate principal amount of 3.00% Convertible Senior Notes due 2024.
Issue Price.................... The notes have been issued at a price of 100% of their principal amount, which is
$1,000 per note, plus accrued interest, if any, from December 15, 2004.
Maturity Date.................. June 15, 2024
Ranking...................... The notes will:
- be our senior unsecured obligations;
- be subordinated in right of payment to up to $15,000,000 plus accrued and unpaid
interest on existing and future indebtedness under our Loan Agreement, dated May
26, 2003, as amended, with Schering AG, referred to as our Schering AG loan
facility;
- rank on parity in right of payment with all of our existing and future senior
debt other than our Schering AG loan facility; and
- rank senior in right of payment to all of our future debt that is subordinated to
the notes.
The notes also are effectively subordinated in right of payment to our existing and
future secured debt, to the extent of such security, and will be effectively
subordinated in right of payment to any liabilities of any subsidiary that we may
create in the future.
Interest....................... The notes will bear interest at 3.00% per annum on the principal amount of the notes,
payable semi-annually in arrears on June 15 and December 15 of each year, beginning
December 15, 2004.
Conversion Rights.............. You may convert the notes into shares of our common stock at a conversion rate of
33.5909 shares per $1,000 principal amount of notes (which represents an initial
conversion price of $29.77 per share), subject to adjustment, prior to the close of
business on the final maturity date under any of the following circumstances:
- during any fiscal quarter prior to June 15, 2019, if the closing sale price of
our common stock for at least 20 trading days in the period of 30 consecutive
trading days ending on the eleventh trading day of any fiscal quarter is more
than 120% of the conversion price in effect on such eleventh trading day
(initially 120% of $29.77, or $35.72);
- if the notes are called for redemption;
- if we make specified distributions on our common stock or engage in specified
corporate transactions; or
3
- during the five trading day period immediately following any five consecutive
trading day period in which the average trading price per $1,000 principal amount
of the notes for such five day period is less than 98% of the product of the
closing sale price of our common stock on a given day multiplied by the number of
shares of common stock into which each $1,000 principal amount of the notes is
convertible.
See "Description of Notes - Conversion of Notes."
Redemption..................... On or after June 15, 2009, we may redeem the notes, in whole or in part, at the
following percentages of the principal amount of the notes, plus accrued and unpaid
interest and additional interest, if any, to, but excluding, the redemption date:
DATE REDEMPTION PRICE
---- ----------------
June 15, 2009 to June 14, 2010.................. 100.857%
June 15, 2010 to June 14, 2011.................. 100.429%
June 15, 2011 and thereafter.................... 100.000%
We will give you at least 20 days' notice of any such redemption. If we redeem the
notes in whole or in part, other than a redemption of less than $7.5 million in
cumulative principal amount of the notes, then we will be required to repay the then
outstanding principal amount, together with accrued and unpaid interest, under our
Schering AG loan facility.
Repurchase at the Option of
the Holder................. You may require us to repurchase the notes, in whole or in part, on June 15, 2011,
2014 and 2019 for a repurchase price equal to 100% of the principal amount of the
notes plus accrued and unpaid interest and additional interest, if any, to, but
excluding, the date of redemption. Before we repurchase the notes in whole or in
part, we will be required to repay the then outstanding principal amount, together
with accrued and unpaid interest, under our Schering AG loan facility.
Sinking Fund................... None.
Repurchase at the Option of
the Holder Upon a
Designated Event.......... Upon a change in control or a termination of trading (each as defined under
"Description of Notes--Repurchase at the Option of the Holder Upon a Designated
Event"), each holder of the notes may require us to repurchase some or all of its
notes at 100% of the principal amount of the note, plus accrued and unpaid interest
and additional interest, if any, to, but excluding, the date of redemption. Upon a
change in control we may, at our option, elect to pay the repurchase price in cash,
shares of our common stock valued at a discount of 5% from the market price of our
common stock, or any combination thereof, subject to our satisfaction of the
conditions set forth in "Description of Notes--Repurchase at the Option of the Holder
Upon a Designated Event." Upon a termination of trading we will pay the repurchase
price in cash. Before we repurchase the notes in whole or in part for cash, we will
be required to repay the then outstanding principal amount, together with accrued and
unpaid interest, under our Schering AG loan facility.
Registration Rights............ We have agreed to use our reasonable best efforts to keep a shelf registration
statement with respect to the resale of the notes and shares of common stock
4
issuable upon conversion of the notes effective during the periods specified in
"Description of Notes - Registration Rights."
Additional Interest............ If the prospectus included in the shelf registration statement is suspended for more
than 30 days in any three-month period or more than 90 days in any 12-month period,
additional interest will accrue equal to 0.25% per annum for the first 90 days from
and including the date on which the registration default has occurred, and 0.50% per
annum as additional interest on the notes from and including the 91st day after the
registration default, to, but excluding, the date on which the registration default
is cured. Additional interest will be paid semi-annually in arrears.
DTC Eligibility................ The notes have been issued in book-entry form and will be represented by one or more
permanent global certificates deposited with a custodian for and registered in the
name of a nominee of the Depository Trust Company, or DTC, in New York, New York.
Beneficial interests in the notes will be shown on, and transfers will be effected
only through, records maintained by DTC and its direct and indirect participants. Any
such interest may not be exchanged for certificated securities, except in limited
circumstances. See "Description of Notes - Global Note, Book-Entry Form."
Trading ...................... The notes are not listed on any national securities exchange. The notes are eligible
for trading on The PORTAL(SM) Market; however, we provide no assurance as to the
liquidity of, or trading markets for, the notes.
Absence of a Public Market..... There is currently no public market for the notes. An active or liquid market may not
develop for the notes.
Nasdaq National Market Symbol
Of our Common Stock....... "EPIX."
5
RISK FACTORS
INVESTING IN OUR SECURITIES INVOLVES RISKS THAT RELATE TO US, THE
SECURITIES BEING OFFERED UNDER THIS PROSPECTUS, THE INDUSTRY IN WHICH WE
OPERATE, GENERAL ECONOMIC CONDITIONS AND OTHER MATTERS. A NUMBER OF RISKS THAT
RELATE TO THE SECURITIES OFFERED UNDER THIS PROSPECTUS ARE SET FORTH BELOW.
BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER THESE RISKS
AS WELL AS OTHER INFORMATION WE INCLUDE OR INCORPORATE BY REFERENCE IN THIS
PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
WE HAVE NEVER GENERATED REVENUES FROM COMMERCIAL SALES OF OUR PRODUCTS, AND IF
MS-325 DOES NOT RECEIVE APPROVAL FROM THE FOOD AND DRUG ADMINISTRATION (FDA), WE
WILL HAVE NO PRODUCTS TO MARKET IN THE FORESEEABLE FUTURE.
We currently have no products for sale and we cannot guarantee that we
will ever have marketable products. MS-325 is currently our only product
candidate that has undergone human clinical trials and we cannot be certain that
any of our other development projects will yield a product candidate suitable
for substantial human clinical testing. As a result, our initial revenues and
profits from commercial sales of our products, if any, will be derived from
sales of MS-325. If MS-325 fails to achieve regulatory approval and market
acceptance, and if we do not succeed in bringing any of our other product
candidates to human clinical trials and achieve regulatory approval and market
acceptance for them, our business will fail, and as a result, you may lose all
or part of your investment.
To date, we have received revenues from payments made under licensing,
royalty arrangements, and product development and marketing agreements with
strategic collaborators. In particular, our revenue for the six months ended
June 30, 2004 was $6.9 million and consisted of $4.6 million from the product
development portion of our collaboration agreements with Schering AG for MS-325,
EP-2104R and MRI research, $1.9 million from a patent licensing and royalty
agreement with Bracco and $348,000 of license fee revenue related to the
strategic collaboration agreements for the development, manufacturing and
marketing of MS-325 with Schering AG and Tyco/Mallinckrodt. In addition to these
sources of revenue, we have financed our operations to date through public stock
offerings, private sales of equity securities, debt financing and equipment
lease financings.
Although we are currently in compliance with the terms of our
collaboration agreements, the revenues derived from them are subject to
fluctuation in timing and amount. We may not receive anticipated revenue under
our existing collaboration or licensing agreements and, additionally, these
agreements may be terminated upon certain circumstances. Therefore, to achieve
profitable and sustainable operations, we, alone or with others, must
successfully develop, obtain regulatory approval for, introduce, market and sell
products. We may not receive revenue from the sale of any of our product
candidates for the next several years because we may not:
- successfully complete our product development efforts;
- obtain required regulatory approvals in a timely manner, if at
all;
- manufacture our product candidates at an acceptable cost and with
acceptable quality; or
- successfully market any approved products.
As a result, we may never generate revenues from sales of our product
candidates and our failure to generate positive cash flow could cause our
business to fail.
WE ANTICIPATE FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
Our future financial results are uncertain. We have experienced
significant losses since we commenced operations in 1992. Our accumulated net
losses as of June 30, 2004 were approximately $144 million. These losses have
primarily resulted from expenses associated with our research and development
activities, including pre-clinical and clinical trials, and general and
administrative expenses. We anticipate that our research and development
expenses will remain significant in the future, and we expect to incur losses
over at least the next two years as we continue our research and development
efforts, pre-clinical testing and clinical trials and as we implement
manufacturing, marketing and sales
6
programs. As a result, we cannot predict when we will become profitable, if at
all, and if we do, we may not remain profitable for any substantial period of
time. If we fail to achieve profitability within the timeframe expected by
investors, the market price of our common stock may decline and consequently our
business may not be sustainable.
IF THE MARKET DOES NOT ACCEPT OUR TECHNOLOGY AND PRODUCTS, WE MAY NOT GENERATE
SUFFICIENT REVENUES TO ACHIEVE OR MAINTAIN PROFITABILITY.
The commercial success of MS-325 and our other product candidates, when
and if approved for marketing by the FDA and corresponding foreign agencies,
depends on their acceptance by the medical community and third party payors as
clinically useful, cost-effective and safe. While contrast agents are currently
used in an estimated 25% to 35% of all MRI exams, there are no MRI agents
approved by the FDA for vascular imaging. Furthermore, clinical use of MRA has
been limited and use of MRA for some vascular disease imaging has occurred
mainly in research and academic centers. Market acceptance, and thus sales of
our products, will depend on several factors, including:
- safety;
- cost-effectiveness relative to alternative vascular imaging
methods;
- availability of third party reimbursement;
- ease of administration;
- clinical efficacy; and
- availability of competitive products.
Market acceptance will also depend on our ability and that of our
strategic partners to educate the medical community and third party payors about
the benefits of diagnostic imaging with MRA enhanced with MS-325 compared to
imaging with other technologies. MS-325 represents a new approach to imaging the
non-coronary vascular system, and market acceptance both of MRA as an
appropriate imaging technique for the non-coronary vascular system, and of
MS-325, is critical to our success. If MS-325 or any of our other product
candidates, when and if commercialized, do not achieve market acceptance, we may
not generate sufficient revenues to achieve or maintain profitability.
WE MAY NEED TO RAISE ADDITIONAL FUNDS NECESSARY TO FUND OUR OPERATIONS, AND IF
WE DO NOT DO SO, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
Since inception, we have funded our operations primarily through our
public offerings of common stock, private sales of equity securities, debt
financing, equipment lease financings and product development revenue, royalty
and license payments from our strategic partners. Although we believe that we
have adequate funding for the foreseeable future, we may need to raise
substantial additional funds for research, development and other expenses,
through equity or debt financings, strategic alliances or otherwise. Our future
liquidity and capital requirements will depend upon numerous factors, including
the following:
- the progress and scope of clinical trials;
- the timing and costs of filing future regulatory submissions;
- the timing and costs required to receive both U.S. and foreign
governmental approvals;
- the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights;
- the extent to which our products gain market acceptance;
- the timing and costs of product introductions;
- the extent of our ongoing and any new research and development
programs;
7
- the costs of training physicians to become proficient with the use
of our products; and
- the costs of developing marketing and distribution capabilities.
Based on our current plans, expense rates, targeted timelines and our
view regarding acceptance of MS-325 in the marketplace, we estimate that cash,
cash equivalents and marketable securities on hand as of June 30, 2004 will be
sufficient to fund our operations until we turn cash flow positive. If we
consider other opportunities or change our planned activities, we may require
additional funding. As of June 30, 2004, we had outstanding the entire $15.0
million loan facility available from Schering AG as part of our MRI research
collaboration. We repaid the $15.0 million loan, plus accrued interest, in July
2004, but expect to redraw the $15.0 million loan as needed. We could be unable
to draw under the terms of the loan if we fail to meet certain covenants or
conditions precedent in the loan.
WE HAVE A LIMITED MANUFACTURING CAPABILITY AND WE INTEND TO RELY ON OUTSOURCED
MANUFACTURING TO PRODUCE MS-325.
We do not have, nor do we currently have plans to develop, full-scale
manufacturing capability for MS-325. While we have manufactured small amounts of
MS-325 for research and development efforts, we rely on, and we intend to
continue to rely on, Tyco/Mallinckrodt as the primary manufacturer of MS-325 for
any future human clinical trials and commercial use. In the event that
Tyco/Mallinckrodt fails to fulfill its manufacturing responsibilities
satisfactorily, Schering AG has the right to purchase MS-325 from a third party
or to manufacture the compound itself. However, either course of action could
materially delay the manufacture and development of MS-325. Schering AG may not
be able to find an alternative manufacturer. In addition, Schering AG may not be
able to manufacture MS-325 itself in a timely manner. If we experience a delay
in manufacturing, it could result in a delay in the approval or
commercialization of MS-325 and have a material adverse effect on our business,
financial condition and results of operations.
IF MRI MANUFACTURERS ARE NOT ABLE TO ENHANCE THEIR HARDWARE AND SOFTWARE
SUFFICIENTLY, WE WILL NOT BE ABLE TO COMPLETE DEVELOPMENT OF OUR CONTRAST AGENT
FOR THE EVALUATION OF CARDIAC INDICATIONS.
Although MRI hardware and software is sufficient for the evaluation of
non-coronary vascular disease, which is our primary target indication, we
believe that the technology is not as advanced for cardiac applications, which
will be our next clinical development target. Our initial NDA filing for MS-325
will be related to non-coronary vascular disease. Imaging sequences on scanners
currently allow for the use of MS-325-enhanced MRA for diagnosing non-coronary
vascular disease, our lead indication. Based on feasibility studies we completed
in 2001, however, the imaging technology available for cardiac applications,
including coronary angiography and cardiac perfusion imaging, was not developed
to the point where there was clear visualization of the cardiac region, due to
the effects of motion from breathing and from the beating of the heart. We
recently initiated feasibility studies for cardiac indications using available
software and hardware that can be adapted for coronary and cardiac perfusion
data acquisition. We have entered into research collaborations with GE
Healthcare, Siemens Medical Systems and Philips Medical Systems that include
development and optimization of cardiac imaging sequences with contrast agents
like MS-325. We have also collaborated with a number of leading academic
institutions to help optimize cardiac imaging with MS-325. While significant
progress has been made in developing these clinical applications for cardiac
imaging, we do not know when, or if, these techniques will enable MS-325 to
provide clinically relevant images in cardiac indications. If MRI device
manufacturers are not able to enhance their scanners to perform clinically
useful cardiac imaging, we will not be able to complete our development
activities of MS-325 for that application, thereby reducing the potential market
for a product in this area.
OUR COMPETITORS MAY HAVE GREATER FINANCIAL RESOURCES, SUPERIOR PRODUCTS OR
PRODUCT CANDIDATES, MANUFACTURING CAPABILITIES AND/OR MARKETING EXPERTISE, AND
WE MAY NOT BE ABLE TO COMPETE WITH THEM SUCCESSFULLY.
Medical technology is subject to intense competition and rapid
technological change. We have many competitors, including pharmaceutical,
biotechnology and chemical companies, a number of which, including our strategic
partners, are actively developing and marketing products that could compete with
our product candidates. Specifically, although there are no MRI contrast agents
that are FDA-approved for vascular imaging, there are a number of general use
MRI agents approved for other clinical applications in the U.S. and certain
foreign markets that are likely to compete with MS-325, if MS-325 is approved
for MRA. Collectively, these general use agents are referred to as
"extracellular" agents, and include: Magnevist(R) and Gadovist(R) by Schering
AG, Dotarem(R) by Guerbet, S.A., Omniscan(R) by Amersham Health, ProHancE(R) and
MultiHance(R) by Bracco and OptiMark(R) by Tyco/Mallinckrodt. Extracellular
agents are broadly accepted in the market as general use MRI agents. None of
these agents is currently approved by the FDA for MRA, but
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their use in applications outside of the primary indication described in the
product labeling is increasing and could present significant adoption hurdles
for MS-325 if such uses become entrenched in the marketplace. Additionally, we
believe that some of these general use agents are in clinical trials for an MRA
indication. However, these general use agents are not specifically designed for
vascular imaging, and because they "leak" out of the blood vessels into the
extracellular space, they do not provide the extended imaging window associated
with MS-325. In addition, we are aware of five agents that are under clinical
development for use with MRA: Schering AG's Gadomer-17 and SHU555C, Guerbet's
Vistarem(R), Bracco's B-22956/1 and Advanced Magnetics' Code 7228. Public
information on the status of clinical development and performance
characteristics for these agents is limited. However, many of these competitors
have substantially greater capital and other resources than we do and may
represent significant competition for us. These companies may succeed in
developing technologies and products that are more effective or less costly than
any of those that we may develop. In addition, these companies may be more
successful than we are in developing, manufacturing and marketing products.
Moreover, there are several well-established medical imaging methods
that currently compete and will continue to compete with MRI, including Digital
Subtraction Angiography, or DSA, which is an improved form of X-ray angiography,
computed tomography angiography, or CTA, nuclear medicine and ultrasound, and
there are companies that are actively developing the capabilities of these
competing methods to enhance their effectiveness in cardiovascular system
imaging. DSA is currently considered the clinical gold standard for
cardiovascular angiography, but all methods offer advantages and disadvantages,
which are described in the following table:
ADVANTAGES DISADVANTAGES
---------------------------------------------------------------------------------------------
MRI - Three-dimensional images - Requires high level of training
- Minimally-invasive - Inadvisable for patients with
- Favorable safety profile cardiac pacemakers
- High quality images - Less widely available
CT Angiography - Rapid and easy data acquisition - Radiation
- Varying levels of toxicity
- Calcium and bone artifacts
- Time consuming post-processing
DSA - Significant clinical experience - Invasive
(X-ray angiography) - Opportunity to treat in same - Radiation
procedure - Varying levels of toxicity
- Highest resolution - Significant safety risks
- Two-dimensional images
- Expensive
- Patient recuperation time
Ultrasound - Low cost - Operator dependent
- Fast - Lack of anatomic detail
- Widely available - Bone precludes use in many
- Non-invasive vascular beds
- Inability to visualize small
vessels
We cannot guarantee that we will be able to compete successfully in the
future, or that developments by others will not render MS-325 or our future
product candidates obsolete or non-competitive, or that our collaborators or
customers will not choose to use competing technologies or products. Any
inability to compete successfully on our part will have a materially adverse
impact on our operating results.
9
WE CURRENTLY DEPEND ON OUR STRATEGIC COLLABORATORS FOR SUPPORT IN PRODUCT
DEVELOPMENT AND THE REGULATORY APPROVAL PROCESS, AND, IN THE FUTURE, WILL DEPEND
ON THEM FOR PRODUCT MARKETING SUPPORT AS WELL. THESE EFFORTS MAY SUFFER IF WE
EXPERIENCE PROBLEMS WITH OUR COLLABORATORS.
We depend on strategic collaborators for support in product development
and the regulatory approval process as well as a variety of other activities,
including manufacturing, marketing and distribution of our products in the U.S.
and abroad, when, and if, the FDA and corresponding foreign agencies approve our
product candidates for marketing. To date, we have entered into strategic
alliances and collaborations with Schering AG, Tyco/Mallinckrodt, GE Medical
Systems, Philips Medical Systems and Siemens Medical Systems. Four of our key
agreements include three collaboration agreements with Schering AG, to perform
joint research and to develop and commercialize MS-325, EP-2104R and other MRI
vascular agents worldwide, and an agreement with Tyco/Mallinckrodt, granting
Tyco/Mallinckrodt rights to enter into an agreement with Schering AG to
manufacture MS-325 for clinical development and commercial use. We may not
receive milestone payments from these alliances should MS-325 or EP-2104R fail
to meet certain performance targets in development and commercialization.
Further, our receipt of revenues from strategic alliances is affected by the
level of efforts of our collaborators. Our collaborators may not devote the
resources necessary to complete development, and commence marketing of MS-325,
EP-2104R or other products in their respective territories, or they may not
successfully market MS-325, EP-2104R or other products. In addition, Schering AG
and Tyco/Mallinckrodt currently manufacture imaging agents for other
technologies that will compete against MS-325 and Schering AG will be
responsible for setting the price of the product worldwide. However, Schering AG
may not set prices in a manner that maximizes revenues for us. We are currently
in compliance with the terms of these agreements, and although we have completed
Phase III clinical trials of MS-325, our failure to receive future milestone
payments, or a reduction or discontinuance of efforts by our partners would have
a material adverse effect on our business, financial condition and results of
operations.
Furthermore, our collaboration agreement with Schering AG may be
terminated early under certain circumstances, including if there is a material
breach of the agreement by either of us. In addition, we intend to seek
additional collaborations with third parties, who may negotiate provisions that
allow them to terminate their agreements with us prior to the expiration of the
negotiated term under certain circumstances. If Schering AG or any other third
party collaborator were to terminate its agreement with us or otherwise fail to
perform its obligations under our collaboration or to complete them in a timely
manner, we could lose significant revenue. If we are unable to enter into future
strategic alliances with capable partners on commercially reasonable terms, we
may delay the development and commercialization of future product candidates and
could possibly postpone them indefinitely.
In addition, we rely on certain of our collaborators, such as GE
Healthcare, Siemens Medical Systems and Philips Medical Systems, to develop
software that can be used to enhance or suppress veins or arteries from
MS-325-enhanced MRA images. Although not required for clinical use of MS-325,
the ability to separate veins from arteries using MS-325-enhanced MRA may be
useful to clinicians in reading MS-325-enhanced images for the evaluation of
vascular disease. Therefore, if our collaborators do not develop or implement
the required software successfully, some clinicians may not be able to easily
interpret the information provided from MS-325-enhanced images and therefore may
not be inclined to use the product. Our inability to market MS-325 successfully
to some clinicians may have a material adverse effect on our business.
WE DEPEND ON EXCLUSIVELY LICENSED TECHNOLOGY FROM THE MASSACHUSETTS GENERAL
HOSPITAL AND IF WE LOSE THIS LICENSE, IT IS UNLIKELY WE COULD OBTAIN THIS
TECHNOLOGY ELSEWHERE, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
Under the terms of a license agreement that we have with Massachusetts
General Hospital, or MGH, we are the exclusive licensee to certain technology,
including patents, which relate to our product candidates, including MS-325. The
license agreement imposes various commercialization, sublicensing, royalty and
other obligations on us. If we fail to comply with these and other requirements,
our license could convert from exclusive to nonexclusive or terminate entirely.
It is unlikely that we would be able to obtain this technology elsewhere. Any
such event would mean that we would be unlikely to produce our product
candidates, including MS-325, and would therefore have a material adverse effect
on our business, financial condition and results of operations. Currently, we
are in compliance with the terms of the license agreement, and we do not have
any reason to believe that this license may be terminated.
WE DEPEND ON PATENTS AND OTHER PROPRIETARY RIGHTS, AND IF THEY FAIL TO PROTECT
OUR BUSINESS, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
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The protection of our proprietary technologies is material to our
business prospects. We pursue patents for our product candidates in the United
States and in other countries where we believe that significant market
opportunities exist. We own or have an exclusive license to patents and patent
applications on aspects of our core technology as well as many specific
applications of this technology. Specifically, patents and patent applications
related to our core technology consist of two U.S. patents that are exclusively
licensed to us from MGH, as well as their counterpart patents and applications
in foreign countries; seven U.S. patents and their counterpart patents and
applications in certain foreign countries, that we own; 18 U.S. patent
applications as well as their counterpart patents and applications in certain
foreign countries; and six U.S. provisional patent applications. One of our
issued patents covers aspects of the process by which MS-325 is manufactured.
Another issued patent covers the MS-325 composition of matter. Two of our
patents cover certain methods of imaging with MS-325. We have seven patent
applications relating to EP-2104R, fibrin binding peptides and methods of
imaging. Even though we hold these patents and have made these patent
applications, because the patent positions of pharmaceutical and
biopharmaceutical firms, including ours, generally include complex legal and
factual questions, our patent position remains uncertain. For example, because
most patent applications are maintained in secrecy for a period after filing, we
cannot be certain that the named applicants or inventors of the subject matter
covered by our patent applications or patents, whether directly owned or
licensed to us, were the first to invent or the first to file patent
applications for such inventions. Third parties may oppose, challenge, infringe
upon, circumvent or seek to invalidate existing or future patents owned by or
licensed to us. A court or other agency with jurisdiction may find our patents
invalid, not infringed or unenforceable and we cannot be sure that patents will
be granted with respect to any of our pending patent applications or with
respect to any patent applications filed by us in the future. Even if we have
valid patents, these patents still may not provide sufficient protection against
competing products or processes. If we are unable to successfully protect our
proprietary methods and technologies, or, if our patent applications do not
result in issued patents, we may not be able to prevent other companies from
practicing our technology and, as a result, our competitive position may be
harmed.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS AND OTHER
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD INCUR SUBSTANTIAL COSTS, AND WHICH
COULD RESULT IN THE FORFEITURE OF THESE RIGHTS.
We may need to bring costly and time-consuming litigation against third
parties in order to enforce our issued patents, protect our trade secrets and
know how, or to determine the enforceability, scope and validity of proprietary
rights of others. In addition to being costly and time-consuming, such lawsuits
could divert management's attention from other business concerns. These lawsuits
could also result in the invalidation or a limitation in the scope of our
patents or forfeiture of the rights associated with our patents or pending
patent applications. We may not prevail and a court may find damages or award
other remedies in favor of an opposing party in any such lawsuits. During the
course of these suits, there may be public announcements of the results of
hearings, motions and other interim proceedings or developments in the
litigation. Securities analysts or investors may perceive these announcements to
be negative, which could cause the market price of our stock to decline. In
addition, the cost of such litigation could have a material adverse effect on
our business and financial condition.
OTHER RIGHTS AND MEASURES THAT WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY
MAY NOT BE ADEQUATE TO PROTECT OUR PRODUCTS AND SERVICES AND COULD REDUCE OUR
ABILITY TO COMPETE IN THE MARKET.
In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
While we require employees, collaborators, consultants and other third parties
to enter into confidentiality and/or non-disclosure agreements where
appropriate, any of the following could still occur:
- the agreements may be breached;
- we may have inadequate remedies for any breach;
- proprietary information could be disclosed to our competitors; or
- others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to
our trade secrets or disclose such technologies.
11
If, for any of the above reasons, our intellectual property is
disclosed or misappropriated, it would harm our ability to protect our rights
and our competitive position. Moreover, several of our management and scientific
personnel were formerly associated with other pharmaceutical and biotechnology
companies and academic institutions. In some cases, these individuals are
conducting research in similar areas with which they were involved prior to
joining us. As a result, we, as well as these individuals, could be subject to
claims of violation of trade secrets and similar claims.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING THE
INTELLECTUAL PROPERTY RIGHTS OF OTHERS, AND IF WE ARE UNABLE TO DO SO, WE MAY
NOT BE ABLE TO SELL OUR PRODUCTS.
Our commercial success will depend, to a significant degree, on our
ability to operate without infringing upon the patents of others in the U.S. and
abroad. There may be pending or issued patents, held by parties not affiliated
with us, relating to technologies we use in the development or use of certain of
our contrast agents. For example, in November 2003, we entered into an
Intellectual Property Agreement with Dr. Martin R. Prince, an early innovator in
the field of MRA relating to "dynamic" MRA, which involves capturing MRA images
during the limited time, typically 30 to 60 seconds, available for imaging with
extracellular agents. In this agreement, Dr. Prince made certain covenants and
agreements and granted us certain discharges and releases in connection with the
use of any magnetic resonance imaging drug product containing MS-325. Dr. Prince
also granted to us a non-exclusive license to make, use, sell or otherwise
transfer MS-325. Although we are not aware of any other similar patent claims in
the field of MRA, they may exist.
If any judicial or administrative proceeding upholds these or any third
party patents as valid and enforceable, we could be prevented from practicing
the subject matter claimed in such patents, or would be required to obtain
licenses from the owners of each such patent, or to redesign our products or
processes to avoid infringement. If we are unable to obtain a required license
on acceptable terms, or are unable to design around these or any third party
patents, we may be unable to sell our products, which would have a material
adverse effect on our business.
EXTENSIVE GOVERNMENT REGULATION MAY DELAY OR PREVENT US FROM MARKETING MS-325 OR
OUR OTHER PRODUCTS UNDER DEVELOPMENT.
We are subject to extensive U.S. and foreign governmental regulatory
requirements and lengthy approval processes for our product candidates. The
development and commercial use of our product candidates will be regulated by
numerous federal, state, local and foreign governmental authorities in the U.S.,
including the FDA and foreign regulatory agencies. The nature of our research
and development and manufacturing processes requires the use of hazardous
substances and testing on certain laboratory animals. Accordingly, we are
subject to extensive federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes, as
well as the use of and care for laboratory animals. Although we believe we are
in compliance with all such laws and maintain policies and procedures to ensure
that we remain in compliance, if we fail to comply or if an accident occurs, we
may be exposed to legal risk and be required to pay significant penalties or be
held liable for any damages that result. Such liability could exceed our
financial resources. Furthermore, current laws could change and new laws could
be passed that may force us to change our policies and procedures, an event
which could impose significant costs on us.
Specifically, MS-325 is regulated by the FDA as a pharmaceutical
product. The FDA has established substantial requirements for the research,
development, manufacture and marketing of pharmaceutical products. The process
required by the FDA before MS-325 and our other product candidates may be
marketed in the U.S. typically involves the performance of pre-clinical
laboratory and animal tests; submission of an investigational new drug
application or IND; completion of human clinical trials; submission of a NDA to
the FDA; and FDA approval of the NDA.
This regulatory approval process is lengthy and expensive. Although
some of our employees have experience in obtaining regulatory approvals, we have
only limited experience in filing or pursuing applications necessary to gain
regulatory approvals. Pre-clinical testing of our product development candidates
is subject to Good Laboratory Practices as prescribed by the FDA and the
manufacture of any products developed by us will be subject to Good
Manufacturing Practices as prescribed by the FDA. We may not obtain the
necessary FDA clearances and subsequent approvals in a timely manner, if at all.
We cannot be sure as to the length of the clinical trial period or the number of
patients that will be required to be tested in the clinical trials in order to
establish the safety and efficacy of MS-325 or any of our future product
candidates. Our clinical trials may not be successful, and we may not complete
them in a timely manner. We could report serious side effects as the clinical
trials proceed. Our results from early clinical trials may not predict results
12
that we obtain in later clinical trials, even after promising results in earlier
trials. The rate of completion of our clinical trials depends upon, among other
things, the rate of patient enrollment and subsequent blinded reading of images
and data analysis.
Furthermore, we, the FDA or other regulatory authorities may alter,
suspend or terminate clinical trials at any time. For example, in September
2001, after discussions with the FDA, we expanded our initial target indication
for MS-325 from one specific body region, the aortoiliac region, to a broader
indication that includes the entire body's non-coronary vascular system, except
for the heart. This expansion required us to add two new clinical trials to our
then existing Phase III clinical trial program, one to determine the efficacy of
MS-325-enhanced MRA for the detection of vascular disease in the renal arteries,
and another to determine the efficacy of MS-325-enhanced MRA for the detection
of vascular disease in the pedal arteries. Although providing us with greater
market potential for the sale of MS-325 upon approval, this change to our Phase
III clinical trial program, and the associated delay in the start up of new
clinical centers, resulted in an approximate fifteen month delay in our NDA
submission and an increase in costs associated with the program. If we do not
successfully complete clinical trials for our product candidates, we will not be
able to market these product candidates.
In addition, we may encounter unanticipated delays or significant costs
in our efforts to secure necessary approvals. We may not obtain regulatory
approval, even after the performance of clinical trials and the passage of time
and the expenditure of such resources, for MS-325 or any other product
candidates that we develop. Our analysis of data obtained from pre-clinical and
clinical activities is subject to confirmation and interpretation by regulatory
authorities, which could delay, limit or prevent FDA regulatory approval. Delays
in obtaining government regulatory approval could adversely affect our marketing
as well as our ability to generate significant revenues from commercial sales.
Future U.S. legislative or administrative actions also could prevent or
delay regulatory approval of our product candidates. Even if we obtain
regulatory approvals, they may include significant limitations on the indicated
uses for which we may market a product. A marketed product also is subject to
continual FDA and other regulatory agency review and regulation. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product
or withdrawal of the product from the market, as well as possible civil or
criminal sanctions. Further, many academic institutions and companies conducting
research and clinical trials in the MRI contrast agent field are using a variety
of approaches and technologies. If researchers obtain any adverse results in
pre-clinical studies or clinical trials, it could adversely affect the
regulatory environment for MRI contrast agents generally. In addition, if we
obtain marketing approval, the FDA may require post marketing testing and
surveillance programs to monitor the product's efficacy and side effects.
Results of these post-marketing programs may prevent or limit the further
marketing of the monitored product. If we cannot successfully market our
products, we will not generate sufficient revenues to achieve or maintain
profitability.
Our strategic partners and we are also subject to numerous and varying
foreign regulatory requirements governing the design and conduct of clinical
trials and the manufacturing and marketing of our products. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above, and we may not obtain foreign regulatory
approvals on a timely basis, if at all, thereby compromising our ability to
market our products abroad.
PRODUCT LIABILITY CLAIMS COULD INCREASE OUR COSTS AND ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
The clinical testing of our approved products, and the manufacturing
and marketing of any approved products may expose us to product liability
claims, and we may experience material product liability losses in the future.
We currently have limited product liability insurance for the use of our product
candidates in clinical research, but our coverage may not continue to be
available on terms acceptable to us or adequate for liabilities we actually
incur. We do not have product liability insurance coverage for the commercial
sale of our products but intend to obtain such coverage when and if we
commercialize our product candidates. However, we may not be able to obtain
adequate additional product liability insurance coverage on acceptable terms, if
at all. A successful claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in significant adverse
publicity against us, may have a material adverse effect on our business and
results of operations.
IF WE FAIL TO GET ADEQUATE LEVELS OF REIMBURSEMENT FROM THIRD PARTY PAYORS FOR
OUR PRODUCT CANDIDATES AFTER THEY ARE APPROVED IN THE U.S. AND ABROAD, WE MAY
HAVE DIFFICULTY COMMERCIALIZING OUR PRODUCT CANDIDATES.
13
We could be adversely affected by changes in reimbursement policies of
governmental or private healthcare payors, particularly to the extent any such
changes affect reimbursement for procedures in which our product candidates
would be used. Failure by physicians, hospitals and other users of our products
to obtain sufficient reimbursement from third party payors for the procedures in
which our products would be used or adverse changes in governmental and private
third party payors' policies toward reimbursement for such procedures may have a
material adverse effect on our ability to market our products and consequently
it could have an adverse effect on our business, financial condition and results
of operations. If we obtain the necessary foreign regulatory approvals, market
acceptance of our product candidates in international markets would depend, in
part, upon the availability of reimbursement within prevailing healthcare
payment systems. Reimbursement and healthcare payment systems in international
markets vary significantly by country, and include both government sponsored
health care and private insurance. We and our strategic partners intend to seek
international reimbursement approvals, although we cannot assure you that any
such approvals will be obtained in a timely manner, if at all. Failure to
receive international reimbursement approvals could have an adverse effect on
market acceptance of our products in the international markets in which such
approvals are sought.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD HURT OUR ABILITY TO
COMPETE.
Our future business and operating results depend in significant part
upon the continued contributions of our senior management and key technical
personnel. If any such personnel were to be hired away from us by a competitor,
or if for any reason, they could not continue to work for us, we could have
difficulty hiring officers with equivalent skills in general, financial and
research management and our ability to achieve our business objectives or to
operate or compete in our industry may be seriously impaired. Although we
maintain key life insurance on the life of our Chief Executive Officer, the loss
of any key employee, the failure of any key employee to perform in his or her
current position, or our inability to attract and retain skilled employees, as
needed, could have a material adverse effect on our business, financial
condition and results of operations. Our future business and operating results
also depend in significant part upon our ability to attract and retain qualified
management, operational and technical personnel. Competition for personnel is
intense, and we may not be successful in attracting or retaining such personnel.
If we were to lose these employees to our competitors, we could spend a
significant amount of time and resources to replace them, which would impair our
research and development or commercialization efforts.
CERTAIN ANTI-TAKEOVER CLAUSES IN OUR CHARTER AND BY-LAW PROVISIONS AND IN
DELAWARE LAW MAY MAKE AN ACQUISITION OF US MORE DIFFICULT.
Our Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, up to 1,000,000 shares of
preferred stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of our
Common Stock. The issuance of Preferred Stock or of rights to purchase Preferred
Stock could be used to discourage an unsolicited acquisition proposal. In
addition, the possible issuance of Preferred Stock could discourage a proxy
contest, make more difficult the acquisition of a substantial block of our
Common Stock or limit the price that investors might be willing to pay for
shares of our Common Stock. The Restated Certificate provides for staggered
terms for the members of the Board of Directors. A staggered Board of Directors
and certain provisions of our By-laws and of Delaware law applicable to us could
delay or make more difficult a merger, tender offer or proxy contest involving
us. For example, we are subject to Section 203 of the General Corporate Law of
Delaware, which, subject to certain exceptions, restricts certain transactions
and business combinations between a corporation and a stockholder owning 15% or
more of the corporation's outstanding voting stock for a period of three years
from the date the stockholder becomes an interested stockholder. These
provisions may have the effect of delaying or preventing a change in control of
us without action by the stockholders and, therefore, could adversely affect the
price of our stock.
RISKS RELATED TO THE SECURITIES
WE HAVE SIGNIFICANTLY INCREASED OUR LEVERAGE AS A RESULT OF THE SALE OF THE
NOTES.
In connection with the sale of the notes, we have incurred new
indebtedness of $100 million. The amount of our indebtedness could, among other
things:
- make it difficult for us to make payments on the notes;
14
- make it difficult for us to obtain financing for working capital,
acquisitions or other purposes on favorable terms, if at all;
- make us more vulnerable to industry downturns and competitive
pressures; and
- limit our flexibility in planning for, or reacting to changes in,
our business.
Our ability to meet our debt service obligations will depend upon our
future performance, which will be subject to financial, business and other
factors affecting our operations, many of which are beyond our control.
YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES IS JUNIOR TO THE RIGHTS OF THE
HOLDERS OF THE SCHERING AG LOAN FACILITY AND WILL BE EFFECTIVELY SUBORDINATED TO
CERTAIN OTHER DEBT.
The payment of principal and interest on the notes is contractually
subordinated in right of payment to up to $15.0 million aggregate principal
amount of indebtedness under the Schering AG loan facility plus accrued and
unpaid interest. As of June 30, 2004, the outstanding principal amount of our
indebtedness under the Schering AG loan facility was $15 million. Although the
entire outstanding balance of this indebtedness was repaid in July 2004, $7.5
million of the loan facility is available to be redrawn until May 2007 and the
remaining $7.5 million is available to be redrawn until May 2008, subject to
specified conditions and covenants contained in the loan facility. No payment
will be able to be made in respect of the notes if the indebtedness under the
Schering AG loan facility is not paid when due or any other default under the
Schering AG loan facility occurs and the maturity of such indebtedness is
accelerated in accordance with its terms. Furthermore, if certain other defaults
exist with respect to the Schering AG loan facility, the holders of such
indebtedness will be able to prevent payments on the notes for specified periods
of time. The Schering AG loan facility is secured by certain of our assets. Upon
the occurrence of an event of default under the Schering AG loan facility,
Schering AG will have the ability to foreclose on its security, and as a result
there may be insufficient assets remaining to pay the amounts due on the notes.
The notes will also be structurally subordinated to the indebtedness
and other liabilities of any subsidiaries that we may create in the future. In
addition, the notes are not secured by any of our assets. As a result, the notes
will be effectively subordinated to any secured debt that we or any future
subsidiaries may incur to the extent of such security. As a result of the
effective subordination of the notes to such debt, we may not have sufficient
assets remaining to pay amounts due on any or all of the notes then outstanding
in the event of our bankruptcy, liquidation or reorganization or upon
acceleration of the notes.
In addition, before we redeem or repurchase for cash the notes in whole
or in part, we will be required to repay the then outstanding principal amount,
together with accrued and unpaid interest, under our Schering AG loan facility,
other than a redemption by us of less than $7.5 million cumulative principal
amount of the notes. Upon the occurrence of a repayment of the Schering AG loan
facility there may be insufficient funds available to pay the amounts due on the
notes.
THE NOTES ARE NOT PROTECTED BY RESTRICTIVE COVENANTS, INCLUDING FINANCIAL
COVENANTS.
We are not restricted under the indenture from incurring additional
debt, including senior debt, or other liabilities. In addition, the indenture
does not restrict us or any subsidiaries we may create in the future from paying
dividends or issuing or repurchasing securities. If we or any future
subsidiaries were to incur additional debt or liabilities, our ability to pay
our obligations on the notes could be adversely affected. We are not required
under the indenture to meet any financial tests, such as those that measure our
working capital, interest coverage, fixed charge coverage or net worth, in order
to maintain compliance with the terms of the indenture covering the notes.
WE MAY BE UNABLE TO REPAY, REPURCHASE OR REDEEM THE NOTES.
At maturity, the entire outstanding principal amount of the notes will
become due and payable by us. Upon a designated event, as defined in the
indenture, or upon certain specified dates, you may require us to repurchase all
or a portion of your notes. We may not have enough funds or be able to arrange
for additional financing to pay the principal at maturity or to repurchase the
notes tendered by the holders upon a designated event or upon such specified
dates. Upon a designated event that is a change in control you may not
necessarily receive cash as we may elect to pay you the purchase
15
price in cash, shares of common stock that are publicly listed on a national
securities exchange or on Nasdaq, or a combination of both.
In addition, before we redeem or repurchase for cash the notes in whole
or in part, we will be required to repay the then outstanding principal amount,
together with accrued and unpaid interest, under our Schering AG loan facility,
other than a redemption by us of less than $7.5 million cumulative principal
amount of the notes. In addition, future credit agreements or other agreements
relating to our indebtedness may restrict the redemption or repurchase of the
notes and provide that a change in control constitutes an event of default. If
the maturity date or a designated event occurs at a time when we are prohibited
from repaying or repurchasing the notes, we could seek the consent of our
lenders to purchase the notes or could attempt to refinance this debt. If we do
not obtain the necessary consents or cannot refinance the debt on favorable
terms, if at all, we will be unable to repay or repurchase the notes. Our
failure to repay the notes at maturity or repurchase tendered notes would
constitute an event of default under the indenture, which might constitute a
default under the terms of our other debt.
YOU MAY NOT HAVE THE RIGHT TO REQUIRE US TO REPURCHASE THE NOTES IN THE EVENT OF
CERTAIN MERGERS AND SIMILAR TRANSACTIONS.
The definition of change in control set forth in the indenture
governing the notes is limited and certain mergers and similar transactions are
not deemed a change in control. In such instance, you would not be able to
require us to repurchase the notes. As a result, our obligation to offer to
repurchase the notes upon a change in control will not necessarily afford you
protection in the event of certain highly leveraged transactions, mergers or
similar transactions in which we are involved.
THE CONTINGENT CONVERSION FEATURE OF THE NOTES COULD RESULT IN YOU RECEIVING
LESS THAN THE VALUE OF THE COMMON STOCK INTO WHICH A NOTE WOULD OTHERWISE BE
CONVERTIBLE.
The notes are convertible into shares of our common stock only if
specified conditions are met. If the specific conditions for conversion are not
met, you will not be able to convert your notes, and you may not be able to
receive the value of the common stock into which the notes would otherwise be
convertible.
CONVERSION OF THE NOTES WILL DILUTE THE OWNERSHIP INTEREST OF EXISTING
STOCKHOLDERS.
The conversion of notes into shares of our common stock will dilute the
ownership interests of existing stockholders. Any sales in the public market of
the common stock issuable upon conversion of the notes could adversely affect
prevailing market prices of our common stock. In addition, the existence of the
notes may encourage short selling by market participants due to this dilution or
facilitate trading strategies involving the notes and our common stock.
THERE MAY NOT BE AN ACTIVE, LIQUID MARKET FOR OUR COMMON STOCK.
There is no guarantee that an active trading market for our common
stock will be maintained on the Nasdaq Stock Market's National Market. Investors
may not be able to sell their shares quickly or at the latest market price if
trading in our stock is not active.
THE VALUE OF THE CONVERSION RIGHT ASSOCIATED WITH THE NOTES MAY BE SUBSTANTIALLY
LESSENED OR ELIMINATED IF WE ARE PARTY TO A MERGER, CONSOLIDATION OR OTHER
SIMILAR TRANSACTION.
If we are party to a consolidation, merger or binding share exchange or
transfer or lease of all or substantially all of our assets pursuant to which
our common stock is converted into cash, securities or other property, at the
effective time of the transaction, the right to convert a note into our common
stock will be changed into a right to convert it into the kind and amount of
cash, securities or other property which the holder would have received if the
holder had converted its note immediately prior to the transaction. Accordingly,
upon the consummation of any such transaction, the notes may not be convertible
into shares of our common stock but rather convertible into securities of
another entity. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the notes in the future. For example,
if we were acquired in a cash merger, each note would become convertible solely
into cash and would no longer be convertible into securities whose value would
vary depending on our future prospects and other factors.
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THE PRICE AT WHICH OUR COMMON STOCK MAY BE PURCHASED ON NASDAQ IS CURRENTLY
LOWER THAN THE CONVERSION PRICE OF THE NOTES AND MAY REMAIN LOWER IN THE FUTURE.
Prior to electing to convert the notes, the noteholder should compare
the price at which our common stock is trading in the market to the conversion
price of the notes. Our common stock trades on the Nasdaq under the symbol
"EPIX." On August 3, 2004, the last reported closing price of our common
stock was $17.33 per share. The initial conversion price of the notes is
approximately $29.77 per share. The market prices of our securities are
subject to significant fluctuations. Such fluctuations, as well as economic
conditions generally, may adversely affect the market price of our
securities, including our common stock and the notes.
OUR STOCK PRICE HAS BEEN VOLATILE, AND AN INVESTMENT IN OUR STOCK COULD SUFFER A
DECLINE IN VALUE, ADVERSELY AFFECTING THE VALUE OF THE NOTES OR THE SHARES INTO
WHICH THOSE NOTES MAY BE CONVERTED.
The market prices of the capital stock of medical technology companies
have historically been very volatile, and the market price of the shares of our
common stock fluctuates. The market price of our common stock is affected by
numerous factors, including:
- actual or anticipated fluctuations in our operating results;
- announcements of technological innovation or new commercial
products by us or our competitors;
- new collaborations entered into by us or our competitors;
- developments with respect to proprietary rights, including patent
and litigation matters;
- results of pre-clinical and clinical trials;
- conditions and trends in the pharmaceutical and other technology
industries;
- adoption of new accounting standards affecting such industries;
- changes in financial estimates by securities analysts; and
- degree of trading liquidity in our common stock and general market
conditions.
During the six months ended June 30, 2004, the closing price of our
common stock ranged from $25.99 to $16.00. The last reported closing price for
our common stock on August 3, 2004 was $17.33. If our stock price declines
significantly, we may be unable to raise additional capital. Significant
declines in the price of our common stock could also impede our ability to
attract and retain qualified employees and reduce the liquidity of our common
stock.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stock of similarly staged companies. These broad
market fluctuations may adversely affect the market price of our common stock.
In the past, following periods of volatility in the market price of a particular
company's securities, shareholders have often brought class action securities
litigation against that company. Such litigation, if brought against us, could
result in substantial costs and a diversion of management's attention and
resources.
THE CONVERSION CONTINGENCY PROVISIONS OF THE NOTES MAY CAUSE A DECREASE IN OUR
EARNINGS PER SHARE ON A DILUTED BASIS OR MAKE OUR REPORTED EARNINGS PER SHARE
MORE VOLATILE, POTENTIALLY AFFECTING OUR SHARE PRICE AND THE AMOUNT YOU MAY
RECEIVE UPON SALE OR CONVERSION OF THE NOTES.
Holders of the notes are entitled to convert the notes into shares of
our common stock, among other circumstances, if the price of our common stock
for the periods described in this prospectus is more than 120% of the conversion
price of the notes. Under current accounting rules, unless and until this
contingency or another conversion contingency is met, the shares of our common
stock underlying the notes generally will not be included in the calculation of
our basic and diluted earnings per share. If this contingency is met or would
have been met if measured instead at the
17
end of the reporting period, any diluted earnings per share that we may earn
would be expected to decrease as a result of the inclusion of the underlying
shares in the diluted earnings per share calculation. Volatility in our stock
price could cause this condition to be met in one quarter and not in a
subsequent quarter, increasing the volatility of our diluted earnings per share.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT THE
TRADING PRICE OF OUR COMMON STOCK, THE VALUE OF THE NOTES AND OUR ABILITY TO
RAISE FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales are likely to occur, could affect
prevailing trading prices of our common stock and the value of the notes. As of
June 30, 2004, we had:
- 22,896,764 shares of common stock outstanding;
- 3,611,660 shares of common stock underlying options outstanding at
a weighted average exercise price of $11.27 per share; and
- 924,622 shares of common stock that have been reserved for
issuance upon future grants under our stock option plans; and
- 42,832 shares available for issuance under our employee stock
purchase plan.
Because the notes generally are convertible into common stock only at a
conversion price in excess of the recent trading price, a decline in our common
stock price may cause the value of the notes to decline.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These statements can be identified by the use of forward-looking
terminology such as "may," "will," "could," "expect," "anticipate," "estimate,"
"continue" or other similar expressions or the negative of such terms or other
comparable terminology. You should carefully read statements that contain these
words because they discuss our future expectations, contain projections of our
future results of operations or of our financial position, or state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, there may be events in the
future that we are not able to accurately predict or control. The factors listed
above in the section captioned "Risk Factors," as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position. We do not intend to
update any forward-looking statements to conform to actual result unless
required by law.
RATIO OF EARNINGS TO FIXED CHARGES
We have not recorded earnings for any fiscal year since inception and
therefore have no earnings to cover fixed charges. Fixed charges consists of
interest expense, amortization of debt issuance costs and a portion of rental
expense that we believe to be representative of interest. The following table
discloses our dollar coverage deficiency. The ratio of earnings to fixed charges
is not disclosed since it is a negative number in each year and period.
FOR THE YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------------------
(in thousands) JUNE 30, 2004 2003 2002 2001 2000 1999
---------------- ---------- ---------- ---------- ---------- ----------
Deficiency of earnings
available to cover
fixed charges $ (8,797) $ (20,714) $ (22,098) $ (18,156) $ (22,957) $ (16,983)
========== ========== ========== ========== ========== ==========
USE OF PROCEEDS
All of the notes and the shares of common stock issuable upon
conversion of the notes are being sold by the selling holders or by their
pledgees, donees, transferees or other successors in interest. We will not
receive any proceeds from the sale of the notes or the shares of our common
stock issuable upon conversion of the notes.
The selling holders will pay any underwriting discounts and commissions
and expenses incurred by the selling holders for brokerage, accounting, tax or
legal services or any other expenses incurred by the selling holders in
disposing of the notes and the shares. We will bear all other costs, fees and
expenses incurred in effecting the registration of the notes and shares covered
by this prospectus, including, without limitation, all registration and filing
fees, and fees and expenses of our counsel and our accountants.
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DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of June 7, 2004 between
us, as issuer, and U.S. Bank National Association, as trustee. The notes and the
shares of common stock issuable upon conversion of the notes are covered by a
registration rights agreement. The indenture and the registration rights
agreement have been publicly filed by us and they are incorporated herein by
reference.
The following description is a summary of the material provisions of
the notes, the indenture and the registration rights agreement. It does not
purport to be complete. This summary is subject to and is qualified by reference
to all the provisions of the indenture, including the definitions of certain
terms used in the indenture. Wherever particular provisions or defined terms of
the indenture or form of note are referred to, these provisions or defined terms
are incorporated in this prospectus by reference. We urge you to read the
indenture because it, and not this description, defines your rights as a holder
of notes.
As used in this "Description of Notes" section, references to "EPIX,"
"we," "our" or "us" refer solely to EPIX Medical, Inc.
GENERAL
The notes are general, unsecured, senior obligations of EPIX, and are
subordinated in right of payment to existing and future indebtedness under our
Schering AG loan facility and are effectively subordinated in right of payment
to our existing and future secured debt, to the extent of the security, and the
liabilities of any subsidiaries that we may create in the future as described
under "--Ranking," but are senior in right of payment to all subordinated
indebtedness that by its terms treats the notes as senior indebtedness. In
addition, the notes will rank on a parity in right of payment with all of our
existing and future unsecured senior debt, other than existing and future
indebtedness under our Schering AG loan facility. The notes will not be
obligations of, or guaranteed by, any subsidiaries that we may create in the
future. The notes are convertible into common stock as described under
"--Conversion of Notes."
The notes are limited to $100 million aggregate principal amount and
have been issued only in denominations of $1,000 and multiples of $1,000. We use
the term "note" in this prospectus to refer to each $1,000 principal amount of
notes. The notes will mature on June 15, 2024, unless earlier converted,
redeemed or repurchased.
We may from time to time repurchase the notes in open market purchases
or negotiated transactions without prior notice to holders.
If we experience a change in control or a termination of trading, you
will have the right to require us to repurchase your notes as described below
under "--Repurchase at the Option of the Holder Upon a Designated Event."
Holders of notes who have submitted a notice of repurchase will be entitled,
upon a valid withdrawal of such notice, to convert the notes up to and including
the business day immediately preceding the date fixed for repurchase.
Neither we nor any subsidiaries that we may create in the future will
be subject to any financial covenants under the indenture. In addition, neither
we nor any of such subsidiaries are restricted under the indenture from paying
dividends, making investments, incurring debt, including additional senior
indebtedness, granting liens or mortgages, or issuing or repurchasing our
securities.
We will pay interest at a rate of 3.00% per annum, and additional
interest, if any, semi-annually in arrears on June 15 and December 15 of each
year, beginning December 15, 2004, to record holders at the close of business on
the preceding June 1 and December 1, as the case may be. Interest will be
computed on the basis of a 360-day year composed of twelve 30-day months. In
addition, in the event of certain registration defaults, we will accrue
additional amounts of interest. For a description of these additional amounts,
see the section entitled "--Registration Rights of the Noteholders."
We will maintain an office or agency in the Borough of Manhattan, The
City of New York, where we will pay the principal on the notes and where you may
present the notes for conversion, registration of transfer or exchange for other
denominations, which shall initially be an office or agency of the trustee. We
may pay interest by check mailed to your address as it appears in the note
register, provided that if you are a holder of an aggregate principal amount of
notes in
20
excess of $2,000,000, you shall be paid, at your written election, by wire
transfer in immediately available funds. However, payments to The Depository
Trust Company, New York, New York, which we refer to as DTC, will be made by
wire transfer of immediately available funds to the account of DTC or its
nominee.
The notes are not subject to a sinking fund provision and are not
subject to defeasance or covenant defeasance under the indenture.
CONVERSION OF NOTES
The conversion rate will be equal to the number of shares per $1,000
principal amount of notes shown on the cover page of this prospectus subject to
adjustment as specified below. The initial conversion rate is equivalent to a
conversion price of approximately $29.77. The conversion price is equal to
$1,000 principal amount of notes divided by the conversion rate. You will have
the right to convert any portion of the principal amount of any note that is an
integral multiple of $1,000 into shares of our common stock as follows:
- if, on or prior to June 15, 2019, the closing sale price of our
common stock, for at least 20 trading days in the period of the 30
consecutive trading days ending on the eleventh trading day of any
fiscal quarter, is more than 120% of the then current conversion
price of the notes, then you will have such conversion right until
and including the eleventh trading day of the following fiscal
quarter;
- if, on any date after June 15, 2019, the closing sale price of our
common stock is more than 120% of the then current conversion
price of the notes, then you will have such conversion right at
all times thereafter;
- if we elect to call the notes for redemption, then you will have
the right to convert the notes (or the portion of notes called for
redemption, if less than all) until the close of business on the
business day prior to the redemption date;
- if we distribute to all or substantially all holders of our common
stock, rights, options or warrants entitling them to purchase our
common stock at less than the closing sale price of our common
stock on the day preceding the declaration for such distribution,
then you will have such conversion right in the period described
below;
- if we distribute to all or substantially all holders of our common
stock, cash, assets, debt securities or capital stock of any
subsidiaries that we may create in the future, which distribution
has a per share value as determined by our board of directors
exceeding 5% of the closing sale price of our common stock on the
day preceding the declaration of such distribution, then you will
have such conversion right in the period described below; or
- if we become a party to a consolidation, merger or sale of all or
substantially all of our assets that constitutes a change in
control as defined below under the heading "--Repurchase at the
Option of the Holder Upon a Designated Event" or such event occurs
that would have been a change in control but for one or both of
the exceptions to the definition of change in control included
below, under the same heading, in the paragraph immediately
following subparagraph (3).
A note for which a holder has delivered a repurchase notice as
described below may be surrendered for conversion only if the repurchase notice
is withdrawn in accordance with the indenture.
In the case of the fourth and fifth bullet points above, we must notify
holders of notes at least 20 days prior to the ex-dividend date for such
distribution. Once we have given such notice, holders may surrender their notes
for conversion at any time until the earlier of the close of business on the
business day prior to the ex-dividend date or our announcement that such
distribution will not take place. If in the future we adopt a shareholder rights
plan, you will not have any conversion right pursuant to the fourth bullet point
above or otherwise, solely as a result of the issuance of rights pursuant to the
shareholder rights plan. In the case of a distribution identified in the fourth
or fifth bullet points above, the ability of a holder of notes to convert would
not be triggered if the holder may participate in the distribution without
converting. In the case of the sixth bullet point above, a holder may surrender
notes for conversion at any time from and after the date which is 15 days prior
to the anticipated effective date of the transaction until 15 days after the
actual date of the
21
transaction. As used in this section, "closing sale price" generally means the
last reported sale price of our common stock on the Nasdaq.
In addition, at any time prior to June 15, 2019, you may convert your
notes into shares of our common stock for the five business-day period after any
five consecutive trading-day period in which the average trading price for the
notes in such period was less than 98% of the average conversion value (as
defined below) for the notes during that period.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations per $1,000 principal amount of
the notes obtained by the trustee for $2,000,000 principal amount of the notes
at approximately 3:30 p.m., New York City time, on such determination date from
three independent nationally recognized securities dealers we select; provided
that if three such bids cannot reasonably be obtained by the trustee, but two
such bids are obtained, then the average of the two bids shall be used, and if
only one such bid can reasonably be obtained by the trustee, then one bid shall
be used. If the trustee cannot reasonably obtain at least one bid for $2,000,000
principal amount of the notes from a nationally recognized securities dealer,
then the trading price per $1,000 principal amount of notes will be deemed to be
less than 98% of the product of the closing sale price of our common stock and
the number of shares issuable upon conversion of $1,000 principal amount of the
notes.
In connection with any conversion upon satisfaction of the trading
price condition, the trustee shall have no obligation to determine the trading
price of the notes unless we have requested such determination; and we shall
have no obligation to make such request unless you provide us with reasonable
evidence that the trading price per $1,000 principal amount of notes would be
less than 98% of the product of the closing sale price of our common stock and
the number of shares of common stock issuable upon conversion of $1,000
principal amount of the notes. At that time, we shall instruct the trustee to
determine the trading price of the notes beginning on the next trading date and
on each successive trading day until the trading price per $1,000 principal
amount of notes is greater than or equal to 98% of the product of the closing
sale price of our common stock and the number of shares issuable upon conversion
of $1,000 principal amount of the notes.
We define conversion value in the indenture to be equal to the product
of the closing sale price of our shares of common stock on a given day
multiplied by the then current conversion rate, which is the number of shares of
common stock into which each $1,000 principal amount of the notes is
convertible.
You may convert all or part of any note that is an integral multiple of
$1,000 as permitted above by delivering the note at the Corporate Trust Office
of the trustee in the Borough of Manhattan, The City of New York, accompanied by
a duly signed and completed irrevocable conversion notice, a copy of which may
be obtained by the trustee, and any applicable payments, including interest
payments and payments in respect of taxes, if any. The conversion date will be
the date on which the note and the duly signed and completed conversion notice
are so delivered.
As promptly as practicable on or after the conversion date, we will
issue and deliver to the trustee a certificate or certificates for the number of
full shares of our common stock issuable upon conversion, together with payment
in lieu of any fraction of a share. The certificate will then be sent by the
trustee to the conversion agent for delivery to the holder. The shares of our
common stock issuable upon conversion of the notes will be fully paid and
nonassessable and will rank equally with the other shares of our common stock.
If you surrender a note for conversion on a date that is not an
interest payment date, you will not be entitled to receive any interest for the
period from the immediately preceding interest payment date to the conversion
date, except as described below in this paragraph. In the case of any note that
has been surrendered for conversion after any regular record date but before the
next succeeding interest payment date:
- notwithstanding such conversion, interest payable on such interest
payment date shall be payable on such interest payment date, and
such interest shall be paid to the holder of such note as of such
regular record date; and
- except for notes, or portions thereof, called for redemption or to
be purchased or repurchased after a regular record date but on or
prior to such interest payment date, or to the extent of overdue
interest if we are in arrears on our interest payments as of the
conversion date, such notes surrendered for conversion must be
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accompanied by payment of an amount equal to the interest payable
on such interest payment date on the principal amount of notes
being surrendered for conversion.
No other payment or adjustment for interest, or any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash based on the closing sale price of
our common stock at the close of business on the conversion date.
You will not be required to pay any taxes or duties relating to the
issue or delivery of our common stock on conversion, but you will be required to
pay any tax or duty relating to any transfer involved in the issue or delivery
of our common stock in a name other than yours. Certificates representing shares
of our common stock will not be issued or delivered unless all taxes and duties,
if any, payable by you have been paid.
The conversion rate will be subject to adjustment for, among other
things:
- dividends and other distributions payable in our common stock on
shares of our common stock;
- the issuance to all holders of our common stock of rights, options
or warrants (in any case other than in connection with a
shareholder rights plan) entitling them to subscribe for or
purchase our common stock at less than the current market price of
such common stock on the record date for stockholders entitled to
receive such rights, options or warrants;
- subdivisions, combinations, splits, reverse splits and
reclassifications of our common stock;
- distributions to all holders of our common stock of evidences of
our indebtedness, shares of capital stock, cash or assets (if we
distribute shares of capital stock of any subsidiary that we may
create in the future, the conversion rate will be adjusted, if at
all, based on the market value of the subsidiary stock so
distributed relative to the market value of our common stock, in
each case over a measurement period following the distribution),
including securities, but excluding:
- those dividends, rights, options, warrants and distributions
referred to above;
- dividends and distributions paid exclusively in cash; and
- distributions upon mergers or consolidations discussed below.
- if we or a subsidiary that we may create in the future purchase
our common stock (excluding options, warrants, purchase rights and
other securities convertible, exchangeable or exercisable for
common stock) pursuant to a tender or exchange offer for our
common stock, to the extent that the cash and value of any other
consideration included in the payment per share of common stock in
such offer exceeds the closing sale price of our common stock on
the trading day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer,
then the conversion rate will be adjusted; and
- if we make a distribution consisting exclusively of cash to all
holders of outstanding shares of common stock, the conversion rate
will be adjusted to a new conversion rate equal to the existing
conversion rate multiplied by a fraction, the numerator of which
is the current market price of our common stock plus the amount
per share of such dividend or distribution and the denominator of
which will be the current market price of our common stock, where
the current market price of our common stock is the average
closing sale price of our common stock for the first 10 trading
days from, and including, the first ex-distribution day that the
common stock trades.
To the extent that we have a shareholder rights plan in effect upon
conversion of the notes into common stock, you will receive, in addition to the
common stock, the rights under the rights plan unless the rights have separated
from the common stock before the time of conversion, in which case the
conversion rate will be adjusted as if we distributed to
23
all holders of our common stock, shares of our capital stock, evidences of
indebtedness or assets as described above, subject to readjustment in the event
of the expiration, termination or redemption of such rights.
We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order that any event treated for U.S. federal income tax purposes
as a distribution of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered notes of any adjustments.
In the event that we consolidate or merge with or into another entity
or another entity is merged into us, or in case of any sale or transfer of all
or substantially all of our assets, each note then outstanding will become
convertible only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of common stock into which the notes were convertible
immediately prior to the consolidation or merger or sale or transfer. The
preceding sentence will not apply to a merger or sale of all or substantially
all of our assets that does not result in any reclassification, conversion,
exchange or cancellation of our common stock.
We may increase the conversion rate if our board of directors
determines that the increase would be in our best interest. The board of
directors' determination in this regard will be conclusive. We will give holders
of notes notice of such an increase in the conversion rate. We will comply with
the Exchange Act and the rules and regulations promulgated under the Exchange
Act, to the extent applicable, in connection with any such notice.
If at any time we make a distribution of property to our stockholders
that would be taxable to such stockholders as a dividend for U.S. federal income
tax purposes, such as distributions of evidences of indebtedness or assets by
us, but generally not stock dividends on common stock or rights to subscribe for
common stock, and, pursuant to the conversion price adjustment provisions of the
indenture, the number of shares into which notes are convertible is increased,
that increase may be deemed for U.S. federal income tax purposes to be the
payment of a taxable dividend to holders of notes. See "Certain U.S. Federal
Income Tax Considerations."
OPTIONAL REDEMPTION BY EPIX
On or after June 15, 2009, we may redeem the notes, in whole or in
part, at the following percentages of the principal amount of the notes, plus
accrued and unpaid interest and additional interest, if any, to, but excluding,
the redemption date:
DATE REDEMPTION PRICE
----------------------------------------------- ----------------
June 15, 2009 to June 14, 2010................. 100.857%
June 15, 2010 to June 14, 2011................. 100.429%
June 15, 2011 and thereafter................... 100.000%
If we elect to redeem all or part of the notes, we will give at least
20, but no more than 60, days' prior notice to you. If we do not redeem all of
the notes, the trustee will select the notes to be redeemed in principal amounts
of $1,000 or whole multiples of $1,000 by lot, on a pro rata basis or otherwise
in accordance with the applicable procedures of the depository. If any notes are
to be redeemed in part only, we will issue a new note or notes in principal
amount equal to the unredeemed principal portion thereof.
No sinking fund is provided for the notes, which means that the
indenture does not require us to redeem or retire the notes periodically.
We may not redeem the notes if we have failed to pay any interest on
the notes and such failure to pay is continuing, or if the principal amount of
the notes has been accelerated.
If we redeem the notes in whole or in part, other than a redemption of
less than $7.5 million in cumulative principal amount of the notes, then we will
be required to repay the then outstanding principal amount, together with
accrued and unpaid interest, under our Schering AG loan facility.
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REPURCHASE AT THE OPTION OF THE HOLDER ON SPECIFIED DATES
On the repurchase date of each of June 15, 2011, 2014 and 2019, we
will, at the option of the holder, be required to repurchase for cash any
outstanding note for which a written repurchase notice has been properly
delivered by the holder and not withdrawn, subject to certain additional
conditions. Holders may submit their notes for repurchase to the paying agent at
any time from the opening of business on the date that is 20 business days prior
to such repurchase date until the close of business on such repurchase date. The
repurchase price of a note will be 100% of the principal amount of the note,
plus accrued and unpaid interest and additional interest, if any, to, but
excluding, the repurchase date. Interest and additional interest, if any, will
be paid to the record holder as of the related record date.
We will be required to give notice on a date not less than 20 business
days prior to the repurchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating, among other things, the procedures that holders must follow to
require us to repurchase their notes.
The repurchase notice given by each holder electing to require us to
repurchase notes shall state:
- if certificated notes have been issued, the certificate numbers of
the holder's notes to be delivered for repurchase or, if not, such
information as may be required under applicable DTC procedures and
the indenture;
- the portion of the principal amount of notes to be repurchased,
which must be $1,000 or an integral multiple of $1,000 (or the
entire principal amount of the notes held by such holder); and
- that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture.
Any repurchase notice may be withdrawn by the holder by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the repurchase date. The notice of withdrawal shall state:
- the principal amount being withdrawn;
- if certificated notes have been issued, the certificate numbers of
the notes being withdrawn or, if not, such information as may be
required under applicable DTC procedures and the indenture; and
- the principal amount, if any, of the notes that remains subject to
the repurchase notice.
Payment of the repurchase price for a note for which a repurchase
notice has been delivered and not validly withdrawn is conditioned upon delivery
(including by book entry transfer) of the note, together with necessary
endorsements, to the paying agent at any time after delivery of the repurchase
notice. Payment of the repurchase price for the note will be made promptly
following the later of the repurchase date or the time of delivery of the note.
If the paying agent holds money or securities sufficient to pay the
repurchase price of the note on the repurchase date then, on and after the
business day following the repurchase date:
- the note will cease to be outstanding;
- interest will cease to accrue in respect of any date from and
after the repurchase date; and
- all other rights of the holder will terminate, other than the
right to receive the repurchase price upon delivery of the note.
Before we repurchase the notes in whole or in part, we will be required
to repay the then outstanding principal amount, together with accrued and unpaid
interest, under our Schering AG loan facility.
Our ability to repurchase notes with cash may be limited by the terms
of our then existing borrowing and other financing agreements. Also, as
described in the "Risk Factors" section of this prospectus, we may not have
sufficient
25
funds to repurchase the notes when we are required to do so. We will comply with
the Exchange Act and the rules and regulations promulgated under the Exchange
Act, to the extent applicable, in connection with any such repurchase.
REPURCHASE AT THE OPTION OF THE HOLDER UPON A DESIGNATED EVENT
If a designated event occurs at any time prior to the maturity of the
notes, you may require us to repurchase your notes, in whole or in part, on a
repurchase date that is not less than 30 nor more than 45 business days after
the date of our notice of the designated event. The notes will be repurchased
only in integral multiples of $1,000 principal amount (or the entire principal
amount of the notes held by any holder).
We will repurchase the notes at a price equal to 100% of the principal
amount to be repurchased, plus accrued and unpaid interest and additional
interest, if any, to, but excluding, the repurchase date. If such repurchase
date falls after a record date and on or prior to the corresponding interest
payment date, we will pay the full amount of accrued and unpaid interest payable
on such interest payment date to the holder of record on the close of business
on the corresponding record date.
We will mail to all record holders a notice of a designated event
within 20 days after it has occurred. We also are required to deliver to the
trustee a copy of the designated event notice. If you elect to require us to
repurchase your notes, you must deliver to us or our designated agent, prior to
the close of business on the repurchase date specified in our designated event
notice, your repurchase notice and any notes to be repurchased, duly endorsed
for transfer (or, if your notes are not certificated, your repurchase notice
must comply with appropriate DTC procedures). We will promptly pay the
repurchase price for notes surrendered for repurchase following the repurchase
date.
You may withdraw any written repurchase notice by delivering a written
notice of withdrawal to the paying agent prior to the close of business on the
repurchase date. The withdrawal notice must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate number of
the withdrawn notes (or, if your notes are not certificated, your
withdrawal notice must comply with appropriate DTC procedures);
and
- the principal amount, if any, which remains subject to the
repurchase notice.
In the event of a "termination of trading," we will pay the repurchase
price in cash.
In the event of a "change in control," we may, at our option, elect to
pay the repurchase price in cash, shares of common stock valued at a discount of
5% from the market price of our common stock, or any combination thereof. If the
amount of stock to be issued in connection with any repurchase equals or exceeds
20% of the voting power of our outstanding stock prior to the issuance in
connection with the repurchase, we may, under Nasdaq rules, be required to
obtain the approval of our stockholders for such an issuance. We may pay the
repurchase price in shares of our common stock only if such shares are eligible
for immediate resale in the public market by our non-affiliates. We will notify
the holders of the notes upon the determination of the actual number of shares
of common stock deliverable upon any repurchase of the notes.
Our right to repurchase the notes, in whole or in part, in the event of
a change in control with shares of common stock is subject to our satisfying
various conditions, including:
- the listing of such shares of common stock on the principal United
States securities exchange on which the common stock is then
listed or, if not so listed, on Nasdaq or any similar U.S. system
of automated dissemination of quotations of securities prices;
- the registration of the common stock under the Exchange Act, if
required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
26
If such conditions are not satisfied with respect to a holder prior to
the close of business on the repurchase date, we will pay the repurchase price
of such holder's notes entirely in cash. We may not change the form or
components or percentages of components of consideration to be paid for the
notes once we have given any notice that we are required to give to holders of
the notes, except as described in the first sentence of this paragraph.
The "market price" of our common stock means the average of the daily
volume-weighted average price of our common stock for the 20 trading-day period
ending on the third business day prior to the repurchase date (if the third
business day prior to the repurchase date is a trading day, or if not, then on
the last trading day prior to the third business day), appropriately adjusted to
take into account the occurrence, during the period commencing on the first
trading day during the 20 trading-day period and ending on the repurchase date,
of any event that would result in an adjustment to the conversion rate of the
notes, as described above under "--Conversion of Notes."
Because the market price of our common stock is determined prior to the
repurchase date, holders of the notes bear the market risk with respect to the
value of our common stock to be received from the date the market price is
determined to the repurchase date. We may pay the repurchase price or any
portion of the repurchase price in shares of our common stock only if the
information necessary to calculate the market price is publicly available. In
connection with any redemption offer, we will comply with the provisions of Rule
13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act that
may then be applicable, including filing a Schedule TO or any other required
schedule under the Exchange Act.
Payment of the repurchase price for a note for which a repurchase
notice has been delivered and not withdrawn is conditioned upon book-entry
transfer or delivery of the note, together with necessary endorsements, to the
paying agent at its corporate trust office in the Borough of Manhattan, The City
of New York, or any other office of the paying agent, at any time after delivery
of the repurchase notice. Payment of the repurchase price for the note will be
made promptly following the later of the repurchase date and the time of
book-entry transfer or delivery of the note.
If the paying agent holds money or securities sufficient to pay the
repurchase price of the note on the repurchase date, then, on and after the
business day following the repurchase date:
- the note will cease to be outstanding;
- interest will cease to accrue in respect of any date from and
after the repurchase date; and
- all other rights of the holder will terminate, other than the
right to receive the repurchase price upon delivery of the note.
This will be the case whether or not book-entry transfer of the note
has been made or the note has been delivered to the paying agent.
A "designated event" will be deemed to have occurred upon a change in
control or a termination of trading.
A "change in control" will be deemed to have occurred at the time after
the notes are originally issued that any of the following occurs:
(1) any person acquires a beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of our capital
stock entitling the person to exercise 50% or more of the total
voting power of all shares of our capital stock that are entitled
to vote generally in elections of directors, other than an
acquisition by us, any subsidiaries that we may create in the
future or any of our employee benefit plans; or
(2) we merge or consolidate with or into any other person, any other
person merges with or into us or we convey, sell, transfer or
lease all or substantially all of our assets to another person,
other than:
- any such transaction pursuant to which the holders of 50% or
more of the total voting power of all shares of our capital
stock entitled to vote generally in elections of directors
immediately prior to such transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total
voting
27
power of all shares of capital stock entitled to vote
generally in the election of directors of the continuing or
surviving corporation immediately after such transaction; or
- any merger that is effected solely to change our jurisdiction
of incorporation; or
(3) any transaction or event (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, binding share
exchange, combination, reclassification, recapitalization or
otherwise) in connection with which all or substantially all of
our common stock is exchanged for, converted into, acquired for or
constitutes solely the right to receive, consideration which is
not all or substantially all common stock that:
- is listed on, or immediately after the transaction or event
will be listed on, a U.S. national securities exchange; or
- is approved, or immediately after the transaction or event
will be approved, for quotation on Nasdaq or any similar U.S.
system of automated dissemination of quotations of securities
prices.
HOWEVER, A CHANGE IN CONTROL WILL NOT BE DEEMED TO HAVE OCCURRED IF
EITHER:
- the closing price per share of our common stock for any five
trading days within the period of 10 consecutive trading days
ending immediately after the later of the change in control
and the public announcement of the change in control, in the
case of a change in control relating to an acquisition of
capital stock, or the period of 10 consecutive trading days
ending immediately before the change in control, in the case
of a change in control relating to a merger, consolidation or
asset sale, equals or exceeds 105% of the conversion price of
the notes in effect on each of those trading days; or
- all of the consideration, excluding cash payments for
fractional shares and cash payments made pursuant to
dissenters' appraisal rights, in a merger or consolidation
otherwise constituting a change in control under clause (1)
or (2) in the preceding paragraph above, consists of shares
of common stock, depositary receipts or other certificates
representing common equity interests traded on a national
securities exchange or quoted on Nasdaq, or will be so traded
or quoted immediately following such merger or consolidation,
and as a result of such merger or consolidation the notes
become convertible solely into such common stock, depositary
receipts or other certificates representing common equity
interests.
For purposes of this definition:
- whether a person is a beneficial owner will be determined in
accordance with Rule 13d-3 under the Exchange Act;
- a person includes any syndicate or group that would be deemed
to be a person under Section 13(d)(3) of the Exchange Act;
and
- we may rely on 13D and 13G filings filed pursuant to the
Exchange Act.
A "termination of trading" will be deemed to have occurred if our
common stock or other common stock into which the notes are convertible is
neither listed for trading on a U.S. national securities exchange nor approved
for listing on Nasdaq or any similar U.S. system of automated dissemination of
quotations of securities prices, and no American Depository Shares or similar
instruments for such common stock are so listed or approved for listing in the
U.S.
We will comply with any applicable provisions of Rule 13e-4 and any
other applicable tender offer rules under the Exchange Act in the event of a
designated event.
These designated event repurchase rights could discourage a potential
acquirer of EPIX. However, this designated event repurchase feature is not the
result of management's knowledge of any specific effort to obtain control of us
by means of a merger, tender offer or solicitation, or part of a plan by
management to adopt a series of anti-takeover
28
provisions. The term "designated event" is limited to specified transactions and
may not include other events that might adversely affect our financial condition
or business operations. Our obligation to offer to repurchase the notes upon a
designated event would not necessarily afford you protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving us. No notes may be repurchased by us at the option of holders upon a
designated event if the principal amount of the notes has been accelerated and
such acceleration has not been rescinded.
We may be unable to repurchase the notes in the event of a designated
event. If a designated event were to occur, we may not have enough funds to pay
the repurchase price for all tendered notes. Any future credit or financing
agreements or other agreements relating to our indebtedness may contain
provisions prohibiting repurchase of the notes under certain circumstances, or
expressly prohibit our repurchase of the notes upon a designated event or may
provide that a designated event constitutes an event of default under that
agreement. The subordination provisions of the indenture may also preclude us
from repurchasing the notes. If a designated event occurs at a time when we are
prohibited from repurchasing notes, we could seek the consent of our lenders to
repurchase the notes or attempt to refinance this debt. If we do not obtain
consent, we would not be permitted to repurchase the notes. Our failure to
repurchase tendered notes would constitute an event of default under the
indenture, which might constitute a default under the terms of our other
indebtedness.
The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of all or substantially all of
our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
us to repurchase your notes as a result of conveyance, transfer, sale, lease or
other disposition of less than all of our assets may be uncertain.
Before we repurchase the notes in whole or in part, we will be required
to repay the then outstanding principal amount, together with accrued unpaid
interest, under our Schering AG loan facility.
RANKING
The notes will:
- be our senior unsecured obligations;
- be subordinated in right of payment with all of our existing and
future indebtedness under our Schering AG loan facility;
- rank on parity in right of payment with all of our existing and
future senior debt, other than our Schering AG loan facility; and
- rank senior in right of payment to all of our future debt that is
subordinated to the notes.
The notes are effectively subordinated in right of payment to our
existing and future secured debt, to the extent of such security, and to all
existing and future indebtedness (including trade payables) of any subsidiaries
that we may create in the future. As a result of the subordination of the notes
to the Schering AG loan facility, in the event of our bankruptcy, dissolution or
reorganization, holders of the notes may receive less, ratably, than our other
creditors, including without limitation our trade creditors and other creditors
that are not contractually subordinated to the Schering AG loan facility. The
indenture does not limit our ability to incur debt, including secured debt, or
the amount of indebtedness or other liabilities our subsidiaries may incur. Our
ability to make required interest, principal, repurchase or redemption payments
on the notes may be impaired as a result of the obligations of any of our future
subsidiaries. Our subsidiaries, if any, will be separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the notes or to make any funds available therefor, whether by
dividends, loans or other payments. Any right we have to receive assets of any
of our future subsidiaries upon that subsidiary's liquidation or reorganization
(and the consequent right of the holders of the notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that we are ourselves recognized as a creditor
of that subsidiary, in which case our claims would still be subordinate to any
security interests in the assets of that subsidiary and any indebtedness of that
subsidiary senior to that held by us. At June 30, 2004, the outstanding
principal amount of our indebtedness under our Schering AG loan facility was $15
million, which amount was repaid in full in July 2004, and we did not have any
other
29
secured debt outstanding. No payment will be able to be made in respect of the
notes if the indebtedness under the Schering AG loan facility is not paid when
due or any other default under the Schering AG loan facility occurs and the
maturity of such indebtedness is accelerated in accordance with its terms.
Furthermore, if certain other defaults exist with respect to the Schering AG
loan facility, the holders of such indebtedness will be able to prevent payments
on the notes for specified periods of time. In addition, before we redeem or
repurchase for cash the notes in whole or in part, we will be required to repay
the then outstanding principal amount, together with accrued and unpaid
interest, under our Schering AG loan facility, other than a redemption by us of
less than $7.5 million cumulative principal amount of the notes.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by it in connection with its duties relating to the notes. The trustee's claims
for such payments will be senior to those of holders of the notes in respect of
all funds collected or held by the trustee.
MERGER AND SALE OF ASSETS BY EPIX
The indenture provides that we may not consolidate with or merge with
or into any other person or convey, transfer or lease all or substantially all
of our properties or assets to another person, unless among other things:
- we are the surviving person, or the resulting, surviving or
transferee person, if other than us, is organized and existing
under the laws of the United States, any state thereof or the
District of Columbia;
- the successor person, if other than us, assumes, by supplemental
indenture satisfactory in form to the trustee, all of our
obligations under the notes and the indenture;
- after giving effect to such transaction, there is no event of
default under the indenture, and no event which, after notice or
passage of time or both, would become an event of default; and
- we have delivered to the trustee an officers' certificate stating
that such transaction complies with these requirements and an
opinion of counsel as to the first two items above.
When such a person assumes our obligations in such circumstances,
subject to certain exceptions, we shall be discharged from all obligations under
the notes and the indenture.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be events of default with respect to the notes under
the indenture:
- we fail to pay principal when due at maturity, upon redemption,
repurchase or otherwise on the notes;
- we fail to pay any interest or additional interest, if any, on the
notes, when due and such failure continues for a period of 30
consecutive days;
- we fail to perform or observe any of the covenants in the
indenture for 60 consecutive days after written notice to us from
the trustee (or to us and the trustee from the holders of at least
25% in principal amount of the outstanding notes);
- payment defaults, continuing after any applicable grace periods,
or acceleration of indebtedness (if such acceleration is not
withdrawn, cancelled or otherwise annulled within 10 days), where
the aggregate amount of defaulted or accelerated principal,
premium and interest is in excess of $10 million; or
- certain events involving our bankruptcy, insolvency or
reorganization.
The trustee may withhold notice to the holders of the notes of any
default, except defaults in payment of principal, interest or additional
interest, if any, on the notes. However, the trustee must consider it to be in
the interest of the holders of the notes to withhold this notice.
30
If an event of default occurs and continues, the trustee or the holders
of at least 25% in principal amount of the notes then outstanding may declare
the principal and accrued interest and additional interest, if any, on the
outstanding notes to be immediately due and payable. In case of certain events
of bankruptcy or insolvency involving us, the principal and accrued interest and
additional interest, if any, on the notes will automatically become due and
payable. However, with certain exceptions, if we cure all defaults, except the
nonpayment of principal, interest or additional interest, if any, that became
due as a result of the acceleration, and meet certain other conditions and the
holders of a majority of the principal amount of outstanding notes waive these
past defaults on behalf of all holders of the notes, this declaration may be
cancelled.
Payments of principal, interest or additional interest, if any, on the
notes that are not made when due will accrue interest from the required payment
date at the annual rate of 1% above the then applicable interest rate for the
notes.
The holders of a majority of outstanding notes will have the right to
direct the time, method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the notes may pursue any remedy under the indenture,
except in the case of a default in the payment of principal, interest or
additional interest, if any, unless:
- the holder has given the trustee written notice of an event of
default;
- the holders of at least 25% in principal amount of the notes then
outstanding make a written request to the trustee to pursue the
remedy;
- the holder or holders have offered reasonable security or
indemnity to the trustee against any costs, liability or expense
of the trustee;
- the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the notes; and
- the trustee fails to comply with the request within 60 days after
receipt of the request and offer of indemnity.
MODIFICATION AND WAIVER
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each outstanding
note if it would:
- extend the fixed maturity of any note;
- reduce the rate or extend the time for payment of interest or
additional interest, if any, of any note;
- reduce the principal amount of any note;
- reduce any amount payable upon redemption or repurchase of any
note;
- after the occurrence of a designated event, adversely change our
obligation to repurchase any note upon a designated event;
- impair the right of a holder to institute suit for payment on any
note;
- change the currency in which any note is payable;
- impair the right of a holder to convert any note or reduce the
number of shares of common stock or the amount of any other
property receivable upon conversion;
- reduce the quorum or voting requirements under the indenture; or
31
- subject to specified exceptions, modify certain provisions of the
indenture relating to modification or waiver of provisions of the
indenture.
In addition, a modification or amendment that would, prior to the
occurrence of a designated event, adversely change our obligation to repurchase
any note upon a designated event requires the consent of the holders of
two-thirds in principal amount of the outstanding notes.
We are permitted to modify certain provisions of the indenture without
the consent of the holders of the notes.
FORM, DENOMINATION AND REGISTRATION
The notes have been issued:
- in fully registered form;
- without interest coupons; and
- in denominations of $1,000 principal amount and integral multiples
of $1,000.
GLOBAL NOTE, BOOK-ENTRY FORM
Notes are evidenced by one or more global notes. We have deposited the
global note or notes with DTC and have registered the global notes in the name
of Cede & Co. as DTC's nominee. Except as set forth below, a global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Beneficial interests in a global note may be held directly through DTC
if such holder is a participant in DTC, or indirectly through organizations that
are participants in DTC (called "participants"). Transfers between participants
will be effected in the ordinary way in accordance with DTC rules and will be
settled in clearing house funds. The laws of some states require that certain
persons take physical delivery of securities in definitive form. As a result,
the ability to transfer beneficial interests in the global note to such persons
may be limited.
Holders who are not participants may beneficially own interests in a
global note held by DTC only through participants, or certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a participant, either directly or indirectly (called
"indirect participants"). So long as Cede & Co., as the nominee of DTC, is the
registered owner of a global note, Cede & Co. for all purposes will be
considered the sole holder of such global note. Except as provided below, owners
of beneficial interests in a global note will:
- not be entitled to have certificates registered in their names;
and
- not be considered holders of the global note (other than in an
enforcement by such owner of a beneficial interest to exchange
such beneficial interest for notes in certificated form).
We will pay interest, and additional interest, if any, and the
redemption price and the repurchase price of a global note to Cede & Co., as the
registered owner of the global note, by wire transfer of immediately available
funds on each interest payment date or the redemption or repurchase date, as the
case may be. Neither we, the trustee nor any paying agent will be responsible or
liable:
- for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or
- for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
Neither we, the trustee, registrar, paying agent nor conversion agent
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take any
action permitted to be taken by a holder of notes, including the presentation of
notes for exchange, only at the direction of one or more participants to whose
account with DTC interests in the global note are credited, and only in respect
of the principal amount of the notes
32
represented by the global note as to which the participant or participants has
or have given such direction. DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes to the accounts of its
participants. Participants include securities brokers, dealers, banks, trust
companies and clearing corporations and other organizations. Some of the
participants or their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time.
We will issue the notes in definitive certificated form if DTC notifies
us that it is unwilling or unable to continue as depositary or DTC ceases to be
a clearing agency registered under the Exchange Act and a successor depositary
is not appointed by us within 90 days. In addition, beneficial interests in a
global note may be exchanged for definitive certificated notes upon request by
or on behalf of DTC in accordance with customary procedures. We may determine at
any time and in our sole discretion that notes shall no longer be represented by
global notes, in which case we will issue certificates in definitive form in
exchange for the global notes.
REGISTRATION RIGHTS OF THE NOTEHOLDERS
We have entered into a registration rights agreement with the initial
purchasers. We have filed a shelf registration statement with the SEC, of which
this prospectus is a part, covering resale of the registrable securities. We
will use our reasonable best efforts to keep the shelf registration statement
effective until the date there are no longer any registrable securities.
When we use the term "registrable securities" in this section, we are
referring to the notes and the common stock issuable upon conversion of the
notes until the earliest of:
- the effective registration under the Securities Act and the resale
of the registrable securities in accordance with the registration
statement;
- the expiration of the holding period for non-affiliates with
respect to the registrable securities under Rule 144(k) under the
Securities Act;
- the sale of the registrable securities pursuant to Rule 144 under
the Securities Act;
- the registrable securities cease to be outstanding; and
- June 7, 2006.
We may suspend the use of the prospectus included in the registration
statement under certain circumstances relating to pending corporate
developments, public filings with the SEC and similar events. Any suspension
period shall not exceed:
- 30 days in any three-month period; or
33
- an aggregate of 90 days for all suspension periods in any 12-month
period.
Notwithstanding the foregoing, we will be permitted to suspend the use
of the prospectus included in the shelf registration statement for up to 60 days
in any three-month period under certain circumstances, relating to possible
acquisitions, financings or other similar transactions.
We will pay additional interest on the interest payment dates for the
notes to the initial purchasers in the event the prospectus included in the
registration statement is unavailable for periods in excess of those permitted
above. Those additional amounts will accrue until such unavailability is cured:
- in respect of any notes at a rate per year equal to 0.25% of the
outstanding principal amount thereof for the first 90 days after
the occurrence of the event and 0.50% of the outstanding principal
amount thereof after the first 90 days; and
- in respect of shares of common stock into which the notes have
been converted at a rate per year equal to 0.25% of the
then-applicable conversion price for the first 90 days after the
occurrence of the event and 0.50% of the then-applicable
conversion price after the first 90 days.
We will have no other liabilities for monetary damages with respect to
our registration obligations.
A holder who elects to sell registrable securities pursuant to the
shelf registration statement will be required to:
- be named as a selling holder in the related prospectus;
- deliver a prospectus to purchasers; and
- be subject to the provisions of the registration rights agreement,
including indemnification provisions.
Under the registration rights agreement we will:
- pay all expenses of the shelf registration statement;
- provide each registered holder copies of the prospectus;
- notify holders when the shelf registration statement has become
effective; and
- take other reasonable actions as are required to permit
unrestricted resales of the registrable securities in accordance
with the terms and conditions of the registration rights
agreement.
The plan of distribution of the shelf registration statement will
permit resales of registrable securities by selling holders through brokers and
dealers. See "Plan of Distribution."
INFORMATION CONCERNING THE TRUSTEE
We have appointed U.S. Bank National Association, the trustee under the
indenture, as paying agent, conversion agent, note registrar and custodian for
the notes. The trustee or its affiliates may provide banking and other services
to us in the ordinary course of their business. Subject to certain conditions,
we have the right to replace the trustee.
The indenture contains certain limitations on the rights of the
trustee, if it or any of its affiliates is then our creditor, to obtain payment
of claims in certain cases or to realize on certain property received on any
claim as security or otherwise. The trustee and its affiliates will be permitted
to engage in other transactions with us. However, if the trustee or any
affiliate continues to have any conflicting interest and a default occurs with
respect to the notes, the trustee must eliminate such conflict or resign.
GOVERNING LAW
34
The notes and the indenture are governed by, and shall be construed in
accordance with, the laws of the State of New York.
35
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common
stock and 1,000,000 shares of preferred stock, par value $.01 per share. As of
August 3, 2004, we had 22,990,371 shares of common stock outstanding and no
shares of preferred stock outstanding.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters voted upon by our stockholders and may not
cumulate votes. Subject to the rights of holders of any future series of
undesignated preferred stock which may be designated, each share of the
outstanding common stock is entitled to participate ratably in any distribution
of net assets made to the stockholders in the liquidation, dissolution or
winding up of our company and is entitled to participate equally in dividends if
and when declared by our board of directors. There are no redemption, sinking
fund, conversion or preemptive rights with respect to shares of our common
stock. All shares of our common stock have equal rights and preferences.
PREFERRED STOCK
Our board of directors has the authority, without further stockholder
approval, to issue 1,000,000 shares of preferred stock where defined in one or
more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions of such preferred stock, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences, sinking fund terms and
the number of shares constituting any series or the designation of such series.
The issuance of preferred stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change in
control of our company, which may discourage bids for our common stock at a
premium over the market price of the common stock and may adversely affect the
market price of, and the voting and other rights of the holders of, our common
stock. We have no present plans to issue any shares of preferred stock.
36
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income
tax considerations of the purchase, ownership and disposition of the notes and
of our common stock into which the notes may be converted. This discussion
assumes that the notes will be treated as indebtedness for U.S. federal income
tax purposes.
This discussion applies to holders that will hold the notes and common
stock as "capital assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended, which we sometimes refer to as the Code, and
does not address tax considerations applicable to investors in light of their
particular circumstances or to investors that may be subject to special tax
rules, such as financial institutions, mutual funds, tax-exempt organizations,
insurance companies, dealers in securities or currencies, traders in securities
who elect to apply mark-to-market method of accounting, persons that will hold
notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, persons subject to the alternative minimum tax,
certain former citizens or residents of the United States, United States Holders
(as defined below) whose functional currency is not the U.S. dollar or persons
deemed to sell notes under the constructive sale provisions of the Code.
This summary is based on the Code, administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations,
changes to any of which subsequent to the date of this prospectus may affect the
tax consequences described herein, possibly with retroactive effect. We have not
sought a ruling from the Internal Revenue Service with respect to the statements
made and the conclusions reached in the following summary, and there can be no
assurance that the Internal Revenue Service will agree with such statements and
conclusions.
Persons considering the purchase of the notes are urged to consult
their tax advisers with regard to the application of the U.S. federal income tax
laws to their particular situations as well as any tax consequences arising
under the U.S. federal estate or gift tax laws or the laws of any state, local
or foreign taxing jurisdiction.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial
owner of a note or shares of our common stock that is, as determined for U.S.
federal income tax purposes, either (1) a citizen or resident of the United
States, or U.S.; (2) a corporation, or other entity taxable as a corporation for
U.S. federal income tax purposes, formed under the laws of the U.S. or a state
of the U.S.; (3) an estate the income of which is subject to U.S. federal income
tax regardless of its source; or (4) a trust subject to the primary supervision
of a court within the U.S. which has one or more U.S. persons with authority to
control all substantive decisions, or which has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person. A "Non-United
States Holder" is any holder other than a United States Holder.
If a partnership (including for this purpose any entity, foreign or
domestic, classified as a partnership for U.S. federal income tax purposes) is a
beneficial owner of the notes or the common stock into which the notes may be
converted, the U.S. federal income tax treatment of a partner in the partnership
generally will depend on the status of the partner and the activities of the
partnership. As a general matter, income earned by a foreign or domestic
partnership is attributed to its owners for U.S. federal income tax purposes. A
holder of the notes or the common stock that is a partnership, and the partners
in such partnership, should consult their individual tax advisors regarding the
federal, state, local and foreign tax consequences of the purchase, ownership
and disposition of the notes (and the common stock).
TAXATION OF INTEREST
Interest paid on the notes will be included in the income of a holder
as ordinary income at the time it is treated as received or accrued, in
accordance with the holder's regular method of tax accounting.
In general, if the terms of a debt instrument entitle a holder to
receive payments other than fixed periodic interest that exceed the issue price
of the instrument, the holder may be required to recognize additional interest
as "original issue discount" over the term of the instrument. Further, if the
amount or timing of any additional payments on a note is contingent, the note
could be subject to special rules that apply to contingent debt instruments.
These rules generally require a holder to accrue interest income at a rate
higher than the stated interest rate on the note and to treat as ordinary
37
income, rather than capital gain, any gain recognized on a sale, exchange or
retirement of a note before the resolution of the contingencies.
If the notes are not registered with the SEC within prescribed time
periods or in certain other circumstances described above under "Description of
the Notes - Registration Rights of the Noteholders", the initial purchasers of
the notes will be entitled to additional interest. Also, under certain
circumstances, we may allow noteholders to participate in extraordinary
distributions to our stockholders that would otherwise cause the notes to become
convertible, as described above under "Description of the Notes-- Conversion of
Notes." Any such extraordinary distributions received by noteholders would
likely be treated as additional interest on the notes. In addition, in certain
circumstances, we may pay the repurchase price of the notes in shares of our
common stock or a combination of cash and shares of our common stock, as
described above under "Description of the Notes--Repurchase at the Option of the
Holder upon a Designated Event," in which case holders of the notes will be
entitled to receive a premium.
Notwithstanding the possibility of such contingent payments, under
applicable Treasury Regulations, payments on a note that are subject to either a
remote or incidental contingency may be ignored. We believe that the prospect of
the foregoing payments being made should be considered as a remote and/or
incidental contingency so that the payments should be ignored.
Therefore, for purposes of filing tax or information returns with the
Internal Revenue Service, we will not treat the notes as contingent payment debt
instruments. Our determination that the notes are not contingent payment debt
instruments is binding on each holder unless the holder explicitly discloses in
the manner required by applicable Treasury Regulations that its determination is
different from ours. Our determination is not, however, binding on the Internal
Revenue Service. This discussion assumes that the notes are not subject to the
contingent payment debt instrument rules.
MARKET DISCOUNT
A United States Holder who buys a note for less than its stated
redemption price at maturity may be considered to have purchased the note at a
"market discount." If the market discount is less than 0.25% of the stated
redemption price of the note at maturity multiplied by the number of complete
years to maturity, then the market discount will be deemed to be zero.
A United States Holder may elect to include market discount in income
currently as it accrues. Any such election will apply to all market discount
bonds acquired during or after the year for which the election is made, and the
election may be terminated only with the consent of the Internal Revenue
Service.
If a United States Holder does not make an election to include market
discount in income currently as it accrues, any principal amount received or
gain recognized by a United States Holder on the sale, exchange, retirement or
other taxable disposition of a note will be treated as ordinary income to the
extent of any accrued market discount on the note not previously included in
income. Unless a United States Holder irrevocably elects to accrue market
discount under a constant-interest method, accrued market discount is the total
market discount multiplied by a fraction, the numerator of which is the number
of days the United States Holder has held the note and the denominator of which
is the number of days from the date the holder acquired the note until its
maturity. If a United States Holder exchanges or converts a note into common
stock in a transaction that is otherwise tax free, any accrued market discount
on the note not previously included in income will carry over to the common
stock, and generally any gain recognized upon the disposition of such common
stock will be treated as ordinary income to the extent of such accrued market
discount.
A United States Holder may be required to defer a portion of such
holder's interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry a note purchased with
market discount. Any such deferred interest expense may not exceed the market
discount that accrues during a taxable year and is, in general, allowed as a
deduction not later than the year in which the market discount is includible in
income. This interest expense deferral will not apply if a United States Holder
makes an election to include market discount in income currently as it accrues.
MARKET PREMIUM
38
A United States Holder who buys a note for more than its stated
redemption price at maturity generally will be considered to have purchased the
note at a "market premium." Market premium, however, does not include any
premium attributable to the conversion feature of the note. If an election is
made, the market premium may generally be amortized using a constant yield
method, over the remaining term of the note.
Interest otherwise required to be included in income with respect to
the note during any tax year may be offset by the amount of any amortized market
premium for the year. An election to amortize market premium will apply to all
market premium bonds acquired during or after the year for which the election is
made, and the election may be terminated only with the consent of the Internal
Revenue Service.
SALE, EXCHANGE, REPURCHASE, REDEMPTION OR RETIREMENT OF NOTES
Upon a sale, exchange, repurchase, redemption or retirement of a note
(other than a conversion into shares of our common stock or repurchase for
shares of our common stock or a combination of shares of our common stock and
cash), a United States Holder will generally recognize taxable gain or loss
equal to the difference between (1) the amount realized on the sale, exchange,
repurchase, redemption or retirement (except to the extent such amount is
attributable to accrued interest not previously included in income, which will
be taxable as interest income as discussed above under "Tax Consequences to
United States Holders--Taxation of Interest") and (2) such United States
Holder's adjusted tax basis in the note.
A United States Holder's adjusted tax basis in a note will be, in
general, the cost of the note to the holder, increased by the amount of any
accrued but unpaid interest previously included in the holder's taxable income
and any accrued market discount previously included in the holder's income and
decreased by any principal payments received and any amortizable market premium
accrued.
Subject to the discussion above regarding market discount, gain or loss
recognized on the sale, exchange, repurchase, redemption or retirement of a note
generally will be capital gain or loss and will be long-term capital gain or
loss if at the time of the sale, exchange, repurchase, redemption or retirement
the note has been held for more than one year. The deductibility of capital
losses is subject to limitations.
CONVERSION OF NOTES INTO COMMON STOCK
A United States Holder's conversion of a note into shares of our common
stock generally will not be a taxable event, except (i) the receipt of shares
attributable to accrued interest not previously included in income will be
taxable as interest income as discussed above under "Tax Consequences to United
States Holders--Taxation of Interest," and (ii) the receipt of cash in lieu of a
fractional share of our common stock will result in capital gain or loss
(measured by the difference between the cash received in lieu of the fractional
share and the United States Holder's tax basis attributable to the fractional
share), except that any gain will be treated as ordinary income to the extent of
accrued market discount allocable to such share as discussed above.
A United States Holder's tax basis in the shares of our common stock
received upon a conversion of a note (except for any shares received
attributable to accrued interest not previously included in income) will be the
same as the United States Holder's tax basis in the note at the time of the
conversion, reduced by any basis attributable to a fractional share. The United
States Holder's holding period for the shares of our common stock received
(except for any shares received attributable to accrued interest not previously
included in income) will include the holding period of the note converted.
A United States Holder's tax basis in any shares received attributable
to accrued interest not previously included in income will equal the fair market
value of the shares at the time of the conversion, and the United States
Holder's holding period for such shares will begin on the day after the
conversion.
REPURCHASE OF NOTES FOR COMMON STOCK OR COMBINATION OF CASH AND COMMON STOCK
In certain circumstances, we may pay the repurchase price of the notes
in shares of our common stock or a combination of cash and shares of our common
stock, as described above under "Description of the Notes--Repurchase at the
Option of the Holder upon a Designated Event." If a United States Holder
requires us to repurchase some or all of the
39
holder's notes and we elect to pay the repurchase price in shares of our common
stock or a combination of cash and shares of our common stock, the repurchase
should qualify as a recapitalization for U.S. federal income tax purposes if the
notes qualify as "securities" for tax purposes. Although the determination of
the notes as "securities" is not free from doubt, the notes should qualify as
"securities." United States Holders should consult their own tax advisors
regarding this determination.
If the repurchase price is paid solely in shares of our common stock
(except for cash received in lieu of a fractional share), and the repurchase
qualifies as a recapitalization, the repurchase will result in the same tax
consequences as a conversion of the notes into shares of our common stock, as
described above under "Tax Consequences to United States Holders-Conversion of
Notes into Common Stock."
If the repurchase price is paid in a combination of cash (other than
cash received in lieu of a fractional share) and shares of our common stock, and
the repurchase qualifies as a recapitalization, a United States Holder should
recognize gain, but not loss, equal to the lesser of (i) the sum of the fair
market value of the shares of our common stock received and the amount of cash
received less the holder's adjusted tax basis in the notes and (ii) the amount
of cash received. If the repurchase does not have the effect of a distribution
of a dividend, subject to the discussion above regarding market discount, such
gain will be capital gain. For purposes of the foregoing, any cash or shares
received attributable to accrued interest not previously included in income and
any cash received in lieu of a fractional share will not be taken into account.
The receipt of cash or shares attributable to accrued interest not previously
included in income will be taxable as interest income as discussed above under
"Tax Consequences to United States Holders--Taxation of Interest," and the
receipt of cash in lieu of a fractional share of our common stock will result in
capital gain or loss (measured by the difference between the cash received in
lieu of the fractional share and the United States Holder's tax basis
attributable to the fractional share), except that any gain will be treated as
ordinary income to the extent of accrued market discount allocable to such share
as discussed above.
The United States Holder's tax basis in the shares of our common stock
received (except for any shares received attributable to accrued interest not
previously included in income) should be the same as the United States Holder's
tax basis in the notes repurchased, less the amount of the basis attributable to
a fractional share and the amount of cash received (except (i) to the extent any
cash received is attributable to accrued interest not previously included in
income and (ii) for cash received in lieu of a fractional share), and increased
by the amount of gain recognized (other than gain with respect to a fractional
share). The United States Holder's holding period for the shares of common stock
received (except for any shares received attributable to accrued interest not
previously included in income) will include the holding period of the notes
repurchased. A United States Holder's tax basis in any shares received
attributable to accrued interest not previously included in income would equal
the fair market value of the shares at the time of the repurchase, and the
United States Holder's holding period for such shares would begin on the day
after the repurchase.
If the repurchase of notes for shares of our common stock or a
combination of cash and shares of our common stock does not qualify as a
recapitalization (or as an otherwise nontaxable transaction), a United States
Holder would recognize gain or loss as discussed above under "Tax Consequences
to United States Holders--Sale, Exchange, Repurchase, Redemption or Retirement
of Notes."
CONSTRUCTIVE DISTRIBUTIONS
If at any time we increase the conversion rate of the notes, either at
our discretion or pursuant to the anti-dilution provisions of the indenture, the
increase may be deemed to be the payment of a taxable dividend to the United
States Holders of the notes. Generally, an increase in the conversion rate in
the event of a cash dividend to our stockholders will result in a deemed
distribution to the United States Holders of the notes, but generally a
reasonable increase in the conversion rate in the event of stock dividends or
distributions of rights to our stockholders to subscribe for shares of our
common stock will not result in a deemed distribution to the United States
Holders of the notes. In certain circumstances, the failure to adjust the
conversion rate may result in a deemed distribution to the holders of our common
stock. Deemed distributions will be taxed in the manner described below under
"Tax Consequences to United States Holders--Taxation of Distributions on Common
Stock."
TAXATION OF DISTRIBUTIONS ON COMMON STOCK
40
Distributions, if any, paid with respect to shares of our common stock
after a conversion, other than certain pro rata distributions of common shares,
will be treated as dividends to the extent paid out of current or accumulated
earnings and profits (as determined under U.S. federal income tax principles)
and will be includible in income by the United States Holder. If a distribution
exceeds our current and accumulated earnings and profits, the excess will be
first treated as a tax-free return of the United States Holder's investment, up
to the United States Holder's tax basis in the shares of common stock. Any
remaining excess will be treated as capital gain. Dividends received by certain
noncorporate United States Holders on shares of common stock may be subject to
U.S. federal income tax at lower rates than other types of ordinary income if
certain holding period requirements and other conditions are met. United States
Holders should consult their own tax advisers regarding the applicability of
such reduced tax rates in their particular circumstances.
CERTAIN PAYMENTS ON COMMON STOCK
If we fail to comply with our obligations under "Description of
Notes--Registration Rights of the Noteholders," we may be required to make
payments to noteholders who have converted their notes into shares of common
stock. The tax treatment of any such payments for U.S. federal income tax
purposes is unclear. However, any such payment would most likely constitute
ordinary income to a stockholder at the time it is accrued or received in
accordance with the holder's regular method of tax accounting. Those payments
likely would not qualify for the reduced rate of tax applicable to dividends as
described above.
SALE OR OTHER DISPOSITION OF COMMON STOCK
Unless a nonrecognition provision applies, subject to the discussion
above regarding market discount, gain or loss realized by a United States Holder
on the sale or other disposition of shares of our common stock received upon
conversion of a note will be recognized as capital gain or loss for U.S. federal
income tax purposes, and will be long-term capital gain or loss if the United
States Holder held the shares of common stock for more than one year. The amount
of the United States Holder's gain or loss will be equal to the difference
between the United States Holder's tax basis in the shares of common stock
disposed of and the amount realized on the disposition.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
owner of a note or shares of our common stock that is not a United States
Holder, as defined above.
TAXATION OF INTEREST
Subject to the discussion below regarding backup withholding, interest
income on the notes paid to a Non-United States Holder will be exempt from U.S.
federal income and withholding tax, provided that:
- the Non-United States Holder does not own, actually or
constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote and is not a controlled
foreign corporation related, directly or indirectly, to us through
stock ownership and is not a bank receiving certain types of
interest,
- the certification requirement described below has been fulfilled
with respect to the Non-United States Holder, and
- such interest is not effectively connected with the conduct by
such Non-United States Holder of a trade or business in the United
States.
The certification requirement referred to above will be fulfilled if
the beneficial owner of a note certifies on IRS Form W-8BEN, under penalties of
perjury, that it is not a U.S. person and provides its name and address.
Interest income on the notes that is not exempt from U.S. federal
income and withholding tax generally will be subject to U.S. withholding tax at
a 30% rate, subject to reduction by an applicable treaty, unless such income is
effectively connected income as described below in "Tax Consequences to
Non-United States Holders--Effectively Connected Income."
41
Additional interest received by an initial purchaser that is a
Non-United States Holder if the notes are not registered with the SEC within
prescribed time periods or in certain other circumstances described above in
"Description of the Notes--Registration Rights of the Noteholders" and any
extraordinary distributions received by Non-United States Holders of the notes
as described above under "Description of the Notes-- Conversion of Notes" may
not be exempt from U.S. withholding tax as described above. Holders should
consult with their own tax advisers regarding such determination.
SALE, EXCHANGE OR OTHER DISPOSITION OF NOTES OR COMMON STOCK
Subject to the discussion below regarding backup withholding, a
Non-United States Holder generally will not be subject to U.S. federal income
and withholding tax on gain realized on a sale, exchange or other disposition
(other than a conversion into shares of our common stock, which is described
below) of the notes or of shares of our common stock, unless:
- the gain is effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United
States,
- in the case of a Non-United States Holder who is a nonresident
alien individual, the individual is present in the United States
for 183 or more days in the taxable year of the sale, exchange or
disposition and certain other conditions are met, or
- we are or have been a U.S. real property holding corporation at
any time within the shorter of the five year period preceding such
sale, exchange or disposition and the period the Non-United States
Holder held the notes or common stock. We believe that we are not,
and do not anticipate becoming, a U.S. real property holding
corporation for U.S. federal income tax purposes.
Any gain realized on a sale, exchange or other disposition of the notes
taxed as interest income will be subject to the rules described above regarding
taxation of interest.
CONVERSION OF NOTES INTO COMMON STOCK
Non-United States Holders generally will not be subject to U.S. federal
income and withholding tax on the conversion of a note into shares of our common
stock. However, any gain recognized by a Non-United States Holder on the
conversion of a note into shares of our common stock due to the receipt of cash
in lieu of a fractional share will be subject to the rules described above
regarding the sale, exchange or other disposition of a note, and any shares
taxable as interest income will be subject to the rules described above
regarding taxation of interest.
DISTRIBUTIONS ON NOTES AND COMMON STOCK
If a Non-United States Holder of a note were deemed to have received a
constructive dividend (see "Tax Consequences to United States
Holders-Constructive Distributions" above), the Non-United States Holder
generally will be subject to U.S. withholding tax at a 30% rate, subject to
reduction by an applicable treaty, on the taxable amount of the dividend unless
such income is effectively connected income as described below in "Tax
Consequences to Non-United States Holders-Effectively Connected Income." In
addition, dividends paid to a Non-United States Holder of our common stock
generally will be subject to U.S. withholding tax at a 30% rate, subject to
reduction under an applicable treaty, unless such income is effectively
connected income as described below in "Tax Consequences to Non-United States
Holders-Effectively Connected Income." In order to obtain a reduced rate of
withholding, a Non-United States Holder will be required to provide a properly
executed IRS Form W-8BEN certifying its entitlement to benefits under a treaty.
A Non-United States Holder who is subject to withholding tax under such
circumstances should consult his own tax adviser as to whether he can obtain a
refund for all or a portion of the withholding tax.
If we fail to comply with our obligations under "Description of
Notes--Registration Rights of the Noteholders," we may be required to make
payments to noteholders who have converted their notes into shares of common
stock. The tax treatment of any such payments for U.S. federal income tax
purposes is unclear. Any such payment made to a Non-United States Holder of our
common stock likely would be subject to U.S. withholding tax at a 30% rate
unless such payment is effectively connected income as described below in "Tax
Consequences to Non-United States Holders-
42
Effectively Connected Income," but such payments likely would not qualify as
"dividends" for purposes of determining the applicability of any exemption from,
or reduced rate of, the withholding tax under a treaty.
43
EFFECTIVELY CONNECTED INCOME
If a Non-United States Holder of a note or of our common stock is
engaged in a trade or business in the United States, and if interest on the
note, gain realized on a sale, exchange or other disposition of the note or of
our common stock, or a dividend on the note or on our common stock, is
effectively connected with the conduct of the trade or business, the Non-United
States Holder, although exempt from U.S. withholding tax, will generally be
taxed in the same manner as a United States Holder (see "Tax Consequences to
United States Holders" above), except that the Non-United States Holder will be
required to provide a properly executed IRS Form W-8ECI in order to claim an
exemption from withholding tax. These Non-United States Holders should consult
their own tax advisers with respect to other tax consequences of the ownership
of the note or of our common stock, including the possible imposition of a 30%
branch profits tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns may be filed with the Internal Revenue Service in
connection with payments on the notes and our common stock and the proceeds from
a sale or other disposition of the notes or our common stock. A United States
Holder may be subject to United States backup withholding tax on these payments
if it fails to provide its taxpayer identification number to the paying agent
and comply with certification procedures or otherwise establish an exemption
from backup withholding. A Non-United States Holder may be subject to United
States backup withholding tax on these payments unless the Non-United States
Holder complies with certification procedures to establish that it is not a U.S.
person. The amount of any backup withholding from a payment will be allowed as a
credit against the holder's U.S. federal income tax liability and may entitle
the holder to a refund, provided that the required information is timely
furnished to the Internal Revenue Service.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING
UPON A HOLDER'S PARTICULAR SITUATION. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT
ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF PURCHASING,
HOLDING AND DISPOSING OF THE NOTES AND THE COMMON STOCK INTO WHICH THE NOTES MAY
BE CONVERTED OR FOR WHICH THE NOTES MAY BE EXCHANGED, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAWS.
44
SELLING HOLDERS
The notes were originally issued by us and sold by SG Cowen & Co., LLC,
Needham & Company, Inc., Wells Fargo Securities, LLC and WR Hambrecht + Co, LLC,
as the initial purchasers, in a transaction exempt from the registration
requirements of the Securities Act to qualified institutional buyers. Selling
holders, including their transferees, pledgees or donees or their successors,
may from time to time offer and sell any or all of the notes and common stock
into which the notes are convertible.
The selling holders have represented to us that they purchased the
notes and the common stock issuable upon conversion of the notes for their own
account for investment only and not with a view toward selling or distributing
them, except through sales registered under the Securities Act or exemptions. We
agreed with the initial purchasers to file this registration statement to
register the resale of the notes and the common stock. We also agreed to prepare
and file all necessary amendments and supplements to the registration statement
to keep it effective until the date on which the notes and the common stock
issuable upon conversion of the notes no longer qualify as "registrable
securities" under our registration rights agreement.
The following table shows information, as of August 2, 2004, with
respect to the selling holders and the principal amounts of notes and common
stock they beneficially own that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders.
The following table sets forth:
(1) the name of each selling holder who has provided us with
notice as of the date of this prospectus pursuant to the registration
rights agreement that they may intend to sell or otherwise dispose of
notes and/or shares of common stock issuable upon conversion of the
notes pursuant to the registration statement,
(2) the principal amount of notes and the number of shares of our
common stock issuable upon conversion of the notes that they may sell
from time to time pursuant to the registration statement, and
(3) the amount of outstanding notes and shares of our common stock
beneficially owned by the selling holder after completion of the
offering (excluding any shares owned or acquired other than upon
conversion of the notes).
To our knowledge, no selling holder nor any of its affiliates has held
any position or office with, been employed by or otherwise has had any material
relationship with us or our affiliates, during the three years prior to the date
of this prospectus, except that SG Cowen & Co., LLC, Needham & Company, Inc.,
Wells Fargo Securities, LLC and WR Hambrecht + Co, LLC were the initial
purchasers of the notes and served as underwriters of our offering of 4,645,000
shares of our common stock on August 7, 2003.
A selling holder may offer all or some portion of the notes and shares
of the common stock issuable upon conversion of the notes. Accordingly, no
estimate can be given as to the amount or percentage of notes or our common
stock that will be held by the selling holders upon termination of sales
pursuant to this prospectus. In addition, the selling holders identified below
may have sold, transferred or disposed of all or a portion of their notes since
the date on which they provided the information regarding their holdings in
transactions exempt from the registration requirements of the Securities Act.
The information contained under the column heading "Shares of Common
Stock That May Be Sold" represents shares issuable upon conversion of the
principal amount of notes listed and assumes conversion of the full amount of
the notes at the initial conversion rate of 33.5909 shares per $1,000 in
principal amount of the notes. The name "Unidentified Holders" represents the
remaining selling holders. We are unable to provide the names of these holders
because certain of these notes are currently evidenced by a global convertible
note which has been deposited with DTC and registered in the name of Cede & Co.
as DTC's nominee.
45
SHARES OF
PRINCIPAL PRINCIPAL COMMON
AMOUNT OF AMOUNT OF STOCK
NOTES SHARES OF NOTES OWNED BENEFICIALLY
BENEFICIALLY COMMON AFTER OWNED AFTER
OWNED THAT STOCK THAT COMPLETION OF COMPLETION OF
NAME MAY BE SOLD ($) MAY BE SOLD OFFERING ($) OFFERING (1)
----------------------------------------------------------------------------------------------------------------
National Bank of Canada 500,000 16,795 0 0
Polaris Vega Fund L.P. 1,600,000 53,745 0 0
Pioneer U.S. High Yield Corp. 3,900,000 131,004 0 0
Pioneer High Yield Fund 34,600,000 1,162,243 0 0
Pioneer High Yield VCT Portfolio 375,000 12,596 0 0
GE Singapore Life Insurance Fund 125,000 4,198 0 0
SG Americas Securities, LLC 1,400,000 47,027 0 0
Sunrise Partners Limited Partnership 6,400,000 214,981 0 0
UBS AG London - F/B/O HFS 3,000,000 100,772 0 0
UBS O'Connor LLC - F/B/O O'Connor
Global Convertible Arbitrage Master Ltd. 500,000 16,795 0 0
Wachovia Bank National Association 9,000,000 302,317 0 0
Unidentified Holders 38,600,000 1,296,607 0 0
(1) For purposes of the information set forth in this table, we have
assumed, unless informed otherwise by the selling holder, that each selling
holder beneficially owns no shares of our common stock other than shares
issuable upon conversion of the notes.
Information concerning the selling holders may change from time to time
and any changed information will be set forth in supplements to this prospectus
if and when necessary. In addition, the per share conversion price, and
therefore the number of shares of common stock issuable upon conversion of the
notes, is subject to adjustment. As a result, the aggregate principal amount of
notes and the number of shares of common stock into which the notes are
convertible may increase or decrease.
46
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and our common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and common stock issuable upon conversion of the notes may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to the prevailing market prices, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer system of
a registered national securities association on which the notes or
our common stock may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems or in
the over-the-counter market;
- through the writing of options, whether the options are listed on
an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and the common stock issuable
upon conversion of the notes, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or common stock issuable upon conversion
of the notes in the course of hedging the positions they assume. The selling
holders may also sell the notes or common stock short and deliver these
securities to close out their short positions, or loan or pledge the notes or
common stock issuable upon conversion of the notes to broker-dealers that in
turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the
notes or common stock offered by them will be the purchase price of the notes or
common stock less discounts and commissions, if any. Each of the selling holders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of notes or common stock
to be made directly or through agents. We will not receive any of the proceeds
from this offering.
Our common stock is listed for trading on The Nasdaq National Market
under the symbol "EPIX." The notes are currently eligible for trading on the
PORTAL System of the NASD.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock issuable upon conversion of the notes may
be sold in these jurisdictions only through registered or licensed brokers or
dealers. In addition, in some states the notes and common stock issuable upon
conversion of the notes may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock issuable upon conversion
of the notes may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling holders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The selling holders have acknowledged that
they understand their obligations to comply with the provisions of the Exchange
Act and the rules thereunder relating to stock manipulation, particularly
Regulation M.
47
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus.
To the extent required, the specific notes or shares of our common
stock to be sold, the names of the selling holders, the respective purchase
prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and our common stock issuable upon
conversion of the notes under applicable federal and state securities laws under
specific circumstances and at specific times. The registration rights agreement
provides for cross-indemnification of the selling holders and us and our
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the notes and our common
stock issuable upon conversion of the notes, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters relating to the notes and the common stock
issuable upon conversion of the notes offered hereby will be passed upon for us
by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The financial statements of EPIX Medical, Inc. appearing in EPIX
Medical, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2003
have been audited by Ernst & Young LLP, independent registered public accounting
firm, as set forth in their report thereon included therein and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other documents with the
Securities and Exchange Commission. You may read and copy any document we file
with the SEC at the public reference facilities the SEC maintains at:
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
The SEC also maintains a Web site, the address of which is
http://www.sec.gov. That site also contains our annual, quarterly and special
reports, proxy statements, information statements and other information.
This prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
prospectus regarding us and the securities, including exhibits and schedules.
You can obtain a copy of the registration statement from the SEC at the address
listed above or from the SEC's Web site.
You may also inspect our reports and other information concerning us at
the offices of the National Association of Securities Dealers, Inc. 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus and information we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
PROVIDED, HOWEVER, that we are not
48
incorporating any information furnished under either Item 9 or Item 12 of the
Form 8-K. The documents we are incorporating by reference are:
- Annual Report on Form 10-K for the year ended December 31, 2003,
filed with the SEC on March 8, 2004 (File No. 000-21863);
- Quarterly Reports on Form 10-Q for our fiscal quarters ended
June 30, 2004, filed with the SEC on August 3, 2004 and March
31, 2004, filed with the SEC on May 5, 2004 (File No. 000-21863);
- Definitive Proxy Statement filed with the SEC for our Annual
Meeting of Stockholders held on May 26, 2004 (File No. 000-21863);
- Reports on Form 8-K filed with the SEC on January 14, 2004,
February 17, 2004, June 7, 2004, June 8, 2004, July 15, 2004, and
July 27, 2004 (File No. 000-21863); and
- The description of our common stock contained in "Description of
Capital Stock" in the registration statement on Form S-1 filed
with the SEC on January 30, 1997 (File No. 333-17581) and any
amendments or reports filed to update such description.
You may request, orally or in writing, a copy of these documents, which will be
provided to you at no cost, by contacting:
Investor Relations
EPIX Medical, Inc.
71 Rogers Street
Cambridge, Massachusetts 02142
Telephone: (617) 250-6000
We maintain a website at www.epixmed.com. The information contained on our
website does not constitute a part of this prospectus.
49
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's estimates (other than the SEC
registration fees) of the expenses in connection with the issuance and
distribution of the notes and shares of common stock being registered. None of
the following expenses are being paid by the selling holders.
Item Amount
------
SEC registration fee....................................... $ 12,670
Legal fees and expenses.................................... 75,000
Accounting fees and expenses............................... 16,000
Printing fees and expenses................................. 20,000
Miscellaneous fees and expenses............................ 6,330
Total...................................................... $ 130,000
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate") provides that the Company shall indemnify to the fullest
extent authorized by the Delaware General Corporation Law ("DGCL"), each person
who is involved in any litigation or other proceeding because such person is or
was a director or officer of the Company or is or was serving as an officer or
director of another entity at the request of the Company, against expenses
(including attorney's fees), judgments, fines and amounts reasonably incurred in
connection therewith. The Restated Certificate provides that the right to
indemnification includes the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition; provided, however, that such
advance payment will only be made upon delivery to the Company of an
undertaking, by the director or officer, to repay all amounts so advanced if it
is ultimately determined that such director or officer is not entitled to
indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director
or officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, if such
person acted in good faith and in a manner that he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he or she had no reason to
believe his or her conduct was unlawful. In a derivative action, (i.e., one
brought by or on behalf of the corporation), indemnification may be made only
for expenses, actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit, if such
person acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate
eliminates the liability of a director or the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (i) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit. The Company has obtained
insurance policies insuring the directors and officers of the Company against
certain liabilities that they may incur in their capacity as directors and
officers.
II-1
ITEM 16. EXHIBITS
(a) Exhibits.
DESCRIPTION
4.1@ Specimen certificate for shares of Common Stock of the Company.
Filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by
reference.
4.2@ Purchase Agreement dated June 2, 2004 among the Registrant and SG
Cowen & Co., LLC, Needham & Company, Inc., Wells Fargo Securities,
LLC, WR Hambrecht + Co, LLC, as the initial purchasers, related to
the Company's 3.00% Convertible Senior Notes due 2024. Filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
June 7, 2004 (File No. 000-21863) and incorporated herein by
reference.
4.3@ Indenture dated as of June 7, 2004 between the Registrant and U.S.
Bank National Association, as trustee, related to the Company's
3.00% Convertible Senior Notes due 2024. Filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated June 7, 2004 (File
No. 000-21863) and incorporated herein by reference.
4.4@ Registration Rights Agreement dated as of June 7, 2004 among the
Registrant and SG Cowen & Co., LLC, Needham & Company, Inc., Wells
Fargo Securities, LLC, WR Hambrecht + Co, LLC, as the initial
purchasers, related to the Company's 3.00% Convertible Senior
Notes due 2024. Filed as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated June 7, 2004 (File No. 000-21863) and
incorporated herein by reference.
4.5@ Form of Note for the Company's 3.00% Convertible Senior Notes due
2024 (set forth in Exhibit 4.3).
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
8.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
with respect to certain tax matters.
12* Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1).
25.1* Form T-1 Statement of Eligibility of The U.S. Bank National
Association to act as trustee under the Indenture.
@ Incorporated by reference as indicated.
* Filed herewith.
II-2
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or any decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 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.
(d) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
Subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge and The Commonwealth of Massachusetts on
the 4th day of August, 2004.
EPIX MEDICAL, INC.
By: /s/ Michael D. Webb
-----------------------
Michael D. Webb
Chief Executive Officer
POWER OF ATTORNEY
Know all those by these presents, that each person whose signature appears below
constitutes and appoints each of Michael D. Webb and Peyton J. Marshall, or
either of them, each acting alone, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, in connection with the
Registration Statement on Form S-3 of EPIX Medical, Inc. under the Securities
Act of 1933, as amended, including, without limitation of the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of EPIX
Medical, Inc., or on behalf of the undersigned as a director or officer of EPIX
Medical, Inc., and any and all amendments or supplements to the Registration
Statement, including any and all post-effective amendments to the Registration
Statement, and to sign any and all additional Registration Statements relating
to the same offering of Securities as the Registration Statement that are filed
pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the SEC and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, 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 said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
------------------------------------------------- ------------------------------------ ----------------
/s/ Michael D. Webb
------------------------------------
Michael D. Webb Chief Executive Officer and Director August 4, 2004
(Principal Executive Officer)
/s/ Peyton J. Marshall
------------------------------------
Peyton J. Marshall, Ph.D. Chief Financial Officer (Principal August 4, 2004
Financial Officer and Principal
Accounting Officer)
/s/ Christopher F. O. Gabrieli
------------------------------------
Christopher F. O. Gabrieli Chairman of the Board and Director August 4, 2004
/s/ Stanley T. Crooke
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Stanley T. Crooke, M.D., Ph.D. Director August 4, 2004
/s/ Greg Phelps
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Greg Phelps Director August 4, 2004
/s/ Peter Wirth
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Peter Wirth Director August 4, 2004
EXHIBIT INDEX
Exhibit
Number Exhibit
-------- -------
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
8.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to certain tax matters.
12* Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1* Consent of Ernst & Young LLP.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
25.1* Form T-1 Statement of Eligibility of The U.S. Bank National
Association to act as trustee under the Indenture.
* Filed herewith